clear skies · clear skies … are what we are ... we’ve already reinvented the oman air brand,...

3Oman Air Annual Report 2009

ANNUAL REPORT 2009

Clear Skies

Clear Skies… are what we are confident we’ll soon see, from the ‘cockpit of enterprise’.

We’re already soaring upwards, adding several exciting new destinations to our route network and introducing an expanded fleet of top of the line wide bodied aircraft.

We’ve already reinvented the Oman Air brand, from the livery on our aircraft to the uniforms of our staff and are in the midst of significant enhancement of our infrastructure and key processes, readying them for our ‘new flight paths’.

As the national carrier of the Sultanate of Oman, we continue to soar past strategic milestones in our evolution from regional to a world class international airline.

It’s the new Oman Air that is ascending towards the clear skies of the future.

Our Board of Directors 05

Chairman’s Statement 06

Chief Executive Officer’s Statement 10

Our Leadership Team 12

About Oman Air 13

Our Fleet - Current and Future

Route Network

Management Discussion and Analysis 16

The Current Global Economy and the Airline Industry

Review of Operations

Review of Financial Performance

The People of Oman Air

Auditor’s Report on Corporate Governance 36

Corporate Governance Report 37

Auditor’s Report on Financial Statements 42

Statement of Financial Position 43

Statement of Comprehensive Income 44

Statement of Changes in Equity 45

Statement of Cash Flows 46

Notes to the Financial Statements 47

Contents

www.omanair.com


Our Board of Directors

H.E. Ahmed bin Abdul Nabi Macki - Chairman Minister of National Economy Deputy Chairman of Financial Affairs and Energy Resources Council

H.E. Dr. Khamis bin Mubarak bin Issa Al Alawi - Deputy ChairmanMinister of Transport & Communications

H.E. Fareeq/Malik bin Suleiman bin Said Al Mamari - Director Inspector General of Police & Customs

H.E. Darwish bin Ismail bin Ali Al Bulushi - Director Secretary General of Ministry of Finance

H.E. Mohamed bin Hamood bin Zahir Al Toobi - Director Undersecretary of Tourism, Ministry of Tourism

H.E. Sheikh Mohamed bin Sakhar bin Hamed Al Amri - Director Undersecretary for Civil Aviation Affairs, Ministry of Transport and Communications

Mr. Mohamed bin Ali bin Mohamed Al Barwani - Director Businessman

H.E. Ahmed bin Abdul Nabi Macki

H.E. Darwish bin Ismail bin Ali Al Bulushi

Mr. Mohamed bin Ali bin Mohamed Al Barwani

H.E. Dr. Khamis bin Mubarak bin Issa Al Alawi

H.E. Mohamed bin Hamood bin Zahir Al Toobi

H.E. Fareeq/Malik bin Suleiman bin Said Al Mamari

H.E. Sheikh Mohamed bin Sakhar bin Hamed Al Amri

06 Oman Air Annual Report 2009


Chairman’s Statement

Oman Air worked diligently throughout 2009 to evolve its ‘flight plan to the clear skies of tomorrow’…

…work that produced dramatic change, dynamic momentum and strategic vision that sees the airline well poised for the years ahead.

The Flight Plan...



as passenger travel is slowly picking up, especially in the

premium cabins. It will, however, take time for the business

to return to the levels seen before the economic crisis.

The Government of Oman is well aware of the fact that the

airline business is highly capital intensive and has a long

gestation period. While financial results will be under strain

for the next few years, the airline has proved to be a great

brand ambassador for the Sultanate, generates employment

for highly skilled manpower, promotes tourism and provides

impetus to commerce. Keeping in view these enormous

benefits, the Government has converted soft loan of RO 80

million and injected further capital of RO 70 million in 2009

to raise total equity to RO 200 million. On the other hand,

the airline operates on commercial basis and raises finance

for purchase of aircraft and long-term assets from financial

institutions on highly competitive terms. We are confident

that over a period of time when the airline has established

its presence in the industry and its network has matured, we

will see positive returns on investment.

Going forward, Oman Air will commence flights to Kuala Lumpur,

Dar-Es-Salaam, Islamabad, Lahore and Katmandu in Summer

2010, with Milan joining the network in the Winter Schedule. We

will also commence a few new routes and enhance operations

within GCC countries with an objective to strengthen our regional

network, which in turn will also complement our long-haul

routes. Oman Air will take delivery of 2 more new A330s in the

first half of this year, which will increase our fleet to 6 A330s,

15 B737s and 2 ATR-42 aircraft by the end of 2010. We hope to

leverage on our high quality product to gain market share and

enhance our presence, in terms of improved loads and yields,

on the new routes commenced in 2009. Cargo will be another

area Oman Air will focus on this year. We have established a

fully-fledged commercial cargo unit and are confident that this

business will see significant growth on the back of additional

capacity inducted with wide bodied aircraft and expected

economic recovery.

While the scheduled airline business at Oman Air has

witnessed remarkable developments, we continue to

provide air charter services with the highest levels of safety

and reliability to our valued clients, namely, Petroleum

Development Oman and Occidental Oman. These operations

generate positive returns for the Company. Our airport

services business also continues to be profitable. While Oman

Air, the airline, has grown to be the single largest customer

I am pleased to welcome you to the 28th Annual Shareholders’

General Meeting and present to you this Annual Report for

the financial year ended 31 December 2009.

Year 2009 was a landmark year for the Company when Oman

Air repositioned itself. The very business model of the airline

has changed from a regional carrier to a truly international

airline. We added 28% capacity during the year with the

addition of five Boeing 737s and four wide body Airbus

A330s. We added five new long-haul destinations, namely,

Paris, Frankfurt, Munich, Male and Colombo. Our new A330s

replaced the wet leased operations on London Heathrow and

Bangkok routes. In the region we consolidated our presence on

several existing routes including Salalah, Dubai, Bahrain, Doha,

Jeddah and Kuwait with increased frequencies. We carried

2.4 million passengers, up 19% and, in the context of worldwide

recessionary conditions and the new routes introduced during

the year, had a healthy seat utilisation of 61%.

Oman Air rebranded itself during the year with the new

aircraft livery, new uniforms and new inflight service ware

and amenities. Our fleet of brand new A330s has one of the

most luxurious first and business class cabins in the air with

plush flatbed seats, state-of-the-art in-flight entertainment

and designer furnished interior. In our economy class cabins,

we offer very comfortable seating with the latest in audio

and video entertainment. Our new uniforms, created by the

internationally renowned fashion house of Balenciaga, offer the

best in design and comfort. We have also introduced brand new

cutlery, crockery and amenities, and redesigned our menus

to offer the very best in food and beverages. We have made

significant investment in training our in-flight crew. Oman Air

now offers a product that is comparable to the best available

and I am pleased to state we have received excellent feedback

from passengers, media and our colleagues in the industry.

The Company has reported a loss of RO 64.3 million for the

year ended 31 December 2009 compared to the loss of

RO 42.8 million in the previous year. As expected, the launch

of new long-haul routes, which will take time to mature,

combined with the global recessionary conditions, has had

an adverse impact on the bottom line. As per the recent data

released by IATA, 2009 was one of the most difficult years

for the airline industry in which the airlines collectively lost

in excess of $ 11 billion. Globally passenger travel contracted

by 3.5% while cargo movement declined steeply by 10.1%.

The industry is expected to show improved results in 2010


at the airports in Oman, other airlines too have increased

their operations at Muscat and Salalah International Airports.

We handled 27,986 flights (+21%), 4.447 million passengers

(+14%) and 53,875 tons of Cargo in 2009. Our Catering unit

provided 3.5 million meals to the airlines, up 9%.

As stated in the previous year, the Government is investing

in brand new airport terminals at Muscat and Salalah. The

new airport terminal at Muscat will be developed in two

phases. First phase, expected to complete in 2014, will see

the airport’s capacity grow from present 4 million passengers

to 12 million passengers. Besides complementing Oman

Air’s rapid growth in the airline business, the new airport

will also attract many other airlines and passengers to the

Sultanate. Along with the new passenger terminal, a brand

new cargo terminal, new engineering facility (MRO) and

in-flight catering facility are also envisaged. I am confident

that these additional modern facilities will mean significant

business opportunities for Oman Air.

Following His Majesty’s vision, the Government continues to

invest in the infrastructure across the nation and as part of

this drive, we will witness development of four new airports

in the country, namely, at Sohar, Duqum, Ras Al Hadd and

Adam. These domestic airports will be ready in the next two

to three years. Oman Air will operate to these airports with

the brand new regional jets it plans to receive starting first

half of 2011. Oman Air will also provide handling and allied

services at these airports.

Oman Air purchased Golden Tulip hotel, situated near Muscat

International Airport, during 2009. This property is profitable

and is ideally situated from the airline’s perspective. The

acquisition is meant to leverage on the synergies among

our core airline, in-flight catering and hotel businesses. The

management is looking at various opportunities to develop

this property so that it aligns with Oman Air’s image and

both businesses complement each other. If successful, Oman

Air may consider acquiring or developing other properties

in future.

Development of Omani human resources has always

been a high priority for the Board and the management

of Oman Air. We continue to induct Omani nationals across

the Company including in managerial and highly skilled

technical positions. Majority of our pilots and most of our

engineers are Omani nationals. The Company is investing

in training in a planned manner to ensure we harness the

tremendous potential offered by young Omanis graduating

from the universities in Oman and abroad. As in the past,

the Company has inducted Omani cadets this year to train

them as pilots and engineers. While Oman Air does require

multi-lingual staff from different countries because of the

nature of its business, the management gives top priority

to Omani nationals in all areas. Oman Air is now a premium

brand and a leading Company in Oman and we are confident

of attracting, retaining and developing local talent.

I take this opportunity to thank my colleagues on the Board,

the Executive Committee and the Audit Committee who have

actively supported and given direction to the management

from time to time. I would also like to thank the management

team and all employees of Oman Air for their sincere efforts

in meeting the challenge of this very demanding business

and firmly establishing the Company on its path to becoming

a world class international airline.

The development of Oman Air would not be possible

without the support, encouragement and guidance

of His Majesty Sultan Qaboos bin Said. It is only with

His Majesty’s support and vision that we have been

able to develop this airline to its current standard.

My colleagues on the Board and the management join me

in expressing our immense gratitude to His Majesty for his

kind benevolence and support.

Ahmed bin Abdul Nabi Macki

Chairman

YEAR 2009 wAS A lANDMARK YEAR FOR THE COMpANY wHEN

OMAN AIR REpOSITIONED ITSElF. THE vERY BuSINESS

MODEl OF THE AIRlINE HAS CHANgED FROM A

REgIONAl CARRIER TO A TRulY INTERNATIONAl AIRlINE.


A Year at High Revs...Chief Executive Officer’s Statement

It was a year of challenge that brought out the best… faith, loyalty and commitment from all stakeholders allowed Oman Air to forge ahead at high revolutions, building an exciting future


Chief Executive Officer’s Statement

2009 presented the management and staff of Oman Air with their

toughest challenge to date. With world markets still in free fall and

the airline industry reeling from the effects of this global recession, it

was perhaps not surprising that the Company’s financial performance

was significantly lower than originally forecast. However we should

not let these disappointing financial results alone mask the true

success story of Oman Air during 2009, in its continuing quest

to become a world class international airline and leading brand

ambassador for Oman overseas.

During the course of 2009 we took delivery of nine brand new

aircraft, five Boeing 737-800’s and four Airbus A330-200/300’s, in

addition to employing three short-term wet leased aircraft. This

represented a huge challenge to every division in the Company, in

particular Flight Operations, Engineering, In-Flight Services, Finance

and Human Resources. Meticulous planning and excellent teamwork

in-house, combined with close support and co-operation from all

our manufacturers and suppliers allowed us to induct all of these

aircraft into our fleet on time and on budget.

The arrival of our first Airbus A330 in late September was a defining

moment in Oman Air’s ambition to become a world class international

airline. No expense had been spared on the overall definition and

interior specification of our first brand new long-haul aircraft. This

bold and far sighted decision by management and fully supported by

the Board, will I’m sure play a key role in quickly establishing Oman

Air as a preferred airline of choice by the discerning international

traveller wherever we fly.

Once again the successful introduction of such a sophisticated and

state-of-the-art aircraft such as the A330 was in the attention to detail,

requiring intense planning, a redefinition of operating procedures,

recruitment, selection, training and licensing of both technical

and cabin crew. Creation of a new uniform as well as the design,

sourcing and delivery of all in-flight service ware and amenities was

required to truly reflect Oman Air’s desire to provide a top of the line

product offering. If all this were not enough, we were up against

a deadline to have everything in place for the introduction of our

new A330 on our flagship service to London on 22 November 2009.

Suffice to say that thanks to the fantastic teamwork from everyone

in the Company, the regulatory authorities and so many other unsung

heroes, our inaugural new A330 service departed on schedule to

London, thus heralding the start of a new era for the National Carrier.

Three more A330’s were rapidly inducted into the fleet before the

end of 2009, with five new long-haul routes added to our rapidly

expanding network. The feedback from our customers who have

experienced our new A330 product has been truly amazing and bodes

very well for the future expansion of our Airbus fleet.

In order to capitalise on the investment that the Government has

placed in the Company, during the past year we have steadily

strengthened the vacant positions in the management team,

based upon the recommendations contained in the report by

Booz and Company in 2008. We now have in place a first class

senior management team that is capable of imparting their skills,

knowledge and experience in developing the talents of Omani

nationals to enable them to take on a greater responsibility for the

management and strategic development of the Company in the

future. I am confident that this team will take the Oman Air Group

forward to achieve the goals and ambitions outlined in the Five Year

Business Plan that was recently approved by the Board of Directors.

Looking forward to 2010, I am under no illusions that this again will

be yet another tough year for the aviation industry world wide and for

Oman Air in particular. Whilst there are some small encouraging signs

that certain markets may have bottomed out, very many more still

remain firmly in the grip of recession. With two more Airbus A330’s

joining our fleet in March and June 2010, and eight more new routes

being added progressively to our network this year, the pressure

on our front line staff to consistently deliver outstanding customer

service will be unrelenting. Equally our sales and distribution network,

supported by all of our teams in the Commercial Division will have

to be up to the job and remain fully focused in their efforts, to

achieve the demanding passenger and cargo revenue targets that

we have set ourselves.

In summary, we have an outstanding product to sell, we have a team

of loyal and increasingly motivated employees wanting deliver top

quality service and as an organisation we are rapidly developing and

improving our systems and processes to benchmark the best in our

industry. I am confident that we will achieve all of the targets that

we have set ourselves in this year’s budget.

I would like to acknowledge and thank my Management team and all

of our employees for their commitment, dedication, enthusiasm and

untiring efforts in laying down the foundations in this exceptionally

challenging year, to build Oman Air into one of the world’s finest

international airlines.

I am grateful for the continued support and guidance extended by the

Government of Oman, H.E. the Chairman and the Board of Directors,

during yet another of the most turbulent and demanding years in

the history of our industry.

peter Hill

Chief Executive Officer

Oman Air Annual Report 2009

Our Leadership Team

Left to Right:

Salim Al Kindy - Chief Technical Officer, gerry Mitchell - Chief Officer Information and Technology, Ahmed Al-Nabhani - Chief Officer Support Services,

Japeen Shah - Chief Financial Officer, philippe georgiou - Chief Officer Corporate Affairs, peter Hill - Chief Executive Officer,

Hamood Al-Bahlany - A/Chief Officer Airport Operations, Barry Brown - Chief Commercial Officer,

Markku Nokkala - Chief Officer Network and Planning, patrick J. Rotsaert - Chief Officer Flight Operations


About Oman Air

In 1970, Oman International Services (OIS) was founded

primarily to offer support services such as ground handling,

cargo handling and catering uplift to the airlines flying to

Muscat International Airport.

In 1981, OIS was renamed as Oman Aviation Services (OAS) and

converted into a joint stock company. During the same year, OAS

purchased 13 aircraft from Gulf Air’s light aircraft division and

in 1982, OAS began operating jet flights between Muscat and

Salalah in a joint venture arrangement with Gulf Air.

A decade later in 1993, OAS was re-established as an airline,

taking the name Oman Air. Its new incarnation as a fully-fledged

airline saw Oman Air adding many destinations to a growing

network across the GCC region as well as a few international

points in the Indian sub-continent. The airline however, was

largely a regional carrier at the time.

The airline experienced steady but slow growth from the mid

90s until 2007, when the Government withdrew from Gulf Air

entirely, to concentrate on expanding and developing Oman Air.

In keeping with national objectives, the Government recapitalised

Oman Air substantially and became its major shareholder, with

a 99.61% stake as at the time of reporting.

This heralded a period of significant expansion for the airline

during which it added wide bodied aircraft to its fleet, as well

as long-haul operations to key destinations in Europe and Asia

and refashioned its branding and livery to signify the airline’s

evolution from regional to an international carrier of repute, as

the new ‘Wings of Oman’.

Where we fly

MuscatAbu DhabiAmman BahrainBeirut DohaDubai

Jeddah Khasab KuwaitRiyadhSalalah Cairo

gCC, Middle East & Africa

BangaloreCalicutChennaiChittagong CochinDelhiHyderabad

JaipurLucknowMumbaiTrivandrum Karachi Colombo Male

Indian sub-continent

LondonParisMunich Frankfurt

Europe

Bangkok

Far East

As the national carrier of Oman, the airline complements the

Government’s determination to diversify Oman’s economy

towards non-oil based endeavours in sectors such as

industrialisation and tourism. With a relatively youthful and

growing population, the Government also seeks more labour

utilising avenues of enterprise, which the tourism sector in

particular can provide.

Thus Oman Air plays an integral role in these national initiatives.

Our Fleet - Current and FutureOman Air’s current fleet strength stands at 21 aircraft and is

comprised of 2 Airbus A330-300s, 2 Airbus A330-200s, 2 Boeing

B737-700s, 13 Boeing B737-800s and 2 ATR-42-500s.

On order are 1 Airbus A330-300 for delivery in March 2010,

1 Airbus A330-200 for delivery in June 2010, 1 Airbus A330 -

200 for delivery in May 2011, 6 Boeing B737-800s for delivery

over the period 2014-2015 and 5 Embraer E175s for delivery

between 2011 and 2013.

Route NetworkThe airline currently flies to 32 destinations. Five of these

destinations are long-haul international operations to

London, Bangkok, Paris, Frankfurt and Munich. We also fly to

27 regional destinations.


The New Face of Traditional Values

The new uniforms of our flight crew and ground staff symbolise Oman Air’s commitment to bringing timeless Omani traditions of hospitality to the customer, in a refreshing and enchanting style, which complements the courtesy, respect, accountability and caring personal attention we bring to our service… the building blocks of our reputation for superior service.


Management Discussion and Analysis

The Current Global Economy and the Airline Industry

The recent global economic slow down had a profound impact

on the performance of airline industry. Lower travel demand

and downward pressure on yields have contributed to higher

losses of the Airlines industry. Yields on Premium segment

passengers, a key measure of the business travel component

that drives airline profits, fell sharply.

The financial market crisis and consequent credit squeeze

also had an impact on airline financing costs. A positive

aspect that emanates from this negative scenario is that it

will counter the risk of excess capacity.

The industry continues to pursue efforts to simplify the

way it does business. Service enhancements such as 100%

E-ticketing, E-freight, RFID - new technology and approach

for baggage space handling, bar coded boarding passes,

implementation of CUTE (Common Use Terminal Equipment)

systems at all major airports, passenger self-service strategies

and many more will help to make air travel less tedious and

undoubtedly will define new age of travel.

Review of Operations

Capacity and Route Enhancement

During 2009, Oman Air inducted 4 wide bodied aircraft – 2

Airbus 330-300s and 2 Airbus 330-200s - to its fleet. It helped

the airline to expand its long-haul operations with services

to Germany (Frankfurt and Munich), France (Paris), Sri Lanka

(Colombo) and the Maldives (Male).

Additionally, the airline took delivery of 5 Next Generation

Boeing 737-800s, to augment the regional operations.

The Inflight Experience

For the passenger boarding an Oman Air flight, 2009 has

been a year of revelation. The signs of transformation of the

airline into a premier international carrier are everywhere.

Here are the highlights of change.

New Uniforms

Oman Air unveiled a range of new look uniforms during

2009. Our cabin crew and ground staff are now attired in

new uniforms designed by the renowned fashion designer

Cristobal Balenciaga. The ‘new look’ amply showcases the

new era of sophisticated air travel the airline has embarked

on whilst retaining and exemplifying the best traditions of

Omani culture and hospitality.

On Board our New A330 Fleet

Oman Air’s growing fleet of wide bodied Airbus aircraft offers

an unprecedented inflight experience to our passengers.

It begins with the seat.

Our Airbus A330-300 aircraft’s First Class Mini Suite offers six

luxurious seats with the longest lie-flat bed available on any

commercial airliner. It is set within an 87” pitch spacing and

features a 25.5” wide seat with eight point massage system

built in that allows the customer to personalise their seating

preference plus a personal screen in between the seats with

a 23” video monitor.

Our Business class cabins feature 20 lie-flat seats of 82” pitch

spacing, featuring a 4 abreast 1-2-1 layout, which together

with electrically controlled back rest and leg rest, a buddy

seat and 17” personal screen, give an ambience and space

that exceeds by some margin, the facilities offered by others

in this class of travel.

The airline has spared no effort in matching these

facilities with the state-of-the-art in-flight entertainment.

The entertainment system offers Live TV featuring news,

sports and movie options to every seat on the aircraft.

Not only have we raised the bar in our premium cabins,

but also a great deal of attention has been directed to

the economy cabin as well. Passenger comfort has been

addressed by providing 34” pitch seating with three phase

leg-rest positions and a 4-way adjustable headrest. Each seat

is complemented with 10.6” video screens between seats.

To sum up, our premium inflight experience is a completely

new range of menu for all classes, which offer passengers a

superior flying experience on every flight.

On GroundBook… Pay… Check-In…

Oman Air acknowledges that the travel experience begins

well before the passenger takes a seat aboard our aircraft.

The earliest point of contact today for a prospective passenger

is the Internet - flights could be booked and payment made

on-line via the Oman Air website.


During the year under review, we also introduced an SMS

based programme where the passenger would be informed

of Oman Air’s special promotions, news and other offers

via SMS.

This year, we’ve also focused attention on making checking in

for a flight, a pleasant experience. Oman Air passengers are

now among the first in the Middle Eastern region to have a

choice of four new and innovative check-in options at Muscat

and other key airports.

With the launch of Web Check-in solution, passengers

could check-in for flights via a mobile phone, the Internet,

from Airport Kiosks or at the airport using mobile check-in

technology. Whilst the first three options are self-service in

nature, the latter option known as Roving Agent Check-In

enables Oman Air Staff ‘on the move’ to check-in passengers

using mobile hand-held computers, within the airport. The new

system also allows customers and travel agents to select their

preferred seat and print out a boarding pass for the same day

return flight on www.omanair.com.

During the year, in response to passengers’ request, Oman

Air increased the baggage allowance on all Oman Air flights,

across the Network. This increase was in addition to the

enhanced allowances being offered to premium members.

Improving Muscat International Airport

Infrastructure is being improved at Muscat’s airport for greater

passenger convenience. Eight new departure gates have been

added. New check-in counters, expansion of the departures

lounge and expansion of car parking capacity are amongst

other improvements undertaken.

Oman Air has also introduced Common User Terminal

Equipment (CUTE)/Baggage Reconciliation System (BRS)

at the airport to facilitate quick check-in procedures. These

facilities are used by all airlines for enhanced security and

easy identification of passenger baggage.

Flight Kitchen

Oman Air’s state-of-the-art flight kitchen is responsible for

the cordon bleu fare that is served aboard our flights around

the network. It also caters to all airlines flying to Muscat

International Airport supplying over 9,000 meals a day.

Ground Handling

Oman Air’s ground handling services at Muscat International

Airport were significantly upgraded during 2009, with

enhanced check-in facilities provided at the Passenger

Departure Terminal, as well as eight new Boarding Lounges

and an expanded Duty Free Shopping Area.

In addition, our Premium Class customers enjoy a number of

exclusive services such as a dedicated concierge departure

service featuring limousine airport transfers, meet and assist

through check-in/departure formalities and exclusive Oman

Air First and Business Class lounges with direct boarding

access to flights.

Engineering

A vibrant fleet, with state-of-the-art facilities requires state-

of-the-art engineering and maintenance facilities. Oman Air

has steadily built the proficiencies to keep in line with rapid

advances made, particularly in preparation for the new aircraft

inducted this year.

During the year under review, Oman Air became a member

of the International Airlines’ Technical Pool Association (IATP)

that has a membership of over 100 airlines and about 30

suppliers, including top aircraft manufacturers such as Airbus

and Boeing. This organisation is actively involved in enhancing

the safety of the airlines and passengers in the sky and on the

ground and provides a platform to facilitate new initiatives

and exchange of ideas concerning aircraft maintenance.

Acquiring Hotel Golden Tulip

Oman Air made its initial foray into a new area of business with

its acquisition of the Golden Tulip Hotel in Muscat. Situated in

close proximity to the Muscat International Airport, the hotel

opens up viable synergies for Oman Air not only in terms of

the leisure aspect but also through the offer of the services of

the hotel for the use of other airlines and passengers.

In this context, the airline also expects to develop its holiday

division towards being able to offer fully-fledged tour

operations, complete with coaches, hotel and all other facilities.

This is a developing business area for us.


Flying at 00 altitude

Air travel for our customers begins at 00 altitude… with feet firmly on ground which is why access to our sales and ticketing services, are fully automated and web based for maximum convenience and accessibility… through internet booking, online payment and e-ticketing, through city check-in and baggage drop off facilities and more and more... our services are second to none. when one adds premium class services being progressively introduced such as limousine airport transfers, meet and assist services, exclusive Oman Air First and Business Class lounges and direct boarding access to flights to the ‘flight plan’ take off on an Oman Air flight happens much earlier than it looks!


Our Entertaining Touch

unrivalled entertainment on Oman Air flights…just a touch on the screens in front and the world of entertainment awaits your preference. Features include, audio/video on demand, live Tv delivered through state-of-the-art technology plus wi-fi facility, laptop charging, SMS, your own mobile phone and e-mail access… all from the passenger’s seat, that offers a great travel experience!


Defining ‘In Flight’ Comfort

The seats aboard our A330s define… or even re-define, many aspects of the inflight experience. we’re proud of their ergonomic and aesthetic features, that guarantee maximum comfort in flight, be it sitting comfortably, sleeping peacefully, relaxing in style, relishing a sumptuous meal or even catching up on work.



Review of Financial Performance

Key Performance Indicators

12,834Round trips

2.4 millionpassengers flown

61%Seat factor

7.1 billionASK or Capacity, measured as seat kilometres flown

4.3 billionRpK or utilisation, measured as passenger

kilometres flown

12.9 hours per dayAircraft utilisation

27,986 flights Handled at Muscat International Airport

4.5 millionpassengers handled at Muscat International Airport

3.5 millionMeals catered to flights at Muscat International Airport


Financial Performance

Our net loss for the year 2009 was RO 64.281 million, compared

to a net loss of RO 42.755 million in the year 2008.

This was mainly due to new long-haul destinations added

during 2009 which will take time to mature. Lower capacity

utilisation and increased pressure on yields in the background of

the global economic downturn also contributed to higher losses.



Revenue

Revenue increased by RO 11.007 million or 7% over the

previous year.

Scheduled Services

Scheduled services achieved net revenue of RO 136.1 million,

higher by RO 8.2 million or 6% compared to the previous year.

During the year, Oman Air commenced operations to Paris,

Frankfurt, Munich, Colombo and Male. Available Seat Capacity

(ASK) increased by 28%. However the aircraft utilisation did

not increase in line with the increase in Capacity. Our seat

factor was down by 3% points to 61% and our yields were

down by 13%.

Overall capacity (ASK) rose by 28%

Passenger traffic rose by 19%

Revenue traffic (RPK) rose by 21%

Overall seat factor achieved was at 61%



Air Charter Services

Air Charter Services recorded revenue of RO 9.225 million, a

decrease of RO 1.644 million from the previous year mainly

due to operation of both turbo-prop ATR aircraft and Jet B737-

700 in 2008 compared to only Jet B737-700 operated in 2009.

Handling Fees

Handling revenue for the year was RO 11.911 million, an

increase of RO 1.140 million or 10% over the previous year’s

revenue of RO 10.771 million.

Flight movement increased from 23,194 to 27,986 flights,

(+21%)

Airlines other than Oman Air, increased operations from

13,485 to 15,152 flights, (+12%)

Wide body flight movement increased from 4,044 to

4,456 flights, (+10%) and narrow body flight movement

increased from 19,150 to 23,530 flights, (+23%)

Passenger movement increased from 3.916 million to

4.477 million passengers, (+14%)

Cargo tonnage handled increased from 52,596 metric tons

to 53,875, (+2 %)

business revenue during 2009 was mainly due to a reduction

in meal uplift to other airlines. Total meals uplifted to other

airlines decreased by 9%.

Hotel (Rooms, Food and Beverage Revenue)

Oman Air entered the leisure business sector through its

acquisition of the Golden Tulip, Seeb from the Ministry of

Tourism, on 1 January 2009. Revenue achieved during the year

from this business is RO 3.434 million.

Expenditure

Net expenditure increased by 17% from RO 195.204 million to

RO 227.400 million mainly due to the increase in operations.

Catering

Catering revenue during the year was RO 2.863 million, a

decrease of RO 0.580 million or 17% compared to RO 3.443

million reported in the previous year. The drop in the catering


Table below summarises the change in major elements

of our cost structure over the two financial years ended

31 December 2009 and 31 December 2008 -

2009 2008 ChangeExpenses RO ‘000 RO ‘000 %

Employee costs 59,784 44,553 +34

Fuel cost 44,217 59,739 -26

Operating lease rentals on aircraft 31,402 27,757 +13

Maintenance cost 12,637 8,163 +55

Other aircraft operating expenses 23,615 18,580 +27

Passenger related costs 13,930 10,716 +30

Insurance costs 1,289 968 +33

Depreciation 11,394 6,832 +67

Finance cost 2,419 1,686 +44

Amortisation/impairment 2,949 1,546 +91


Our employee cost increased by RO 15.231 million or

34% compared to last year mainly due to increase in

staff strength. The Company’s manpower increased from

4,082 in 2008 to 4,866 in 2009, up 19%. During the year, the

increase in manpower was restricted to critical operational

requirements to support the increase in operations and to

positions that would add value in terms of enhanced customer

service, productivity and profitability.

Our Fuel cost decreased by RO 15.522 million or 26% mainly

due to decrease in fuel prices by 44%. The average network

fuel price was 1.81 USD/USG compared to 3.26 USD/USG in

the previous year.

Aircraft lease costs amounted to RO 31.402 million compared

to RO 27.757 million, an increase of RO 3.645 million.

The increase was mainly due to the lease of 5 additional

B737-800 aircraft and replacement of 2 A310 wide body

aircraft with 2 A330-200 aircraft from Jet Airways during 2009.

Maintenance costs and other aircraft operating expenses

comprising of handling, landing, wet lease, crew

accommodation and per diem cost, crew layover and

simulator cost increased due to the increase in operations in

comparison with the previous year.

Passenger related cost increased by RO 3.214 million or

30% compared to 19% increase in passenger traffic in 2009.

The increase was mainly due to increase in passenger meal

cost, reservation cost and passenger service charges.

The Company’s insurance costs increased by RO 0.321 million

or 33% compared to last year. The increase in insurance costs

was mainly due to increase in aircraft fleet strength.

Depreciation increased by RO 4.562 million or 67% compared

to last year. During the year, the Company purchased 2 new

A330-300 aircraft, 2 new A330-200 aircraft, one A330 spare

engine and one ATR spare engine. Apart from this, there were

new additions such as ground equipment, aircraft rotables

and other assets purchased.


Finance cost increased by RO 0.733 million or 44% compared

to the previous year mainly due to long-term financing of

2 A330-300 aircraft with the support of Export Credit Agencies,

in the later part of the year.

Amortisation/Impairment cost increased by RO 1.403 million

or 97% compared to last year due to impairment of goodwill

paid for acquisition of Golden Tulip by RO 1.122 million and

full impairment of landing slot at Gatwick Airport in London as

Oman Air presently operates to Heathrow International Airport.

Concession Fee

The Company pays a concession fee to Oman Airport

Management Company, the airport operator at Muscat and

Salalah airports. The Company pays 7.5% of its ground handling

and cargo handling revenue and 5% of its catering revenue

as a concession fee. The impact of the concession fee in 2009

was RO 0.843 million as against RO 0.805 million in 2008.

The increase in concession fee is mainly due to increased

ground handling revenue generated during the year.

Financial Position

Non-current assets rose from RO 134.283 million in

December 2008 to RO 310.628 million in December

2009 mainly due to purchase of four wide bodied aircraft

(two A330-200 and 2 A330-300). Other purchases include

one spare engine for A330 aircraft and one spare engine for

ATR aircraft. The Company made pre-delivery payments to

Airbus towards purchase of three A330 aircraft, to Boeing

towards purchase of six B737-800 aircraft and to Embraer

towards purchase of five E175 aircraft.

Oman Air paid a consideration of RO 16 million towards

acquisition of Hotel Golden Tulip. The carrying value

of tangible net assets as on the date of purchase was

RO 1.601 million and the remaining value of RO 14.399 million

was recognised as Goodwill. An impairment provision of

RO 1.122 million for Goodwill was made, during the year 2009.


During the year, the Company fully impaired the Landing

slot at Gatwick Airport, as it shifted its London operations to

Heathrow Airport.

Share capital rose by RO 166 million due to the Government

of Oman reaffirming their support in the growth of Oman

Air by converting into equity the Soft Loan of RO 80 million

provided to Oman Air and by injecting additional capital of

RO 70 million during the year.

During the year, Oman Air allotted equity shares of RO 16 million

to the Government of Oman in consideration of Hotel Golden

Tulip, Seeb acquired from the Ministry of Tourism, Oman.

Non-current liabilities decreased by RO 4.924 million mainly

due to increase in aircraft loans availed for 2 A330-300

purchased during the year being offset by conversion of the

Soft Loan of RO 80 million received from the Government

of Oman into equity.

Current assets increased by RO 11.447 million mainly due

to increase in receivables and aircraft consumable inventory

due to increase in aircraft fleet.

Current liabilities increased during the year due to

classification of bridge loans of RO 66.610 million received

from the Government of Oman towards purchase of 2 A330-

200 aircraft, as current liabilities as the same are due and

payable during the year 2010, increase in the current portion

of the long-term aircraft loans received during the year and

increase in Accounts payable and accruals.

Internal controls

The Company has an adequate internal control system

commensurate with its size and the nature of its business.

The Internal Audit department continues to maintain its focus

on internal controls in all critical activities. Further, Statutory

audit, State audit and the Audit Committee augment review

of internal controls within the Company. During 2009, no

material lapse or weakness in controls has been identified.



The People of Oman Air

With its development as an airline of stature internationally,

Oman Air has also become an employer of choice, offering

premium employment and career development opportunities

to a wide cross section of people.

In keeping with the national initiative that seeks to enhance

job opportunities for Omani nationals, the airline prioritises

job offers to Omani nationals possessing the requisite skills.

The Company staff strength at 31 December 2009 was 4,866

employees. Oman Air achieved an Omanisation ratio of 62%,

without compromise on the quality of service provided to

customers. This is a significant achievement considering the

fact that the airline requires staff with multi-linguistic skills

to serve a wide spectrum of customers across the network.

Career Development Path programmes have been successfully

implemented across key functions and responsibilities in all

departments, and staff are undergoing external and internal

programmes to improve their skill sets.

The airline’s management initiated a programme to train

Omani Cadet Pilots in 2005 and 2007. Accordingly, nine cadet

pilots and fourteen cadet pilots who successfully completed

training in 2007 and 2009 respectively are flying on Oman

Air as second officers today.

In 2009, the third batch of fifteen cadet pilots commenced

their training. Management plans to train a fourth batch of

fifteen cadet pilots, during the year 2010.

In 2008, the Management also initiated a programme to

train Omani Cadet Engineers. The first batch commenced

their training in October 2008. The airline has further planned

to recruit additional fifteen Omani cadet Engineers, during

the year 2010.

Oman Air has so far successfully completed the training of

two batches of Management Trainees. These trainees have

gone through varying periods of training and are now

absorbed in various supervisory/managerial positions.


Maintaining Impeccable Taste

The cordon bleu fare that is served aboard our flights comes from Oman Air’s state-of-the-art flight kitchen. Our gourmet touch also reaches into the cabins of every other airline calling at Muscat International Airport… that’s over 9,000 meals a day and over 3.5 million meals a year.



World Class Servicing for a World Class Fleet

Oman Air has developed its Engineering and Maintenance capacities to move in step with its sophisticated fleet of Airbus, Boeing and ATR aircraft. The airline accepts nothing less than world class standards and proficiency.


Proud to be The Wings of Oman

Oman Air takes pride in being the airline of Oman… one of the most beautiful and well endowed countries in the gulf. Oman is an upmarket, exclusive destination… and Oman Air is positioned to cater not only to this niche, but also to play a significant supportive role in the wider context of the Sultanate’s tourism industry. we are also an employer of choice for Omani nationals today.


We have performed the procedures prescribed in Capital Market Authority (CMA) circular No. 16/2003, dated 29 December

2003 with respect to the accompanying corporate governance report of Oman Air SAOC (“the Company”) and its application

of corporate governance practices in accordance with the CMA Code of Corporate Governance issued under circular No.

11/2002 dated 3 June 2002 and the CMA Rules and Guidelines on disclosure, issued under CMA administrative decision 5, dated

27 June 2007, to the extent deemed relevant by the board of directors. Our engagement was undertaken in accordance

with the International Standard on Related Services applicable to agreed-upon procedures engagements. The procedures

were performed solely to assist you in evaluating the extent of the Company’s compliance with the Company’s Code.

We report our findings below:

We found that the Company’s corporate governance report fairly reflects the Company’s application of the provisions

of the code and is free from any material misrepresentation.

We draw attention to Article 4 of the CMA Code of Corporate Governance which requires the Board of Directors to meet

four times in a year with a maximum time gap of four months between any two consecutive meetings. During the

year the Company’s Board has met only two times.

Because the above procedures do not constitute either an audit or a review made in accordance with International

Standards on Auditing or International standards on Review Engagements, we do not express any assurance on the

corporate governance report.

Had we performed additional procedures or had we performed an audit or review of the corporate governance report in

accordance with International Standards on Auditing or International Standards on Review Engagements, other matters

might have come to our attention that would have been reported to you.

Our report is solely for the purpose set forth in the first paragraph of this report and for your information and is

not to be used for any other purpose. This report relates only to the accompanying corporate governance report of

Oman Air SAOC to be included in its annual report for the year ended 31 December 2009 and does not extend to any

financial statements of Oman Air SAOC, taken as a whole.

To the shareholders of Oman Air SAOC

Deloitte & Touche (M.E.) & Co. LLCMuscat International CentreLocation: MBD AreaP.O. Box 258, RuwiPostal Code 112Sultanate of Oman

Tel: +968 2481 7775Fax: +968 2481 5581www.deloitte.com

Member of Deloitte Touch Tohmatsu


In accordance with the Capital Market Authority (“CMA”)

circular # 11/2002 dated 3 June 2002, we are pleased

to present the Eighth Corporate Governance Report of

Oman Air (SAOC) (“the Company”) for the year ended

31 December 2009.

The Aud i to r s have per fo rmed the p rocedures

prescribed in the Capital Market Authority Circular

No. 16/2003 dated 29 December 2003, with respect to

the Corporate Governance Report of the Company and

its application of the Corporate Governance practices in

accordance with the CMA Code of Corporate Governance

issued under Circular No. 11/2002 dated 3 June 2002, and

its amendments.

Company’s Philosophy

The Company is committed to comply with the Code of

Corporate Governance issued by the CMA. The Company

has and will continue to uphold the highest standards of

corporate governance. The Board and the Management strive

to accomplish this through very high levels of transparency

and accountability in its conduct of business.

The Company’s focus has been on best business practices

that are ethical and fair while achieving ultimate objective of

enhancing long-term shareholder value. Appropriate systems

and procedures are continuously developed to evaluate and

monitor the Company’s processes and performance to ensure

they meet high standards of corporate governance.

Board of Directors

The Company’s Board comprises of Non-Executive Directors.

All Directors are Independent Directors as defined in the Code

of Corporate Governance. There are seven members on the

Board. Six members including the Chairman to represent

the Government’s shareholding and shall be appointed

in accordance with the Article (132) of the Commercial

Companies Law No. 4/74 and amendments thereto. The

Government nominees are Ministers and Undersecretaries

while the Director from private sector is a businessman of

high repute.

Corporate Governance Report

The seventh member of the Board of Directors is to be

selected from the shareholders of the Company or others.

Functions of the Board

The Board is fully aware of its functions and responsibilities

as defined by CMA Code of Conduct. The Board appoints

all members of the Executive Management and decides

their remuneration. The Board approves business plans

and financial policies of the Company. The Board reviews

policies and regulations governing the Company activities and

specifies authorities and responsibilities of key management

members. The Board reviews the Company’s long-term and

yearly financial plans and key objectives. The Company’s

performance is reported to the Board on a monthly basis

and the same is reviewed and discussed at the Board

meetings. The Board appoints sub-committees including Audit

Committee and evaluates their functions and performance.

The Disclosure policy of the Company, which is in line with

the Code of Corporate Governance, has been approved by

the Board and implemented.

The Board assesses the major risks faced by the Company

and reviews options to mitigate them. The Board ensures

that processes are in place to maintain the integrity of the

Company, i.e. Integrity of the financial statements, compliance

with law and internal control systems. The Board approves

the quarterly, half-yearly and annual financial statements.

The Board reports to the shareholders, through the Annual

Report, about the going concern status of the Company, with

supporting assumptions.

Process of Nomination of the Directors

Six members are appointed by the Government including the

Chairman of the Board and one member is appointed from the

private sector by election once in every three years.

Entity Represented by Non-Independent Directors

There are no Non-Independent Directors in the Company.



Board Meeting Number and DatesBoard Meeting No. Board Meeting Date

1 – 2009 4 January 2009

2 – 2009 15 March 2009

There have been no material related party transactions

between the Company and its Directors. Specific related

party transactions are disclosed to the shareholders at the

ordinary general meeting.

Remuneration Matters

All Directors including the Chairman are non-executive

and do not draw any fixed salary from the Company.

The total remuneration paid to Directors as sitting fee for

financial year 2009 was RO 12,950. The sitting fees paid

to members of Executive and Audit Committee who are

not the members of the Board for financial year 2009 was

RO 8,400.

Each employee of the Company draws salary based on

‘job group’ assigned to his job. Job groups are assigned to

different jobs based on the duties, responsibilities, skills and

experience relevant to such jobs.

Remuneration of Top Five Executives Total

(RO per Annum)

Salary 579,558

Allowances 100,026

PASI/ESB 52,160

Total 731,744

Executive Committee

At present, the Executive Committee carries out specific

functions delegated by the Board of Directors. These functions

include, review of management budget proposals, review

of management proposals concerning new routes, fleet

rationalisation and new ventures.

Objective of the Executive Committee is to conduct an in-

depth review of specific issues before the same are approved

by the Board.

During 2009, the Executive Committee members consisted

of four Non-Executive Directors and were independent.

Ten meetings were held during 2009.

Audit Committee

During 2009, the Audit Committee members consisted of

three Non-Executive Directors and all were independent.

Five meetings were held during 2009 to discuss issues

concerning Internal Control, Internal Audit plans and Internal/

External Audit reports, quarterly financial statements and

other related issues.

Audit and Internal Control

The Audit Committee has reviewed, on behalf of the Board,

the effectiveness of the internal controls by meeting the

internal auditor, reviewing the internal audit reports and

recommendations, meeting the external auditor, reviewing

the audit findings and the external audit management letter.

The Audit Committee and the Board are pleased to inform the

shareholders that reasonable internal control/systems are in

place and that there are no significant concerns.

Means of Communication with the Shareholders and Investors

The complete quarterly results are also mailed to any

shareholder upon written request, and are also available for

inspection at the Company’s registered office. The Company

produces comprehensive Annual Report for its shareholders.

Audited annual financial statements with the Chairman’s

report are sent by mail to each shareholder.

At the same time, the Company gives press releases from

time to time for all strategic issues, such as opening of

new routes, change in fleet, financing agreements, etc. The

Company also has its own web site where airline related

information is available.

Market Price Data

Due to change in the status of the Company from General

Omani Joint Stock Company (SAOG) to Closed Omani Joint

Stock Company (SAOC), Oman Air shares have been listed and

traded in the parallel third market of Muscat Securities Market

effective May 2007. Hence, market price data is not available.


Distribution of Shareholding

The major shareholders of the Company are as follows, with

the Government of the Sultanate of Oman being the major

shareholder.

Major Shareholders

Name of the ShareholderNo. of Shares

heldShareholding

%

Government of Sultanate of Oman 215,164,619 99.613

Specific Areas of Non-compliance with the Provisions of Corporate Governance

As per the requirement of Article 4 of the Code of Corporate

Governance, the Board of Directors is required to meet at

least once every four months with a maximum time gap of

four months between any two consecutive meetings but the

Board of Directors of the Company met only two times during

the year. However, during the year the Executive Committee

met 10 times and Audit Committee met 5 times.

Professional Profile of the Statutory Auditor

Deloitte Touche Tohmatsu is an organisation of member

firms around the world devoted to excellence in providing

professional services and advice. Deloitte is focused on client

service through a global strategy executed locally in over

140 countries. With access to the deep intellectual capital of

approximately 168,000 people worldwide, Deloitte delivers

services in four professional areas: audit, tax, consulting and

financial advisory services.


Deloitte & Touche in the Middle East is among the region’s

leading professional services firms, providing audit, tax,

consulting and financial advisory services through 25 offices

in 14 countries with over 1,700 partners, directors and staff.

The Oman Practice currently has three partners and over 65

professionals.

The total audit fee paid/payable to the external auditor for

the Company including the subsidiary for the financial year

2009 is as follows:

Audit fee RO 28,500

Quarterly review fee RO 6,000

Total RO 34,500

Acknowledgement by the Board of Directors

The Board of Directors acknowledges:

Its liability for the preparation of the financial statements

in accordance with the applicable standards and rules

applicable in the Sultanate of Oman.

The review of the efficiency and adequacy of internal

control system of the Company and compliance with

internal rules and regulations.

That there are no material things that affect the

continuation of the Company and its ability to continue

its operations during the next financial year.

Adding Wingspan

One of the most powerful and visible symbols of Oman Air’s evolution to a fully-fledged, sophisticated international carrier is our growing fleet of Airbus A330 wide bodied aircraft. The A330 is a top tier aircraft that allows Oman Air to offer state-of-the-art facilities that support its long-haul capabilities to help position the airline as an international carrier of merit.


Report on the financial statements

We have audited the accompanying financial statements of Oman Air SAOC (“the Company”), which comprise of the statement

of financial position as at 31 December 2009, the statement of comprehensive income, statement of changes in equity and

statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory

notes, as set out on pages 43 to 79.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with

International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal

control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,

whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that

are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in

accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan

and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.

The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of

the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control

relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that

are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness

of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Oman Air SAOC as of 31

December 2009, and of its financial performance and its cash flows for the year then ended in accordance with International

Financial Reporting Standards.

Emphasis of matter

Without qualifying our opinion and as explained in note 3 to the financial statements, we draw attention to the fact that the

Company incurred a net loss of RO 64.281 million (2008 - RO 42.755 million) during the year ended 31 December 2009, with

accumulated losses of RO 101.914 million (2008 - RO 37.633 million) as at 31 December 2009. The Company will be able to

continue as a going concern only with the continuing support of its shareholders and successful implementation of its business

plan to support its operations. The Government of Oman holds in excess of 99.61% of the Company’s equity and has infused

capital of RO 70 million during 2009 to finance the Company’s operations and capital requirements.

Independent auditor’s report to the shareholders of Oman Air SAOC

Deloitte & Touche (M.E.) & Co. LLCMuscat International CentreLocation: MBD AreaP.O. Box 258, RuwiPostal Code 112Sultanate of Oman

Tel: +968 2481 7775Fax: +968 2481 5581www.deloitte.com

Member of Deloitte Touch Tohmatsu


Statement of financial position

At 31 December 2009Notes

2009RO ’000

2008RO ’000

ASSETSNon-current assetsAircraft, property, plant and equipment 5 289,151 124,418Goodwill 6 13,277 –Other intangible assets 6 2,413 4,240Available-for-sale investments 7 416 396Investment in an associate company 8 1,608 1,438Long-term receivables 9 3,763 3,791Total non-current assets 310,628 134,283

Current assetsInventories 10 10,350 5,122Trade and other receivables 11 29,043 21,167Term deposits 12 37,576 32,000Cash and bank balances 13 5,089 12,322Total current assets 82,058 70,611Total assets 392,686 204,894

EQuITY AND lIABIlITIES Capital and reservesShare capital 14 216,000 50,000Share premium 14 20,048 20,048Legal reserve 4,137 4,137Investments revaluation reserve 7 166 146Accumulated losses (101,914) (37,633)Total equity 138,437 36,698

Non-current liabilitiesProvision for maintenance of aircraft, engines and rotables 15 4,292 1,796Borrowings 16 107,311 36,370Government soft loan 18 – 49,359Deferred government grant 18 – 30,641Employees’ end-of-service benefits 19 3,514 2,797Deferred tax liability 26 2,913 1,991Total non-current liabilities 118,030 122,954

Current liabilitiesCurrent portion of provision for maintenance of aircraft, engines and rotables 15 1,476 836Current portion of borrowings 16 76,927 4,850Trade and other payables 20 57,816 39,556

Total current liabilities 136,219 45,242

Total liabilities 254,249 168,196

Total equity and liabilities 392,686 204,894

Net assets per share 21 RO 0.641 RO 0.734

Chairman Director

The accompanying notes form an integral part of these financial statements.


Statement of comprehensive income

For the year ended 31 December 2009Notes

2009RO ’000

2008RO ’000

Revenue 22 164,255 153,248

Expenditure 23 (227,400) (195,204)

Operating loss (63,145) (41,956)

Interest and investment income 24 1,713 1,779

Share of profits of an associate company 8 970 797

Increase in fair value of long-term receivables 9 365 1

Finance cost (2,419) (1,686)

loss before concession fee and tax (62,516) (41,065)

Concession fee 25 (843) (805)

loss before tax (63,359) (41,870)

Taxation 26 (922) (885)

loss for the year (64,281) (42,755)

loss per share - basic and diluted 27 (RO 0.539) (RO 0.855)

Other comprehensive income

Loss for the year (64,281) (42,755)

Fair value gain on available-for-sale investments 20 7

Total comprehensive loss for the year (64,261) (42,748)



Statement of changes in equity

For the year ended 31 December 2009

Note

Sharecapital

RO ’000

Sharepremium

RO ’000

LegalreserveRO ’000

Investments revaluation

reserveRO ’000

Accumulated losses

RO ’000Total

RO ’000

Balance at 1 January 2008 50,000 20,048 4,137 139 5,122 79,446

Loss for the year – – – – (42,755) (42,755)

Other comprehensive income

for the year – – – 7 – 7

Balance at 1 January 2009 50,000 20,048 4,137 146 (37,633) 36,698

loss for the year – – – – (64,281) (64,281)

Other comprehensive

income for the year – – – 20 – 20

Issue of shares 14 166,000 – – – – 166,000

Balance at 31 December 2009 216,000 20,048 4,137 166 (101,914) 138,437



Statement of cash flows

For the year ended 31 December 2009 2009RO ’000

2008RO ’000

Cash flows from operating activities

Loss before tax (63,359) (41,870)

Adjustments for:

Amortisation/impairment of intangible assets 2,949 1,546

Increase in fair value of long-term receivables (365) (1)

Depreciation of aircraft, property, plant and equipment 11,394 6,832

Employees’ end-of-service benefits charged for the year 780 675

Interest and investment income (1,713) (1,779)

Share of profit of an associate company (970) (797)

Finance cost 2,419 1,686

Provision for impaired debts 228 1

Provision for obsolete and slow moving inventories (48) 96

Loss/(Gain) on sale of aircraft, property, plant and equipment 119 (7)

(48,566) (33,618)

Movements in working capital:

Inventories (5,092) (896)

Trade and other receivables (7,356) (2,462)

Trade and other payables 17,024 8,495

Provision for maintenance of aircraft, engines and rotables 3,136 1,262

Security deposits 393 (845)

Cash used in operations (40,461) (28,064)

Finance charges paid (1,548) (1,658)

Employees’ end-of-service benefits paid (99) (190)

Net cash used in operating activities (42,108) (29,912)

Cash flows from investing activities

Acquisition of business (Note 13) (14,382) (5,786)

Purchase of aircraft, property, plant and equipment (176,084) (58,090)

(Increase)/decrease in term deposits (5,576) 15,587

Interest and investment income received 1,313 2,795

Proceeds from sale of aircraft, property, plant and equipment 206 52

Dividend received from an associate company 800 500

Net cash used in investing activities (193,723) (44,942)

Cash flows from financing activities

Issue of shares 166,000 –

Government soft loan (paid)/received (80,000) 70,000

Dividend paid to previous owner (Note 1) (420) –

Net borrowings availed 143,018 10,386

Net cash generated by financing activities 228,598 80,386

Net change in cash and cash equivalents (7,233) 5,532

Cash and cash equivalents at the beginning of the year 12,322 6,790

Cash and cash equivalents at the end of the year 5,089 12,322



1. Legal status and principal activities

Oman Air SAOC, (“the Company”) is an Omani Closed Joint

Stock Company registered under the Commercial Companies

Law of the Sultanate of Oman. The registered address of the

Company is P.O. Box 58, PC 111, Seeb, Sultanate of Oman.

The Company was formed under Royal Decree 52/81 dated

24 May 1981 and commenced operations on 1 October

1981. Initial duration of the Company was for a period of

20 years from the date of commercial registration to 31

January 2002. Prior to expiry, the Company’s shareholders

passed a resolution in an extra-ordinary general meeting on

27 January 2002 extending the Company’s duration for an

indefinite period.

The Government of Sultanate of Oman has 99.61%

shareholding in the Company as at 31 December 2009.

At an extraordinary general meeting held on 29 May 2007 the

shareholders of the Company approved the transformation

of the legal status of the Company from a General Omani

Joint Stock Company (SAOG) to an Omani Closed Joint Stock

Company (SAOC).

The principal activities of the Company are to transport

passengers and freight on a scheduled and chartered basis

and to provide ground handling, catering and other airline

related services.

At an extraordinary general meeting held on 12 April 2009,

the shareholders approved an amendment to the Articles

of Association of the Company. The amended Articles of

Association allows the Company to establish and manage

restaurants, coffee shops, hotels, apartments, tourist utilities,

both inside and outside the airports, whether inside the

Sultanate of Oman or abroad.

Acquisition of business

Effective from 1 January 2009, the Company acquired

Golden Tulip Seeb (“the Hotel”). The Hotel is a division of

the Company and is not a separately registered entity. The

registered address of the Hotel is P.O. Box 69, Seeb Airport,

Postal Code 111, Sultanate of Oman. The Hotel was acquired

by Oman Air SAOC as a going concern from the Ministry of

Tourism, Government of the Sultanate of Oman.

As on 1 January 2009, the following assets and liabilities were

transferred to the Company except the land on which the

hotel is located. The Company has been given a right by the

Government to use the said land on rental basis initially for

a period of 50 years and renewable with the mutual consent

of both the parties.

RO ’000

Current assets

Inventories 88

Trade and other receivables 346

Cash and cash equivalents 1,618

Non-current assets

Property and equipment 370

Current liabilities

Trade and other payables (330)

Bank overdraft (35)

Dividend payable to previous owner (420)

Non-current liabilities

Employees’ end-of-service benefits (36)

Net assets acquired 1,601

Purchase consideration 16,000

goodwill (Note 6) 14,399

Notes to the financial statementsFor the year ended 31 December 2009


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

2.1 Standards affecting presentation and disclosure

The following new and revised Standards have been adopted in the current period in these financial statements. Details of

other Standards and Interpretations adopted but that have had no effect on the financial statements are set out in section 2.2.

IAS 1 (as revised in 2007) Presentation of

financial statements

IAS 1 (2007) has introduced terminology changes (including

revised titles for the financial statements) and changes in the

format and content of the financial statements.

Improving disclosures about Financial Instruments

(Amendments to IFRS 7 Financial Instruments:

Disclosures)

The amendments to IFRS 7 expand the disclosures required

in respect of fair value measurements and liquidity risk. The

Company has elected not to provide comparative information in

the current year in accordance with the transitional reliefs offered

in these amendments.

2.2 Standards and Interpretations adopted with no effect on the financial statements

The following new and revised Standards and Interpretations have also been adopted in these financial statements. Their

adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting

for future transactions or arrangements.

IFRS 8 Operating Segments IFRS 8 is a disclosure Standard that requires re-designation of the

Company’s reportable segments based on the segments used

by the Chief Operating Decision Maker to allocate resources and

assess performance.

IFRS for SMEs Small and Medium-sized Entities This Standard is available immediately but the adoption has to be

decided by the jurisdiction of implementation.

Amendments to IFRS 2 Share-based Payment -

Vesting Conditions and Cancellations

The amendments clarify the definition of vesting conditions for

the purposes of IFRS 2, introduce the concept of ‘non-vesting’

conditions, and clarify the accounting treatment for cancellations.

IAS 23 (as revised in 2007) Borrowing Costs The principal change to the Standard was to eliminate the option

to expense all borrowing costs when incurred.

Amendments to IAS 32 Financial Instruments:

Presentation and IAS 1 Presentation of Financial

Statements - Puttable Financial Instruments and

Obligations Arising on Liquidation

The revisions to IAS 32 amend the criteria for debt/equity

classification by permitting certain puttable financial instruments

and instruments (or components of instruments) that impose on

an entity an obligation to deliver to another party a pro-rata share

of the net assets of the entity only on liquidation, to be classified

as equity, subject to specified criteria being met.


Notes to the financial statements


IFRIC 13 Customer Loyalty Programmes The Interpretation provides guidance on how entities should

account for customer loyalty programmes by allocating revenue

on sale to possible future award attached to the sale.

IFRIC 15 Agreements for the Construction of

Real Estate

The Interpretation addresses how entities should determine

whether an agreement for the construction of real estate is

within the scope of IAS 11 Construction Contracts or IAS 18

Revenue and when revenue from the construction of real estate

should be recognised.

IFRIC 16 Hedges of a Net Investment in a

Foreign Operation

The Interpretation provides guidance on the detailed

requirements for net investment hedging for certain hedge

accounting designations.

IFRIC 18 Transfers of Assets from Customers

(adopted in advance of effective date of transfers

of assets from customers received on or after

1 July 2009)

The Interpretation addresses the accounting by recipients for

transfers of property, plant and equipment from ‘customers’ and

concludes that when the item of property, plant and equipment

transferred meets the definition of an asset from the perspective

of the recipient, the recipient should recognise the asset at its fair

value on the date of the transfer, with the credit recognised as

revenue in accordance with IAS 18 Revenue.

Improvements to IFRSs (2008) Amendments to IFRS 5, IAS 1, IAS 16, IAS 19, IAS 20, IAS 23,

IAS 27, IAS 28, IAS 29, IAS 31, IAS 36, IAS 38, IAS 39, IAS 40

and IAS 41 resulting from the May and October 2008 Annual

Improvements to IFRSs majority of which are effective for annual

periods beginning on or after 1 January 2009.




2.3 Standards and Interpretations in issue not yet effective

At the date of authorisation of these financial statements, the following new and revised Standards and Interpretations were

in issue but not yet effective:

New Standards and amendments to Standards:Effective for annual periods

beginning on or after

IFRS 1 (revised) First time Adoption of IFRS and IAS 27 (revised) Consolidated and

Separate Financial Statements - Amendment relating to Cost of an Investment in a

Subsidiary, Jointly Controlled Entity or Associate

1 July 2009

IFRS 3 (revised) Business Combinations - Comprehensive revision on applying the

acquisition method and consequential amendments to IAS 27 (revised) Consolidated and

Separate Financial Statements, IAS 28 (revised) Investments in Associates and IAS 31

(revised) Interests in Joint Ventures

1 July 2009

IAS 39 (revised) Financial Instruments: Recognition and Measurement - Amendments

relating to Eligible Hedged Items (such as hedging Inflation risk and Hedging with options)

1 July 2009

IFRS 1 (revised) First time Adoption of IFRS - Amendment on additional exemptions for

First-time Adopters

1 January 2010

IFRS 2 (revised) Share-based payment - Amendment relating to Group cash-settled

Share-based payments

1 January 2010

IAS 32 (revised) Financial Instruments: Presentation - Amendments relating to

classification of Rights Issue

1 February 2010

IAS 24 Related Party Disclosures - Amendment on disclosure requirements for entities

that are controlled, jointly controlled or significantly influenced by a Government

1 January 2011

IFRIC 17: Distributions of Non-cash Assets to Owners 1 July 2009

IFRIC 19: Extinguishing Financial Liabilities with Equity Instruments 1 July 2010

Amendment to IFRIC 14: IAS 19: The limit on a defined Benefit Asset, Minimum Funding

Requirement and their interaction

1 January 2011

Amendment to IFRIC 16: Hedges of a Net Investment in a Foreign Operation 1 July 2009

Amendment to IFRIC 9 (revised): Reassessment of Embedded Derivatives relating to

assessment of embedded derivatives in case of reclassification of a financial asset out of

the ‘FVTPL’ category

1 July 2009

IFRS 9 Financial Instruments: Classification and Measurement (intended as complete

replacement for IAS 39 and IFRS 7)

1 January 2013

Amendments to IFRS 2, IFRS 5, IFRS 8, IAS 1, IAS 7, IAS 17, IAS 18, IAS 36, IAS 38 and

IAS 39 resulting from April 2009 Annual Improvements to IFRSs

Majority effective

for annual periods

beginning on or after

1 January 2010

Management anticipates that the adoption of these Standards and Interpretations in future periods will have no material impact

on the financial statements of the Company in the period of initial application.




3. Summary of significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance

with International Financial Reporting Standards (“IFRS”) as

promulgated by the International Accounting Standards Board

(IASB), and the interpretations issued by the International

Financial Reporting Interpretations Committee (IFRIC) of the

IASB and the requirements of the Commercial Companies

Law of 1974, as amended.

Basis of preparation

These financial statements are presented in Rials Omani

(“RO”) which is the currency in which the majority of

transactions are denominated and are rounded off to the

nearest thousand.

These financial statements are prepared on historical cost

basis as modified by measurement of certain financial

instruments at fair value.

Going concern

The Company incurred a net loss of RO 64.281 million (2008 –

RO 42.755 million) during the year ended 31 December

2009, with accumulated losses of RO 101.914 million (2008 –

RO 37.633 million) as at 31 December 2009. These conditions

indicate the existence of a material uncertainty which may cast

significant doubt about the Company’s ability to continue as a

going concern. The financial statements have been prepared

under the going concern basis on the assumption that the

Company’s shareholders will continue to support the operations

and the management will successfully implement its business

plan to generate sufficient funds to support its operations and

meet its liabilities. The Government of Oman holds in excess

of 99.61% of the Company’s equity and has infused capital of

RO 70 million during 2009 to finance the Company’s operations

and capital requirements.

A summary of significant accounting policies, which have been

consistently applied by the Company and are consistent with

those used in the previous year, is set out below:

Aircraft, property, plant and equipment

Aircraft, property, plant and equipment are stated at cost less

accumulated depreciation and any identified impairment loss.

Borrowing costs, net of interest income, which are directly

attributable to acquisition of items of aircraft, property,

plant and equipment, are capitalised as the cost of aircraft,

property, plant and equipment.

Subsequent expenditure

Expenditure incurred to replace a component of an item of

aircraft including major inspection and overhaul expenditure

is capitalised. Other subsequent expenditure is capitalised only

when it increases the future economic benefits embodied in

the item of aircraft, property, plant and equipment. All other

maintenance expenditure is recognised in profit or loss as an

expense as and when incurred.

Cost of expenses incurred for regular inspections of airframe

and engines is capitalised and depreciated over the period

between consecutive inspections which is generally 8 and

3 years respectively.

Depreciation

Depreciation is recognised so as to write off the cost of

aircraft, property, plant and equipment (other than capital

work-in-progress) on a straight line basis over the expected

remaining useful economic life of the asset concerned. The

useful lives and depreciation method are reviewed at each

reporting date, with the effect of any changes in estimate

accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an

item of aircraft, property, plant and equipment is determined

as the difference between the sales proceeds and the carrying

amount of the asset and is recognised in profit or loss.




The estimated useful lives used for this purpose are:

Asset Years

Airframe and Buyer furnished

equipment (BFE) 10 to 25

Engines and rotables 15

Tools 5

Buildings 5 to 25

Plant and equipment 5 to 7.5

Vehicles, office equipment and furniture 3 to 5

Intangible assets

Intangible assets acquired separately are carried at cost less

accumulated amortisation and accumulated impairment

losses. Amortisation is recognised on a straight-line basis

over their estimated useful lives. The estimated useful life

and amortisation method are reviewed at the end of each

annual reporting period, with the effect of any changes in

estimate being accounted for on a prospective basis.

Impairment of tangible and intangible assets

At the end of each reporting period, the Company reviews

the carrying amounts of its tangible and intangible assets to

determine whether there is any indication that those assets

have suffered an impairment loss. If any such indication

exists, the recoverable amount of the asset is estimated

in order to determine the extent of the impairment loss (if

any). Where it is not possible to estimate the recoverable

amount of an individual asset, the Company estimates the

recoverable amount of the cash-generating unit to which

the asset belongs. Where a reasonable and consistent basis

of allocation can be identified, corporate assets are also

allocated to individual cash-generating units, or otherwise

they are allocated to the smallest group of cash-generating

units for which a reasonable and consistent allocation basis

can be identified.

Intangible assets with indefinite useful lives and intangible

assets not yet available for use are tested for impairment at

least annually, and whenever there is an indication that the

asset may be impaired.

Recoverable amount is the higher of fair value less costs to

sell and value in use. In assessing value in use, the estimated

future cash flows are discounted to their present value using a

pre-tax discount rate that reflects current market assessments

of the time value of money and the risks specific to the

asset for which the estimates of future cash flows have not

been adjusted.

If the recoverable amount of an asset (or cash-generating

unit) is estimated to be less than its carrying amount, the

carrying amount of the asset (or cash-generating unit) is

reduced to its recoverable amount. An impairment loss is

recognised immediately in profit or loss, unless the relevant

asset is carried at a revalued amount, in which case the

impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses,

the carrying amount of the asset (or cash-generating unit) is

increased to the revised estimate of its recoverable amount,

but so that the increased carrying amount does not exceed

the carrying amount that would have been determined had

no impairment loss been recognised for the asset (or cash-

generating unit) in prior years. A reversal of an impairment

loss is recognised immediately in profit or loss, unless

the relevant asset is carried at a revalued amount, in which

case the reversal of the impairment loss is treated as a

revaluation increase.

Leases

Leases are classified as finance leases whenever the terms

of the lease transfer substantially all the risks and rewards

of ownership to the lessee. All other leases are classified as

operating leases.

The Company as lessor

Rental income from operating leases is recognised on a

straight-line basis over the term of the relevant lease. Initial

direct costs incurred in negotiating and arranging an operating

lease are added to the carrying amount of the leased asset

and recognised on a straight-line basis over the lease term.

The Company as lessee

Assets held under finance leases are initially recognised as

assets of the Company at their fair value at the inception of

the lease or, if lower, at the present value of the minimum

lease payments. The corresponding liability to the lessor is

included in the statement of financial position as a finance

lease obligation.

Lease payments are apportioned between finance expenses

and reduction of the lease obligation so as to achieve a

constant rate of interest on the remaining balance of the




liability. Finance expenses are recognised immediately in

profit or loss, unless they are directly attributable to qualifying

assets, in which case they are capitalised in accordance with

the Company’s general policy on borrowing costs. Contingent

rentals are recognised as expenses in the periods in which

they are incurred.

Capitalised leased assets are depreciated over the shorter

of the estimated useful life of the asset or the lease term.

Operating lease payments are recognised as an expense

on a straight-line basis over the lease term, except where

another systematic basis is more representative of the time

pattern in which economic benefits from the leased asset

are consumed. Contingent rentals arising under operating

leases are recognised as an expense in the period in which

they are incurred.

In the event that lease incentives are received to enter

into operating leases, such incentives are recognised as a

liability. The aggregate benefit of incentives is recognised as

a reduction of rental expense on a straight-line basis, except

where another systematic basis is more representative of

the time pattern in which economic benefits from the leased

asset are consumed.

Financial assets

All financial assets are recognised and derecognised on trade

date where the purchase or sale of a financial asset is under

a contract whose terms require delivery of the financial asset

within the time frame established by the market concerned,

and are initially measured at fair value, plus transaction

costs, except for those financial assets classified as at fair

value through profit or loss, which are initially measured at

fair value.

Financial assets are classified into the following specified

categories: financial assets ‘at fair value through profit or

loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-

for-sale’ (AFS) financial assets and ‘loans and receivables’.

The classification depends on the nature and purpose of

the financial assets and is determined at the time of initial

recognition.

The effective interest method is a method of calculating the

amortised cost of a financial asset and of allocating interest

income over the relevant period. The effective interest rate is

the rate that exactly discounts estimated future cash receipts

through the expected life of the financial asset, or, where

appropriate, a shorter period to the net carrying amount on

initial recognition.

The Company has classified the following financial assets as

‘loans and receivables’: long-term receivables, term deposits,

trade and other receivables and cash and cash equivalents.

Financial assets also include AFS financial assets.

AFS financial assets

Listed shares held by the Company that are traded in an

active market are classified as being AFS and are stated at

fair value. The Company also has other investments that are

not traded in an active market but are also classified as AFS

financial assets and stated at fair value because management

considers that fair value can be reliably measured. Gains

and losses arising from changes in fair value are recognised

in other comprehensive income and accumulated in the

cumulative change in fair values with the exception of

impairment losses, which are recognised in profit or loss.

Where the investment is disposed of or is determined to be

impaired, the cumulative gain or loss previously accumulated

in the cumulative change in fair values is reclassified to

profit or loss.

Dividends on AFS equity instruments are recognised in profit

or loss when the Company’s right to receive the dividends

is established.

The fair value of AFS monetary assets denominated in a

foreign currency is determined in that foreign currency and

translated at the spot rate at the reporting date. The change

in fair value attributable to translation differences that result

from a change in amortised cost of the asset is recognised

in profit or loss, and other changes are recognised in other

comprehensive income.

Loans and receivables

Loans and receivables that have fixed or determinable

payments are initially measured at fair value and subsequently

measured at amortised cost using the effective interest

method, less any impairment.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and

demand deposits and other short-term highly liquid

investments that are readily convertible to a known amount




of cash and are subject to an insignificant risk of changes

in value.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed

for indicators of impairment at the end of each reporting

date. Financial assets are impaired where there is objective

evidence that, as a result of one or more events that

occurred after the initial recognition of the financial asset, the

estimated future cash flows of the asset have been affected.

For listed and unlisted equity investments classified as AFS,

a significant or prolonged decline in the fair value of the

security below its cost is considered to be objective evidence

of impairment.

For certain categories of financial assets, such as trade and

other receivables, assets that are assessed not to be impaired

individually are, in addition, assessed for impairment on

a collective basis. Objective evidence of impairment for a

portfolio of receivables could include the Company’s past

experience of collecting payments, an increase in the number

of delayed payments in the portfolio as well as observable

changes in national or local economic conditions that correlate

with default on receivables.

For financial assets carried at amortised cost, the amount of

the impairment is the difference between the asset’s carrying

amount and the present value of estimated future cash

flows, discounted at the financial asset’s original effective

interest rate.

The carrying amount of the financial asset is reduced by

the impairment loss directly for all financial assets with the

exception of trade receivables, where the carrying amount

is reduced through the use of an allowance account. When

a trade receivable is considered uncollectible, it is written

off against the allowance account. Subsequent recoveries

of amounts previously written off are credited against the

allowance account. Changes in the carrying amount of the

allowance account are recognised in profit or loss.

When an AFS financial asset is considered to be impaired,

cumulative gains or losses previously recognised in other

comprehensive income are reclassified to profit or loss in

the period.

With the exception of AFS financial assets, if, in a subsequent

period, the amount of the impairment loss decreases and the

decrease can be related objectively to an event occurring after

the impairment was recognised, the previously recognised

impairment loss is reversed through profit or loss to the

extent that the carrying amount of the investment at the

date the impairment is reversed does not exceed what the

amortised cost would have been had the impairment not

been recognised.

In respect of AFS financial assets, impairment losses

previously recognised in profit or loss are not reversed

through profit or loss. Any increase in fair value subsequent

to an impairment loss is recognised in other comprehensive

income.

Derecognition of financial assets

The Company derecognises a financial asset only when the

contractual rights to the cash flows from the asset expire; or

it transfers the financial asset and substantially all the risks

and rewards of ownership of the asset to another entity. If

the Company neither transfers nor retains substantially all

the risks and rewards of ownership and continues to control

the transferred asset, the Company recognises its retained

interest in the asset and an associated liability for amounts

it may have to pay.

Financial liabilities and equity instruments issued by the CompanyClassification as debt and equity instruments

Debt and equity instruments are classified as either financial

liabilities or as equity in accordance with the substance of

the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual

interest in the assets of an entity after deducting all of its

liabilities. Equity instruments issued by the Company are

recorded at the proceeds received, net of direct issue costs.

Financial liabilities

The Company has classified the following financial liabilities

as ‘other financial liabilities’: borrowings and trade and other

payables.




Other financial liabilities are initially measured at fair value,

net of transaction costs and are subsequently measured at

amortised cost using the effective interest method, with

interest expense recognised on an effective yield basis.

Settlement of borrowings is recognised over the respective

terms of the agreements.

The effective interest method is a method of calculating the

amortised cost of a financial liability and of allocating interest

expense over the relevant period. The effective interest

rate is the rate that exactly discounts estimated future cash

payments through the expected life of the financial liability,

or, where appropriate, a shorter period to the net carrying

amount on initial recognition.

Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only

when, the Company’s obligations are discharged, cancelled

or they expire.

Investments in associate

An associate is an entity over which the Company has

significant influence and that is neither a subsidiary nor an

interest in a joint venture. Significant influence is the power

to participate in the financial and operating policy decisions

of the investee but is not control or joint control over those

policies.

The results and assets and liabilities of associates are

incorporated in these financial statements using the equity

method of accounting, except when the investment is

classified as held for sale, in which case it is accounted

for under IFRS 5 Non-current Assets held-for-sale and

Discontinued Operations. Under the equity method,

investments in associates are carried in the statement of

financial position at cost as adjusted for post-acquisition

changes in the Company’s share of the net assets of the

associate, less any impairment in the value of individual

investments. Losses of an associate in excess of the

Company’s interest in that associate (which includes any long-

term interests that, in substance, form part of the Company’s

net investment in the associate) are recognised only to the

extent that the Company has incurred legal or constructive

obligations or made payments on behalf of the associate.

Goodwill

Goodwill arising in an acquisition of new line of business is

recognised as an asset at the date that control is acquired

(the acquisition date). Goodwill is measured as the excess of

the sum of the consideration transferred, the amount of any

non-controlling interests in the acquiree, and the fair value of

the acquirer’s previously-held equity interest in the acquiree

(if any) over the net of the acquisition-date amounts of the

identifiable assets acquired and the liabilities assumed.

Goodwill is not amortised but is reviewed for impairment

at least annually. For the purpose of impairment testing,

goodwill is allocated to the Company’s cash-generating units

expected to benefit from the synergies of the acquisition.

Cash-generating units to which goodwill has been allocated

are tested for impairment annually. If the recoverable amount

of the cash-generating unit is less than its carrying amount,

the impairment loss is allocated first to reduce the carrying

amount of any goodwill allocated to the unit and then to

the other assets of the unit pro rata on the basis of the

carrying amount of each asset in the unit. An impairment

loss recognised for goodwill is not reversed in a subsequent

period.

Inventories

Inventories are stated at the lower of cost and net realisable

value. Costs comprise purchase cost and, where applicable,

direct labour costs and those overheads that have been

incurred in bringing the inventories to their present location

and condition. Cost is calculated principally using the weighted

average method. Net realisable value is the estimated selling

price in the ordinary course of business, less the estimated

costs of completion and selling expenses.

Legal reserve

In accordance with the Commercial Companies Law of

1974, as amended, 10% of the Company’s net profits

after the deduction of taxes will be transferred to a

non-distributable legal reserve each year until the amount of

such legal reserve has reached a minimum one-third of the

Company’s issued share capital. This reserve is not available

for distribution to shareholders as dividends.




Deferred government grant

Government grants are not recognised until there is

reasonable assurance that the Company will comply with

the conditions attaching to them and that the grants will

be received.

The benefit of a government loan at a below-market rate of

interest is treated as a government grant, measured as the

difference between proceeds received and the fair value of

the loan, based on prevailing market interest rates.

Government grants whose primary condition is that the

Company should purchase, construct or otherwise acquire

non-current assets, are recognised as deferred revenue in

the statement of financial position and transferred to profit

or loss on a systematic and rational basis over the useful

lives of the related assets.

Other government grants are recognised as revenue over the

periods necessary to match them with the costs for which

they are intended to compensate, on a systematic basis.

Government grants that are receivable as compensation for

expenses or losses already incurred or for the purpose of

giving immediate financial support to the Company with no

future-related costs, are recognised in profit or loss in the

period in which they become receivable.

Provisions

Provisions are recognised when the Company has a present

obligation (legal or constructive) as a result of a past event,

it is probable that the Company will be required to settle

the obligation, and a reliable estimate can be made of the

amount of the obligation.

The amount recognised as a provision is the best estimate

of the consideration required to settle the present obligation

at the end of the reporting period, taking into account the

risks and uncertainties surrounding the obligation. Where a

provision is measured using the cash flows estimated to settle

the present obligation, its carrying amount is the present

value of those cash flows.

When some or all of the economic benefits required to settle

a provision are expected to be recovered from a third party,

a receivable is recognised as an asset if it is virtually certain

that reimbursement will be received and the amount of the

receivable can be measured reliably.

Onerous contracts

Present obligations arising under onerous contracts are

recognised and measured as provisions. An onerous contract

is considered to exist where the Company has a contract

under which the unavoidable costs of meeting the obligations

under the contract exceed the economic benefits expected

to be received under it.

Employees’ end-of-service benefits

Provision for employees’ end-of-service benefits for non-

Omani employees is made in accordance with the Oman

Labour Law and is based on current remuneration and

cumulative years of service at the reporting date.

End-of-service benefits for Omani employees are contributed

in accordance with the terms of the Social Securities Law

of 1991.

Aircraft maintenance

For the aircraft under operating lease agreements, wherein the

Company has an obligation to maintain the aircraft, accruals

are made during the lease term for the obligation based on

estimated future costs of major airframe and certain engine

maintenance checks by making appropriate charges to the profit

or loss calculated by reference to the number of hours or cycles

operated and engineering estimates.

For the aircraft owned by the Company, maintenance accruals

are made based on the technical evaluation.

Taxation

Income tax expense represents the sum of the tax currently

payable and deferred tax.

Current tax

The tax currently payable is calculated as per the fiscal

regulations of the Sultanate of Oman, based on taxable profits

for the year. Taxable profits differ from profit as reported in

the statement of comprehensive income because of items of

income or expense that are taxable or deductible in other years

and items that are never taxable or deductible.

The Company’s liability for current tax is calculated using tax

rates that have been enacted or substantively enacted by

the end of the reporting period.




Deferred tax

Deferred tax is recognised on temporary differences

between the carrying amounts of assets and liabilities in

the financial statements and the corresponding tax bases

used in the computation of taxable profit. Deferred tax

liabilities are generally recognised for all taxable temporary

differences. Deferred tax assets are generally recognised for

all deductible temporary differences to the extent that it is

probable that taxable profits will be available against which

those deductible temporary differences can be utilised. Such

deferred tax assets and liabilities are not recognised if the

temporary difference arises from goodwill or from the initial

recognition (other than in a business combination) of other

assets and liabilities in a transaction that affects neither the

taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary

differences associated with investments in subsidiaries and

associates, and interests in joint ventures, except where the

Company is able to control the reversal of the temporary

difference and it is probable that the temporary difference

will not reverse in the foreseeable future. Deferred tax assets

arising from deductible temporary differences associated

with such investments and interests are only recognised

to the extent that it is probable that there will be sufficient

taxable profits against which to utilise the benefits of the

temporary differences and they are expected to reverse in

the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the

end of each reporting period and reduced to the extent that it is

no longer probable that sufficient taxable profits will be available

to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates

that are expected to apply in the period in which the liability

is settled or the asset realised, based on tax rates and tax law

that have been enacted or substantively enacted by the end of

the reporting period. The measurement of deferred tax liabilities

and assets reflects the tax consequences that would follow from

the manner in which the Company expects, at the end of the

reporting period, to recover or settle the carrying amount of its

assets and liabilities.

Deferred tax assets and liabilities are offset when there is a

legally enforceable right to set off current tax assets against

current tax liabilities and when they relate to income taxes

levied by the taxation authority and the Company intends

to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax are recognised as an expense or

income in profit or loss, except when they relate to items

that are recognised outside profit or loss (whether in other

comprehensive income or directly in equity), in which case

the tax is also recognised outside profit or loss.

Revenue

Revenue is measured at the fair value of the consideration

received or receivable. Revenue is reduced for estimated

customer returns, rebates and other similar allowances.

Rendering of services

Passenger ticket and cargo airway bills revenue, net of

commission, is recognised as current liabilities in an unearned

revenue account until recognised as revenue when the

transportation service is provided. Unused tickets are recognised

as revenue after one year from the date of sale.

Dividend and bank deposit profit revenue

Dividend revenue from investments is recognised when the

shareholders’ right to receive payment has been established.

Bank deposit profit revenue is accrued on a time basis, by

reference to the principal outstanding and at the effective

profit rate applicable, which is the rate that exactly discounts

estimated future cash receipts through the expected life of

the financial asset to the asset’s net carrying amount.

Other revenue

Other revenue is recognised at the time the service is

provided, net of rebate.

Foreign currencies

Transactions denominated in foreign currencies are initially

translated into Rials Omani at the rates of exchange prevailing

on the date of the transaction. Monetary assets and liabilities

denominated in such currencies are translated at the rates

prevailing as at the end of the reporting period. Gains and

losses arising from foreign currency transactions are dealt

with in profit or loss.

Directors’ remuneration

Directors’ remuneration is computed in accordance with

the provisions of the Commercial Companies Law and the

requirements of Capital Market Authority and is charged in

profit or loss.




4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company’s accounting policies,

which are described in Note 3, management is required to

make judgements, estimates and assumptions about the

carrying amounts of assets and liabilities that are not readily

apparent from other sources. The estimates and associated

assumptions are based on historical experience and other

factors that are considered to be relevant. Actual results may

differ from these estimates.

The estimates and underlying assumptions are reviewed

on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimate is revised if

the revision affects only that period or in the period of the

revision and future periods if the revision affects both current

and future periods.

Critical judgements in applying accounting policies

The following are the critical judgements, apart from those

involving estimations (see below), that management has

made in the process of applying the Company’s accounting

policies and that have the most significant effect on the

amounts recognised in the financial statements.

Classification of investments

Management decides on acquisition of a financial asset

whether it should be classified as FVTPL - held for trading,

held to maturity investments, loans and receivables or AFS

financial asset.

The Company has classified its investment as AFS financial

asset as these investments are not falling under the category

of FVTPL - held for trading, held to maturity investments or

loans and receivables.

Valuation of unquoted investments

Valuation of unquoted investments is normally based on

recent market transactions on an arm’s length basis, fair

value of another instrument that is substantially the same,

expected cash flows discounted at current rates for similar

instruments or other valuation models.

Impairment of financial assets

The Company determines whether AFS financial assets are

impaired when there has been a significant or prolonged decline

in their fair value below cost. This determination of what is

significant or prolonged requires judgement. In making this

judgement and to record whether an impairment occurred, the

Company evaluates among other factors, the normal volatility

in share price, the financial health of the investee, industry and

sector performance, changes in technology and operational and

financial cash flows.

Impairment of goodwill and other intangible assets

Goodwill and other intangible assets are tested annually for

impairment and at other times when such indications exist.

The impairment calculation requires the use of estimates.

Other intangible assets include timing slots at airports.

Key sources of estimation uncertainty

The following are the key assumptions concerning the

future, and other key sources of estimation uncertainty at

the reporting date, that have a significant risk of causing a

material adjustment to the carrying amounts of assets and

liabilities within the next financial year.

Leased aircraft maintenance costs

The Company incurs liabilities for maintenance costs in respect

of its leased aircraft during the course of the lease term. These

are a result of legal and constructive obligations in the lease

contract in respect of the return conditions applied by lessors,

which require aircraft airframes, engines, landing gear and

auxiliary power units to reach at least a specified condition on

their return at the end of the lease term. A charge is made in

the profit or loss each month based on the number of flight

hours or cycles used to build up an accrual to cover the cost of

heavy-duty maintenance checks when they occur. Estimates

involved in calculating the provision required include the

expected date of the check, market conditions for heavy-

duty maintenance checks pertaining at the expected date of

check, the condition of asset at the time of the check, the

likely utilisation of the asset in terms of either flying hours or

cycles, and the regulations in relation to extensions to lives of

life-limited parts, which form a significant proportion of the




cost of heavy-duty maintenance costs of engines. Additional

maintenance costs for aircraft engines are considered for

accrual based on the estimates made by the Engineering

Department on the basis of operational requirements.

The Company is also required to pay maintenance reserves

to lessors on a monthly basis, based on usage. These

maintenance reserves are then returned to the Company

on production of evidence that qualifying maintenance

expenditure has been incurred. Maintenance reserves paid

are deducted from the accruals made. In some instances,

not all of the maintenance reserves paid can be recovered

by the Company and therefore, are retained by the lessor at

the end of the lease term.

Assumptions made in respect of the basis of the accruals

are reviewed for all aircraft once a year. In addition, when

further information becomes available which could materially

change an estimate made, such as a heavy-duty maintenance

check taking place, utilisation assumptions changing, or return

conditions being renegotiated, then specific estimates are

reviewed immediately, and the accrual is reset accordingly.

Accrual for aircraft flying costs

Management accrues for the landing, parking, ground

handling, and other charges applicable for each airport in

which the Company operates flights on a monthly basis.

These estimates are based on the rate of charges applicable

to each airport based on the agreements and recent invoices

received for the services obtained. Similarly, accruals for

overflying charges are estimated based on the agreement

entered into with each country.

Actual charges may differ from the charges accrued and the

differences are accounted for on a prospective basis.

Useful lives of aircraft, property, plant and equipment

The cost of aircraft, property, plant and equipment is

depreciated over the estimated useful life, which is based

on expected usage of the asset, expected physical wear and

tear, the repair and maintenance program and technological

obsolescence arising from changes using management’s

best estimates.

Provision for obsolete and slow moving inventories

Inventories are stated at the lower of cost and net realisable

value. Adjustments to reduce the cost of inventory to

its realisable value, if required, are made at the product

Company level for estimated excess or obsolete items. Factors

influencing these adjustments include changes in demand,

product pricing, physical deterioration and quality issues.

Provision for impaired debts

An estimate of the collectible amount of trade receivables

is made when collection of the full amount is no longer

probable. This determination of whether these trade

receivables are impaired, entails the Company evaluating,

the credit and liquidity position of the customers, historical

recovery rates and collateral requirements from certain

customers in certain circumstances. The difference between

the estimated collectible amount and the book amount is

recognised as an expense in profit or loss. Any difference

between the amounts actually collected in the future periods

and the amounts expected will be recognised in profit or loss

at the time of collection.

Impairment of goodwill

Determining whether goodwill is impaired requires an

estimation of the value in use of the cash-generating units

to which goodwill has been allocated. The value in use

calculation requires the directors to estimate the future cash

flows expected to arise from the cash-generating unit and a

suitable discount rate in order to calculate present value.

The carrying amount of goodwill at the end of the reporting

period was RO 13.277 million after an impairment loss of

RO 1.122 million recognised during 2009. Details of the

impairment loss calculation are set out in Note 6.




5. Aircraft, property, plant and equipment

Airframeand BFE

Engines androtables Tools Buildings

Plant andequipment

Vehicles,office

equipmentand furniture

Capital work–in–progress Total

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

Cost

At 1 January 2008 43,619 21,598 637 7,092 12,184 5,094 18,229 108,453

Transfers 10,328 13,128 16 87 4,897 583 (29,039) –

Additions – – – – – – 58,090 58,090

Disposals/write offs – (481) – (9) (89) (96) (24) (699)

At 1 January 2009 53,947 34,245 653 7,170 16,992 5,581 47,256 165,844

Transfers 31,852 2,851 – – 1,243 1,026 (36,972) –

Additions 79,403 61,160 35 231 1,463 513 33,279 176,084

Acquired during the year – – – 7,031 – 1,193 – 8,224

Disposals/write offs – (360) (12) – (904) (365) – (1,641)

At 31 December 2009 165,202 97,896 676 14,432 18,794 7,948 43,563 348,511

Depreciation

At 1 January 2008 10,384 8,958 529 3,828 7,953 3,595 – 35,247

Charge for the year 2,253 2,678 14 287 1,126 474 – 6,832

Disposals/write offs – (481) – (8) (82) (82) – (653)

At 1 January 2009 12,637 11,155 543 4,107 8,997 3,987 – 41,426

Charge for the year 3,627 4,984 20 672 1,365 726 – 11,394

Acquired during the year – – – 6,662 – 1,192 – 7,854

Disposals/write offs – (241) (11) – (739) (323) – (1,314)

At 31 December 2009 16,264 15,898 552 11,441 9,623 5,582 – 59,360

Carrying amount At 31 December 2009 148,938 81,998 124 2,991 9,171 2,366 43,563 289,151

At 31 December 2008 41,310 23,090 110 3,063 7,995 1,594 47,256 124,418

The Company owns one Boeing 737-700, two ATR 42-500 aircraft and two A330-200 aircraft. The Company has also acquired

three Boeing 737-800 and two Airbus A330-300 aircraft under finance lease arrangements.

A financing agreement was signed with the lead arrangers on 4 February 2003 for the purchase of one Boeing 737-700 (delivered

in June 2002) and aircraft spares. The loan is secured by guarantee provided by the Government of the Sultanate of Oman and

the aircraft is mortgaged in favour of the Government of the Sultanate of Oman (Notes 17 and 18).

During the year 2003, the Company entered into a lease agreement with Wings of Oman Limited, a company registered in the

Cayman Islands, for the lease of one Boeing 737-800 (delivered in July 2003). The net carrying amount of the leased aircraft

was in the amount of approximately RO 10,454,425 (2008 - RO 11,141,337) (Note 17).

During the year 2005, the Company entered into a lease agreement with Khanjar of Oman Limited, a company registered in

the Cayman Islands, for the lease of one Boeing 737-800 (delivered in March 2005). The net carrying amount of the leased

aircraft was in the amount of approximately RO 12,576,001 (2008 - RO 12,782,805) (Note 17).

During the year 2008, the Company entered into a lease agreement with Frankincense of Oman Limited, a company registered

in the Cayman Islands, for the lease of one Boeing 737-800 (delivered in March 2008). The net carrying amount of the leased

aircraft was in the amount of approximately RO 15,782,931 (2008 – RO 17,068,339) (Note 17).




During the current year, the Company entered into two lease agreements with ORYX of Oman, a company registered

in the Cayman Islands, for the lease of two Airbus A330-300 aircraft (First delivered in October 2009 and second in

November 2009). The net carrying amounts of the leased aircraft were in the amounts of approximately RO 46,332,877

and RO 34,921,923 respectively (Note 17).

Land on which buildings have been constructed by the Company is owned by the Directorate General of Civil Aviation and

Meteorology (DGCAM). In accordance with the combined term sheet agreement with the DGCAM, dated June 2001, the Company

was granted the continuing right to occupy and use the premises for the provision of ground handling, cargo handling and

catering services at the Seeb International Airport (renamed Muscat International Airport effective from February 2008) and

Salalah Airport (Note 25).

On expiry of the term sheet agreement, the assets in existence, purchased prior to 1 January 2002, will be purchased by the

airport operator at their open market value, as determined by an independent valuer except for the catering premises building

which will be purchased at its net book value.

Additions to assets subsequent to 1 January 2002, approved by the airport operator during the validity of the term sheet

agreement, will be purchased by the airport operator at an agreed residual value on expiry of the agreement.

6. Goodwill and other intangible assets

Goodwill2009 2008

RO ’000 RO ’000

Cost

At 1 January – –

Additions during the year (Note 1) 14,399 –

At 31 December 14,399 –

Impairment

At 1 January – –

Impairment for the year 1,122 –

At 31 December 1,122 –

Carrying amount 13,277 –

Impairment losses recognised in the year

At the end of the reporting period, the Company assessed the recoverable amount of goodwill, and determined that goodwill

associated with hotel’s line of business was impaired by RO 1,121,795. The recoverable amount of the hotel’s line of business

was assessed by reference to the cash-generating unit’s value in use. A discount factor of 6% per annum was applied in the

value in use model.

The impairment loss has been included in the “Expenditure” (Note 23).




Other intangible assets2009 2008

RO ’000 RO ’000

Cost

At 1 January 5,786 –

Additions during the year – 5,786

At 31 December 5,786 5,786

Amortisation/impairment

At 1 January 1,546 –

Amortisation for the year 954 323

Impairment for the year 873 1,223

At 31 December 3,373 1,546

Carrying amount 2,413 4,240

At the end of the reporting period, the Company assessed the recoverable amount of other intangible assets representing timing

slots purchased during 2008 and recognised an impairment of RO 0.873 million (2008 - RO 1.223 million). The impairment loss

has been included in the “Expenditure” (Note 23).

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

7. Available-for-sale investments2009 2008

RO ’000 RO ’000

At 1 January 396 389

Fair value changes during the year 20 7

At 31 December 416 396

Quoted local equity investments 316 296

Unquoted local equity investments 100 100

416 396

The movement in the investments revaluation reserve is as follows:

2009 2008RO ’000 RO ’000


Net unrealised gain during the year 20 7





Available-for-sale investments are analysed as follows:

Fair value Cost Fair Value Cost2009 2009 2008 2008

RO ’000 RO ’000 RO ’000 RO ’000

Quoted local equity investments:

Banks and investment 139 36 133 36

Services 177 30 163 30

316 66 296 66

unquoted local equity investments:

Services 100 100 100 100

416 166 396 166

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

reporting period.

At the end of current and prior year reporting period none of the Company’s investment holdings represents 10% or more of

the investee’s share capital.

Details of the Company’s investment holding exceeding 10% of the market value of the Company’s total portfolio as of

31 December 2009 are as follows:

Portfolio FairNumber of holding value Costsecurities (%) RO ’000 RO ’000

MSM quoted securities:

National Finance Company SAOG 896,555 44 139 36

Oman United Insurance SAOG 151,356 12 38 16

8. Investment in an associate company2009 2008

RO ’000 RO ’000

Cost 75 75

Share of profits at the beginning of the year 1,363 1,066

Share of profits for the year 970 797

Dividends received in the year (800) (500)

1,608 1,438

Investment in an associate company represents 50% equity in Oman Sales and Services LLC, a limited liability company registered

in the Sultanate of Oman, at a cost of RO 75,000.

Summarised financial information of the associate (based on unaudited accounts) is as below:

2009 2008RO ’000 RO ’000

Revenue 14,045 12,841

Profit after tax 1,941 1,594

Assets 5,741 5,124

Liabilities 2,531 2,255




9. Long-term receivables

Long-term receivables represent interest-free security deposits placed to secure the lease of aircraft. Fair value of these deposits

has been discounted based on an effective interest rate method using a discount rate of 0.985%. The maturity of such deposits

is as follows:

2009 2008RO ’000 RO ’000

Maturity

April 2011 78 75

May 2012 375 358

March 2013 371 353

April 2014 221 208

May 2014 147 138

April 2017 818 671

June 2017 433 395

July 2017 – 524

August 2017 – 68

September 2017 – 522

October 2017 858 67

June 2019 462 412

3,763 3,791

10. Inventories2009 2008

RO ’000 RO ’000

Aircraft consumables 6,483 3,810

Catering stock 345 330

Passenger consumables 1,743 751

General 2,371 975

Hotel stock 104 –

11,046 5,866

Provision for obsolete and slow moving inventories (696) (744)

10,350 5,122

Movement in provision for obsolete and slow moving inventories:


(Reversed)/provided during the year (48) 96





11. Trade and other receivables2009 2008

RO ’000 RO ’000

Airlines and charterers 2,733 2,212

Travel agents 13,294 8,838

Ministries 881 1,102

Others 623 457

Provision for impaired debts (480) (302)

Trade receivables 17,051 12,307

Other receivables 9,890 6,375

Prepaid expenses 2,102 2,485

29,043 21,167

Movement in provision for impaired debts:


Additional provision during the year 228 1

Amounts written off during the year as uncollectible (50) –

Amounts recovered during the year – (46)


Trade receivables include amounts due from related parties amounting to RO 64,859 (2008 - RO 13,936).

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

Trade receivables include amounts totalling RO 10,316,250 (2008 - RO 6,217,486) due in foreign currencies, mainly US Dollars.

The Company had purchased options from the manufacturer to buy four ATR 42-500 aircraft. Since the Company does not have

a firm date to exercise these options, a provision has been created.

12. Term deposits

Term deposits, in the amount of RO 37.58 million (2008 - RO 32 million), represent deposits with commercial banks in Oman.

These term deposits mature within six months from the end of the reporting period and are denominated in Rials Omani,

earning interest ranging between 3.10% to 6.35% (2008 - 5.35% to 6.35%) per annum.

13. Cash and bank balances

Cash and bank balances comprise the following:

2009 2008RO ’000 RO ’000

Cash and bank balances 5,089 12,322

Cash and bank balances include amounts aggregating to RO 1,186,988 (2008 - RO 3,876,028) held with banks in India,

Sri Lanka and Bangladesh in local currencies. Prior approval from regulatory authorities of the respective countries is required

for the transfer of these funds.




For the purposes of the statement of cash flows, the amount for acquisition of business has been arrived at as follows:

2009RO ’000

Purchase consideration 16,000

Cash and cash equivalent balances acquired (1,618)

Cash and bank balances 14,382

14. Share capital2009 2008

RO ’000 RO ’000

Authorised share capital (shares of RO 1 each) 216,000 50,000

Issued and paid up share capital (shares of RO 1 each) 216,000 50,000

Shareholders who own 10% or more of the Company’s shares, whether in their name, or through a nominee account, and the

number of shares they hold are as follows:

% of 2009 % of 2008Shareholding No. of Shares Shareholding No. of Shares

Government of Sultanate of Oman 99.61 215,164,619 97.96 48,980,948

During the current year, shareholders of the Company approved a resolution at the Extraordinary General Meeting held on

12 April 2009 to increase the share capital of the Company from RO 50,000,000 to RO 216,000,000. Accordingly, the new shares

of RO 166,000,000 have been issued to the Government of Sultanate of Oman as follows:

Number of Value Shares RO ’000

Issue of Shares of RO 1 each against :

- Conversion of Government soft loan 80,000,000 80,000

- Transfer of assets of Golden Tulip Hotel 16,000,000 16,000

- Cash 70,000,000 70,000

Total 166,000,000 166,000

Share premium

In 2007, the Board of Directors proposed to increase the issued share capital to RO 50,000,000 by way of a preferential

allotment to the Government of Sultanate of Oman. This resolution was approved by the shareholders at an extraordinary

general meeting held on 28 February 2007. Consequently 36,717,500 shares were issued resulting in a share premium reserve

of RO 20,047,755 being created.




15. Provision for maintenance of aircraft, engines and rotables2009 2008

RO ’000 RO ’000

Provision for maintenance of aircraft, engines and rotables 5,768 2,632

Current portion (1,476) (836)

Long-term portion 4,292 1,796

Movement during the year is as follows:

At 1 January 2,632 1,370

Additional provisions during the year 4,759 2,043

Reversed during the year – (88)

Utilised during the year (1,623) (693)

At 31 December 5,768 2,632

Provision for maintenance of aircraft, engines and rotables is recognised only when the Company has a present obligation

(legal or constructive) arising from a past event and the costs to settle the obligation are both probable and can be measured

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

16. Borrowings2009 2008

RO ’000 RO ’000

Term loans 6,762 8,453

Bridge loans 66,640 –

Finance lease liabilities (Note 17) 110,836 32,767

184,238 41,220

Current portion

Term loans (1,691) (1,691)

Bridge loans (66,640) –

Finance lease liabilities (Note 17) (8,596) (3,159)

(76,927) (4,850)

Non-current portion 107,311 36,370

Term loans

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

The first term loan in the amount of RO 4,445,947 denominated in US Dollars, is for the purchase of one Boeing 737-

700 aircraft. The loan is a syndicated loan participated by one foreign and two local banks with the lead arranger being

Bank Muscat SAOG. The loan is repayable in 40 equal quarterly instalments commencing from February 2004. The Company

has the option to repay the loan in part or full on any of the repayment dates. The Government of the Sultanate of Oman

has given a guarantee for the repayment of the loan and the aircraft is mortgaged in favour of the Government of the

Sultanate of Oman (Notes 5 and 18).

The second term loan in the amount of RO 2,316,359 denominated in US Dollars, is for the purchase of spares for the Boeing aircraft.

The loan is a syndicated loan participated by one foreign and two local banks with a lead arranger being Bank Muscat SAOG. The

loan is repayable in 40 equal quarterly instalments commencing from February 2004. The Company has the option to repay the loan

in part or full on any of the repayment dates. The Government of the Sultanate of Oman has given a guarantee for the repayment

of the loan and the spares are mortgaged in favour of the Government of the Sultanate of Oman (Note 18).




The rate of interest on the above loans is three months LIBOR plus 0.9% (2008 - three months LIBOR plus 0.9%). The effective rate

of interest on the above loans was in the range of 2.12% to 3.18% per annum (2008 - 3.17% to 5.92% per annum).

Bridge loans

During the year, the Company obtained two short-term bridge loans totaling RO 66,639,600 (USD 173,000,000) from the

Government of the Sultanate of Oman for the purchase of two Airbus A330-200 aircraft. These loans have been obtained as

a stop-gap arrangement till long-term commercial financing is obtained by the Company with the support of Export Credit

Agencies (ECA) in Europe.

First bridge loan for purchase of 1st A330-200 aircraft (delivered in September 2009)

Loan amount RO 33.3 million (USD 86.5 million)

Date of loan 1 September 2009

Tenure 6 months

Rate of Interest 1.56% per annum

Second bridge loan for purchase of 2nd A330-200 aircraft (delivered in October 2009)

Loan amount RO 33.3 million (USD 86.5 million)

Date of loan 15 October 2009

Tenure 6 months

Rate of Interest 1.40% per annum

17. Finance lease liabilities

The Company has finance lease liabilities in respect of two Airbus 330-300 (2008- Nil) and three Boeing 737-800 aircraft (2008

- three). Finance lease liabilities are payable as follows:

Minimum lease paymentsPresent value of

minimum lease payments2009 2008 2009 2008

RO ’000 RO ’000 RO ’000 RO ’000

Not later than one year 13,167 4,487 8,596 3,159

Later than one year and not later than five years 52,669 22,434 38,256 17,921

Later than five years 73,523 12,760 63,984 11,687

139,359 39,681 110,836 32,767

Future finance charges (28,523) (6,914) – –

Total 110,836 32,767 110,836 32,767

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

18. Government soft loan2009 2008

RO ’000 RO ’000

Government soft loan – 80,000

Less: deferred Government grant – (30,641)

– 49,359




The Government of the Sultanate of Oman had provided the interest free loans of RO 80 million. The first loan was disbursed

in January and February 2005 amounting to RO 10 million. The loan was repayable in 10 equal annual instalments from January

2011 and was secured against a mortgage of one Boeing 737-700 aircraft and associated spares. Under the loan agreement

signed with the Government, the Company cannot distribute any profit if any instalment is due and not paid by the Company.

The second loan was disbursed in May, October and December 2008 amounting to RO 70 million for the purchase and lease

of aircraft. The loan was repayable in 20 equal half-yearly instalments from May 2014.

During the year, both loans have been converted into equity and an equivalent number of shares in the Company have been

issued to the Government of the Sultanate of Oman (Note 14).

Soft loan from the Government was stated at amortised cost. In accordance with Capital Market Authority (CMA)

Circular 1 of 2002 and IAS 39, the difference between the carrying value and fair value of the loan has to be shown as “deferred

government grant” and is to be recognised as income over the loan period as necessary to match it with the related costs,

which it is intended to compensate on a systematic basis. The current market weighted average interest rate was considered

for this calculation. However, the current portion of recognised deferred Government income is equivalent to the related interest

cost. Hence, there was no impact on the profit or loss.

19. Employees’ end-of-service benefits

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

2009 2008RO ’000 RO ’000

At 1 January 2,797 2,312

Charge for the year (Note 23) 816 675

Payments during the year (99) (190)

At 31 December 3,514 2,797

20. Trade and other payables2009 2008

RO ’000 RO ’000

Trade payables 10,937 7,306

Advances from customers 14,003 9,189

Other payables 13,913 7,693

Accrued expenses 18,963 15,368

57,816 39,556

Trade payables include aggregate amounts of RO 6,394,400 (2008 - RO 2,186,054) due in foreign currencies, mainly in Indian

Rupees and US Dollars.

Trade payables include amounts due to related parties amounting to RO 393,218 (2008 - RO 336,000).




21. Net assets per share

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

2009 2008

Net assets (RO ’000) 138,437 36,698

Number of shares outstanding at the year end (’000s) 216,000 50,000

Net assets per share (RO) 0.641 0.734

22. Revenue2009 2008

RO ’000 RO ’000

Scheduled services - international 123,815 114,594

Scheduled services - domestic 12,290 13,174

Air charter services 9,225 10,869

Handling fees - engineering 2,905 2,584

Handling fees - others 9,006 8,187

Catering 2,863 3,443

Rooms, food and beverage revenue 3,434 –

Other revenue 717 397

164,255 153,248

23. Expenditure2009 2008

RO ’000 RO ’000

Operating lease rentals on aircraft 31,402 27,757

Fuel cost 44,217 59,739

Maintenance cost 12,637 8,163

Other aircraft operating expenses 23,615 18,580

Passenger related costs 13,930 10,716

Cost of catering materials consumed 3,601 3,088

Employee costs 59,784 44,553

Insurance costs 1,289 968

Omani training and development costs 962 636

Depreciation (Note 5) 11,394 6,832

Amortisation/impairment 2,949 1,546

Management fee 216 –

Others 21,404 12,626

227,400 195,204

Employee costs include the following:

Wages and salaries 46,223 35,395

Other benefits 11,567 7,535

Increase in liability for employee benefits 816 675

Contribution to a defined retirement plan 1,178 948

59,784 44,553




24. Interest and investment income2009 2008

RO ’000 RO ’000

Interest on term deposits 1,669 1,762

Dividends 44 17

1,713 1,779

25. Aviation services agreement and combined term sheet agreement

In accordance with the aviation services agreement between the Company and the Ministry of Communications, the Government

of the Sultanate of Oman (the “Government”), the Company has been granted the right to operate domestic and international

airline services, to provide aircraft passenger and cargo handling facilities, airline catering and other services in Oman. The

Company has the sole right to use the utilities and facilities provided by the Government for such purposes. The agreement

was for a period of twenty years up to 24 May 2001.

In June 2001, through a combined term sheet agreement, the Director General of Civil Aviation and Meteorology (DGCAM),

acting in accordance with a Cabinet Decision of 4 April 2000 and a decision issued by the Committee of Ministers dated

13 June 2000, extended the Company’s ground handling and cargo handling services concessions, for periods of five years, and

its catering services concession for a period of ten years, all effective from 1 January 2002. The Company’s rights to operate its

scheduled and charter airline services were extended for an indefinite period.

During the year 2007, the ground handling concession was extended till 2010 or the opening of new international airport

terminal, whichever is earlier and cargo handling services concession was extended till 31 December 2008. The Company

paid the charges payable to the concerned concessionaire Oman Airport Management Company SAOC (OAMC) in line with the

amounts payable under the amended terms of the concession agreements as enumerated herein.

Subsequent to 31 December 2008, the Company received intimation from OAMC expressing its intention to extend the

ground handling concession till 31 December 2011 and the cargo handling services concession till 31 December 2009 on the

existing terms.

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

2009 2008RO ’000 RO ’000

Rent 200 200

Concession fee 843 805

Under the combined term sheet agreement, effective 1 January 2002, the Company will pay to the Airport Operating Company

the following concession fees:

Ground handling fee : 2% of monthly turnover from NOC handling, crew transport and radio rental revenue provided to

third parties.

7.5% of the monthly turnover received from ground handling services provided to third parties.

Cargo handling fee : 2% of monthly turnover from agency commission and 50% of demurrage collected from third parties.

7.5% of the monthly turnover received from cargo handling services provided to third parties.

Catering fees 5% of the monthly turnover received from catering services provided for use on Airport for third

parties and 3% of monthly turnover for off-airport catering services.




26. Taxation2009 2008

RO ’000 RO ’000

Statement of comprehensive income

Current tax

Current year – –

Deferred tax

Charge of deferred tax liability 922 885

Total taxation 922 885

Non-current liability

Deferred tax [Note 26 (b)] 2,913 1,991

The Company is subject to income tax at the rate of 12% (2008 - 12%) of taxable income in excess of RO 30,000.

The following further notes apply:

(a) Income tax is provided as per the provisions of the law of income tax on companies in the Sultanate of Oman as adjusted

for items that are either disallowed or non-available. No amount of tax provision was necessary during the year as the Company

has incurred taxable losses and also has carry forward losses to set off against taxable profits, if any. The Secretariat General

for Taxation at the Ministry of Finance has not completed the Company’s tax assessments for the years from 2005 to 2008.

The Company has assessed tax losses available for offset against future taxable profits as follows:

2009 2008RO ’000 RO ’000

Carry forward loss for the year 2004 – 3,791

– 3,791

(b) Deferred income taxes are calculated on all temporary differences using a principal tax rate of 12% (2008 - 12%). The net

deferred tax (liability)/asset and deferred tax charge in the income statement are attributable to the following items:

1 January 2009

Charged toprofit or loss

31 December 2009

1 January 2008

Charged toprofit or loss

31 December 2008

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

Asset

Carried forward losses 1,391 (455) 936 1,886 (495) 1,391

liability

Accelerated tax depreciation (3,382) (467) (3,849) (2,992) (390) (3,382)

(1,991) (922) (2,913) (1,106) (885) (1,991)

27. Loss per share – basic and diluted2009 2008

Loss for the year (RO ’000) (64,281) (42,755)

Weighted average number of shares outstanding during the year (‘000) 119,282 50,000

Loss per share – basic and diluted loss per share (RO) (0.539) (0.855)

The par value of each share is RO 1. The loss per share is calculated by dividing the loss for the year by the weighted

average number of shares outstanding during the year.




28. Related parties

Related parties comprise the shareholders, Directors, key management personnel and business entities in which they have

the ability to control or exercise significant influence in financial and operating decisions.

The Government of the Sultanate of Oman is not considered as a related party.

The Company maintains balances with these related parties which arise in the normal course of business from the commercial

transactions and are entered into at terms and conditions which the Directors consider to be comparable with those adopted for

arms’ length transactions with third parties. Outstanding balances at the year end are unsecured and settlement occurs in cash.

No expenses have been recognised in the year for impaired debts in respect of amounts owed by related parties.

Following is the summary of significant transactions with related parties during the year:

2009 2008RO ’000 RO ’000

Expenses

Purchase of goods/services 4,904 4,708

Management and marketing fee 238 –

The amounts due from/due to related parties are included in Notes 11 and 20 respectively.

Key management personnel benefits

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the

activities of the Company, directly or indirectly, including any Director (whether executive or otherwise).

2009 2008RO ’000 RO ’000

Short-term benefits 680 534

Post employment benefits 52 8

Directors’ remuneration and sitting fees 13 15

745 557

29. Segment information

The new standard which replaced IAS 14 ‘Segment reporting’ requires a ‘management approach’ under which segment information

is presented on the same basis as that used for internal reporting purposes. This has not resulted in any significant change

to the reportable segments presented by the Company as the segments reported by the Company were consistent with the

internal reporting provided to the chief operating decision maker.

Primary reporting format - business segments

The Company is organised into four major operating divisions - airline, hotels & catering, ground handling and cargo handling.

The airline division provides passenger and cargo services on a scheduled and charter basis. The hotel division operates Golden

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

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




The Company reports its primary segments information separately for its airline and catering divisions and by combining its

cargo and ground handling divisions. This information is presented as follows:

Segment revenues and resultsAirline Hotels and catering Ground and cargo handling Total

2009 2008 2009 2008 2009 2008 2009 2008RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

Revenue

Total revenue 149,294 141,983 15,377 9,963 14,231 12,382 178,902 164,328

Inter division revenue (1,059) (762) (9,080) (6,520) (5,225) (4,195) (15,364) (11,477)

External revenue 148,235 141,221 6,297 3,443 9,006 8,187 163,538 152,851

Other income 717 397

164,255 153,248

Segment (loss)/profit including inter division (loss)/profit (58,641) (39,948) 4,697 3,317 (277) 1,056 (54,221) (35,575)

Common costs (8,924) (6,381)

Operating loss (63,145) (41,956)

Finance cost (2,419) (1,686)

Interest and investment income 1,713 1,779

Share of profits of an associate company 970 797

Increase in fair value of long-term receivables 365 1

Concession fee (843) (805)

Deferred tax charge (922) (885)

loss for the year (64,281) (42,755)

Segment assets and liabilities2009 2008

RO ’000 RO ’000

Segment assets

Airline and airport services 374,265 203,060

Hotel 16,397 –

Others 2,024 1,834

Total assets 392,686 204,894

Segment liabilities

Airline and airport services 251,084 166,205

Hotel 252 –

Others 2,913 1,991

Total liabilities 254,249 168,196

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

All assets are allocated to reportable segments other than investments in associates and available-for-sale investments. Goodwill

is allocated to Company’s hotel cash generating unit. Assets used jointly by reportable segments are allocated on the basis of

the revenues earned by individual reportable segments; and

All liabilities are allocated to reportable segments other than current and deferred tax liabilities. Liabilities for which reportable

segments are jointly liable are allocated in proportion to segment assets.




Geographical information

The Company operates in two principal geographical markets, the domestic market in the Sultanate of Oman and the overseas

markets. The following table shows the distribution of the Company’s revenues; inclusive of inter division revenues, by

geographical market:

Oman Overseas Total2009 2008 2009 2008 2009 2008

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

Revenue including inter division revenues 16,003 49,734 162,899 114,594 178,902 164,328

30. Commitments and contingencies

a. Capital commitments2009 2008

RO ’000 RO ’000

Capital expenditure commitments 1,305 2,220

b. Operating lease commitments

Details of aircraft lease agreements are as follows:Lease

agreements signed

Aircraft deliveredagainst leaseagreements

Aircraft to bedelivered in

future periods

Aircraft type

737-800 10 (10) –

737-700 1 (1) –

11 (11) –

The fixed lease commitments against 11 (2008: 9) delivered aircraft are as follows:2009 2008

RO ’000 RO ’000

Not later than one year 19,892 16,413

Later than one year and not later than five years 80,052 35,951

After five years 20,972 9,929

120,916 62,293

The fixed lease commitments against nil (2008:5) aircraft to be delivered in future periods are as follows:2009 2008

RO ’000 RO ’000

Not later than one year – 7,048

Later than one year and not later than five years – 54,119

After five years – 68,973

– 130,140

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

the leased aircraft.




31. Financial risk management

Financial instruments carried on the statement of financial position comprise cash and cash equivalents, term deposits, trade

and other receivables, trade and other payables and borrowings.

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired

where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the

financial asset, the estimated future cash flows have been impacted.

The classification of financial assets depends on the purpose for which the financial assets were acquired. Management

determines the classification of its financial assets at initial recognition.

Financial risk factorsOverview

The Company has exposure to the following risks from its use of financial instruments:

Credit risk

Liquidity risk

Market risk

The Company’s activities expose it to a variety of financial risks: market risk, credit risk and liquidity risk. The Company’s overall

risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse

effects on the Company’s financial performance.

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

(i) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its

contractual obligations and arises principally from the Company’s receivables from customers.

Trade and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Owing to the

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

The Company has established credit policies and procedures that are considered appropriate and commensurate with the

nature and size of receivables.

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

Airlines and charterers

Travel agents

Government customers

Other customers

The potential risk in respect of amounts receivable is limited to their carrying values as Management regularly reviews these

balances whose recoverability is in doubt.

The Company establishes a provision for impairment that represents its estimate of potential losses in respect of trade and

other receivables. The main components of this loss are a specific loss component that relates to individual exposures.




Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The exposure to credit risk at the end of the

reporting period was on account of:

2009 2008RO ’000 RO ’000

Long-term receivables 3,763 3,791

Trade receivables 17,531 12,609

Other receivables 11,992 8,860

Term deposits 37,576 32,000

Cash and bank balances 5,089 12,322

75,951 69,582

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

2009 2008RO ’000 RO ’000

Travel agents 13,294 8,838

Airlines and charterers 2,733 2,212

Ministries 881 1,102

Other customers 623 457

17,531 12,609

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

2009 2008gross Impairment Gross Impairment

RO ’000 RO ’000 RO ’000 RO ’000

Not past due 10,606 – 8,625 –

Past due 0 - 150 days 5,903 – 3,380 –

Past due 151 - 365 days 148 – 78 –

More than 1 year 874 480 526 302

17,531 480 12,609 302

(a) Included in the Company’s trade receivable balance are debtors with a carrying amount of RO 6.445 million (2008: RO 3.682

million) which are past due at the end of the reporting period for which the Company has not provided as there has not been a

significant change in credit quality and the amounts are still considered recoverable. The Company holds collaterals in respect

of certain parties in the form of cash deposits/bank guarantees to the extent of RO 1.889 million. The average collection period

of these receivables is 30 days (2008 - 30 days).

(b) The movement in provision for impaired debts has been disclosed in Note 11.

The allowance account in respect of trade receivables is used to record impairment losses unless the Company is satisfied

that no recovery of the amount owing is possible, at which point the amount considered irrecoverable is written off against

allowance account.

(ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach

to managing liquidity is to ensure, as far as possible that it will have sufficient liquidity to meet its liabilities when due, under both

normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.




Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses including the

servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot reasonably be

predicted, such as natural disasters. The Company has access to credit facilities.

Amount due and payable in future between

Carrying 6 months 6-12 1-2 Beyond amount or less months years 2 yearsRO ’000 RO ’000 RO ’000 RO ’000 RO ’000

31 December 2009

Trade payables 10,544 10,544 – – –

Due to related parties 393 393 – – –

Other payables 32,876 32,876 – – –

Borrowings 184,238 71,753 5,174 21,704 85,607

228,051 115,566 5,174 21,704 85,607

31 December 2008

Trade payables 6,970 6,970 – – –

Due to related parties 336 336 – – –

Other payables 23,061 23,061 – – –

Borrowings 41,220 2,410 2,440 4,986 31,384

71,587 32,777 2,440 4,986 31,384

Advances from customers represent tickets sold but not flown as at the end of the reporting period.

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect

the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to

manage and control market risk exposures within acceptable parameters, while optimising the return.

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

Aircraft lease foreign currency exchange rate risk

There are no significant exchange rate risks as all aircraft lease rental agreements, new aircraft commitments and deposits are

made in US Dollars to which Rials Omani is fixed.

Interest rate risk

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

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

2009 2008RO ’000 RO ’000

Fixed rate instruments

Financial assets 37,576 32,000

Financial liabilities 184,238 41,220




Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a

change in interest rates at the end of the reporting period would not affect profit or loss.

32. Fair value of assets and liabilities

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

Fair value measurements recognised in the statement of financial position

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair

value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

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

liabilities.

Level 2 - fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are

observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that

are not based on observable market data (unobservable inputs).

31 December 2009Level 1 Level 2 Level 3 TotalRO ’000 RO ’000 RO ’000 RO ’000

Available-for-sale financial assets

Quoted local equity investments 316 – – 316

Unquoted local equity investments – 100 – 100

Total 316 100 – 416

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

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

33. Capital management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and benefit other

stakeholders. The management’s policy is to maintain a strong capital base so as to maintain creditor and market confidence

and to sustain future development of the business.

34. Approval of the financial statements

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

03 March 2010.



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