Annual Report 2013 - dfs.de · In the 2013 business year, the Supervisory Board ... the Supervisory Board from 26 April 2013, Dr Martina Hinricher, Dr Angelika Kreppein, Michael Odenwald

Annual Report 2013

The business year 2013

4

DFS Deutsche Flugsicherung GmbH

In the 2013 business year, the Supervisory Board

performed its functions as prescribed by law and the

Articles of Association. It regularly advised the Board of

Managing Directors and was comprehensively involved in

decisions of fundamental importance to the company.

In its work, the Supervisory Board was supported by its

three committees: an audit, a personnel and a project

committee. The committees intensively discussed deci-

sion papers in advance and prepared recommendations

for the decisions to be taken at the plenary meetings.

With the resolution of the Shareholder Meeting on the

discharging of the Supervisory Board and the Board

of Directors for the business year 2012 on 26 April

2013, the fourth term of office of the Supervisory Board

ended as scheduled. As of the fifth term of office of

the Supervisory Board from 26 April 2013, Dr Martina

Hinricher, Dr Angelika Kreppein, Michael Odenwald and

Ralf Raddatz were again appointed as members of the

Supervisory Board on the Shareholder side. Repre-

sentatives on the Shareholder side for the first time

are Dr Edeltraud Leibrock and Carmen von Bornstaedt-

Radbruch.

The employee representatives were chosen by means of

an election among staff. In the fifth term of office, Peter

Schaaf and Dirk Wendland as well as the new members

Catja Gräber, Volker Möller, Markus Siebers and Andrea

Wächter are the staff representatives on the Supervisory

Board.

In the 83rd and constitutional meeting, the Supervisory

Board elected Michael Odenwald as Chairman of the

Supervisory Board and Markus Siebers as Deputy Chair-

man. In addition, the composition of the three commit-

tees was completely changed.

The Board of Managing Directors reported to the Super-

visory Board in due form by means of comprehensive

quarterly reports in accordance with Article 90 of the Ger-

man Stock Corporation Law (AktG). On the basis of these

reports, the Supervisory Board discussed the situation and

development of the company at four ordinary meetings as

well as at two extraordinary meetings. The Board of Man-

aging Directors provided supplemental ad hoc information

to the Supervisory Board on a case-by-case basis.

In addition to the regular deliberations on the quarterly

reports on the situation of the company, the Supervisory

Board specifically dealt with the following topics:

■ the 2012 annual financial statements, management

report and the audit report on the 2012 annual financial

statements,

■ the economic plan 2014, with the associated investment

and financial plan,

■ the submission of a tender for the apron management

service at Munich Airport and

■ the possible stake in the UK air navigation service

provider NATS.

In addition, the Supervisory Board decided on the replace-

ment investments

■ in the air traffic control system in the Munich Control

Centre as part of the P2 renewal programme

and

■ in the air traffic control system iCAS at the Karlsruhe

Control Centre.

At two extraordinary meetings, the Supervisory Board

passed the economic, investment and finance plans 2013

and dealt with the corporate strategy based on the DFS

five-point programme.

Report of the Supervisory Board

5

After the first year of the term of office of the new Board

of Managing Directors, the Supervisory Board sees itself

confirmed in the progress of the reorientation of DFS. The

Supervisory Board is convinced that DFS is on the right

path to meet demanding challenges in an economically

difficult environment.

The Supervisory Board discussed the 2013 financial

statements and the management report with the assis-

tance of the audit report prepared by the auditors RBS

RoeverBroennerSusat GmbH & Co. KG in accordance with

Article 53 of the German Budgetary Principles Act (HGrG).

The comprehensive risk management system established

in the company was included in the audit. The auditors

participated in the discussions and were available to

answer questions, giving an account of the key results of

their report. The Supervisory Board found no exceptions

to be taken against the audit report and its findings.

The Supervisory Board would like to thank the new Board

of Managing Directors, all members of staff and the mem-

bers of the staff councils for their commitment to DFS

and for their successful work in the business year 2013.

The Supervisory Board

Michael Odenwald

Chairman

Michael Odenwald

6


Members of the Supervisory Board

ChairpersonMichael OdenwaldState SecretaryFederal Ministry of Transport and Digital Infrastructure

Deputy ChairmanMarkus SiebersEmployee representativeDFS Deutsche Flugsicherung GmbH

Carmen von Bornstaedt-RadbruchMinisterialrätinFederal Ministry of Defence

Catja GräberEmployee representativeDFS Deutsche Flugsicherung GmbH

Dr Martina HinricherMinisterialdirektorinFederal Ministry of Transport and Digital Infrastructure

Dr Angelika KreppeinRegierungsdirektorinFederal Ministry of Finance

Dr Edeltraud LeibrockMember of the Executive BoardKfW Bankengruppe

Volker MöllerEmployee representativeDFS Deutsche Flugsicherung GmbH

Ralf RaddatzColonel (G.S.)Federal Ministry of Defence

Peter SchaafEmployee representativeDFS Deutsche Flugsicherung GmbH

Andrea WächterEmployee representativeDFS Deutsche Flugsicherung GmbH

Dirk WendlandEmployee representativeDFS Deutsche Flugsicherung GmbH

Correct at March 2014

7

Members of the Advisory Council

Christine AligChairpersonBARIG – Board of Airline Representatives in Germany e.V.

Gerd BechtManagement Board Member for Compliance, Privacy, Legal Affairs and Corporate SecurityDeutsche Bahn AG

Andreas BergerMember of the Board of ManagementAllianz Global Corporate & Specialty AG

Markus BeumerMember of the Board of Managing DirectorsCommerzbank AG

Michael EggenschwilerChief Executive OfficerFlughafen Hamburg GmbH

Dirk FischerMember of ParliamentGerman Bundestag

Prof Dr Elmar GiemullaPresidentAircraft Owners and Pilots Association AOPA Germany

Winfried HermannMinisterMinistry of Transport and Infrastructure Baden-Württemberg

Ulrich LangeMember of ParliamentGerman Bundestag

Kirsten LühmannMember of ParliamentGerman Bundestag

Karl MüllnerLieutenant GeneralChief of Staff, Air ForceFederal Ministry of Defence

Katherina ReicheParliamentary State SecretaryFederal Ministry of Transport and Digital Infrastructure

Paul RiemensChief Executive OfficerLuchtverkeersleiding Nederland (LVNL)

Prof Dr Bernd SannerAGAPLESION BETHESDA KRANKENHAUS WUPPERTAL gGmbHMedical Director

Dr Stefan SchulteChairman of the Executive BoardFraport AG

Carsten SpohrChief Executive Officer of Lufthansa Passenger AirlinesDeutsche Lufthansa AG

Wolfgang StertenbrinkChairman of the Supervisory BoardsALTE LEIPZIGER – HALLESCHE Group

Ralf TeckentrupPresident of the Executive BoardCondor Flugdienst GmbH

Klaus Thiemann

Daniel WederChief Executive Officerskyguide swiss air navigation services ltd

Permanent guest:Michael OdenwaldChairman of DFS Supervisory Board Federal Ministry of Transport and Digital Infrastructure

Correct at March 2014

8


Group management report

1. Overview of the DFS Group ...................................................................................................................................9

2. Economic environment .......................................................................................................................................16

3. Personnel ..........................................................................................................................................................33

4. Supplementary report .........................................................................................................................................35

5. Compliance .......................................................................................................................................................36

6. Risk report ........................................................................................................................................................36

7. Outlook .............................................................................................................................................................42

Group financial statements

Annex 1: Group statement of comprehensive income .................................................................................................48

Annex 2: Group balance sheet ..................................................................................................................................49

Annex 3: Group statement of changes in equity .........................................................................................................50

Annex 4: Group cash flow statement .........................................................................................................................51

Annex 5: Notes (group) ............................................................................................................................................52

Notes to the statement of comprehensive income ........................................................................................73

Notes to the balance sheet .........................................................................................................................81

Additional disclosures ..............................................................................................................................111

Acronyms and abbreviations .....................................................................................................................142

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1. Overview of the DFS Group1.1 Business activities

The main business of air navigation services provided

by DFS Deutsche Flugsicherung GmbH is defined by the

tasks set out in Article 27c of the German Aviation Act

(LuftVG). Under this act, DFS is entrusted with providing

air traffic services and air traffic flow management as well

as with managing airspace utilisation (sovereign task). For

this purpose, it develops and operates air traffic service

systems as well as communications, navigation and sur-

veillance systems. DFS operates control centres in Lan-

gen, Bremen, Karlsruhe and Munich as well as 16 control

towers at international airports in Germany. In addition,

DFS is represented at the EUROCONTROL Control Centre

in Maastricht, the Netherlands. Through these activities

and with its 6,000 operational and administrative staff,

DFS ensures that approximately three million flights under

instrument flight rules (IFR) reach their destinations safely

and on time each year.

As payment for its main business, DFS levies air naviga-

tion charges. These charges are set by means of a charg-

ing ordinance issued by the Federal Ministry of Transport

and Digital Infrastructure (BMVI).

DFS also provides commercial services for third parties

on the free market (i.e. services not financed by air navi-

gation charges). These commercial services comprise

project work for national and international air navigation

service providers, consulting services, aeronautical publi-

cations, apron management services as well as the train-

ing services offered by the DFS Academy.

Group management report for the business year 2013

Air navigation services under Article 27c German Aviation Act (LuftVG)■ Air traffic services

■ Air traffic flow management

■ Management of airspace utilisation

■ Aeronautical information services

■ Projects■ Consulting■ Publications■ Apron management

services■ Training

Main business(Control Centre, Tower and AIM)

Commercial business(AS)

Not financed by air navigation charges

Financed by air navigation charges

Overview of business activities

Group management report 2013

10


The main business and the commercial business are

grouped into four business units:

1.2 Structure of the Group

Aeronautical information service and provision

of aeronautical information and data

Aeronautical Information

Management

Air traffic control for the terminal and en-route areas

Control Centre

Air traffic control at inter-national airports

Tower

DFS business units

Simulations, training and consulting services

as well as marketing of aeronautical

information products

Aeronautical Solutions

The four business units are complemented by corporate

service centres and corporate development centres. The

corporate service centres offer centrally provided internal

services to the business units. The corporate develop-

ment centres focus on management processes and on

preparing decisions to be taken by management.

100% The Tower Company

(TTC)

BILSODA

GmbH & Co. KG

(BILSODA)

100% DFS Energy GmbH

(DFS Energy)

55% FCS Flight

Calibration Services GmbH

(FCS)

100% Unterstützungs -

kasse GmbH

(DFS U-Kasse)

100% DFS International Business Services

GmbH

(DFS IBS)

GroupEAD Europe S.L.

(GEAD)

36%

Tower Air Traffic Services S.L.

(TATS)

50%

R. EisenschmidtGmbH

(Eisenschmidt)

100%

European Satellite Services Provider

Société par Actions Simplifiée(ESSP SAS)

16.667%

DFS Deutsche Flugsicherung GmbHWholly owned by the

Federal Republic of Germany

24.9%

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The subsidiaries and investments of the DFS Group sup-

plement the portfolio of services offered by DFS and are

closely related to the aviation industry. Other major activi-

ties of the DFS Group:

Operational

■ Development, provision and conduct of air navigation

services at regional airports as well as the provision of

other services, especially apron management services,

coordination of ground handling and meteorological

observations.

■ Operation of an air transport company for the transport

of persons and the material of third parties for the

flight inspection of navigation aids as well as services,

developments and support of all kinds for the conduct

of flight inspections.

■ Operation of a database of aeronautical information

for the provision of aeronautical data and associated

services.

New since July 2013

■ Production and marketing of aeronautical charts and

publications as well as other aeronautical information,

including in electronic form. This encompasses the

marketing of technical accessories for the preparation,

planning and conduct of flights.

Supporting

■ Generation, provision and sale of energy for the own

use of DFS and for a fixed group of external customers.

■ Construction, rental, operation and administration of a

parking structure for DFS.

As a reaction to the continuing consolidation in the avia-

tion industry and the resulting diversified framework

conditions, DFS has initiated the first measures to adapt

and realign the structure of the Group. In preparation for

its future organisational and financing holding function,

DFS European Satellite Services Provider GmbH (DFS

ESSP) has been renamed and has been trading as DFS

International Business Services GmbH (DFS IBS) since

3 September 2013. The growing national and international

scope of DFS IBS covers primarily the management,

holding, administration and financing of investments in

companies that promote the development, provision and

conduct of services on the air transport market and their

further development. On 3 July 2013, DFS IBS acquired

100 percent of the shares in R. Eisenschmidt GmbH,

Egelsbach, Germany and integrated this long-standing

contracting party into the DFS Group. This step secures

a high level of quality and reliability over the long term for

our customers.

On 14 October 2013, DFS took over the payment of

grants to employees and eligible dependants in the case

of emergencies. These duties had previously been under-

taken by DFS Unterstützungskasse GmbH (DFS U-Kasse).

DFS U-Kasse is being wound up.

The contents of this group management report refer to

DFS only, as the subsidiaries neither individually nor col-

lectively exceed quantitative thresholds or display qualita-

tive characteristics with a material impact on the results

and financial position of DFS.

1.3 Legal framework and management organisation

In 1993, DFS was entrusted with the tasks of the Federal

Administration of Air Navigation Services (BFS). The head-

quarters of DFS is located near Frankfurt, in Langen, Am

DFS-Campus 10. The company is registered under HRB

34977 on the Commercial Register at the local district

court in Offenbach.

The object of the company is the development, provision

and execution of the air navigation services delegated

to the company by the Federal Ministry of Transport and

Digital Infrastructure (BMVI). The company can provide air

navigation services in Europe as well as carry out related

sideline activities in Germany and abroad.

The sole shareholder is the Federal Republic of Germany.

The management organisation is based on the distribution

of responsibilities among the DFS Managing Directors.

12


The Board of Managing Directors is supported by a

sixteen-strong Management Committee, whose members

come from the executive management level. The Manage-

ment Committee advises on important issues, shares

information and prepares the decisions of the Board of

Managing Directors.

The Supervisory Board of DFS comprises 12 members,

six appointed by the Shareholder and six elected by

the employees. In 2013, the Supervisory Board was

reformed as scheduled (see Note 42.2 on the composi-

tion of the Supervisory Board).

1.4 Strategies and objectives

DFS is committed to delivering an outstanding level of

performance at a first-class, uncompromising safety

level. The company services are provided in a sustain-

able manner and are tailored to the different needs of

our customers. As a certified provider of air navigation

services for complex airspaces and airports, DFS contrib-

utes to enhancing the performance of the air transport

system, while carefully taking noise abatement needs into

account. DFS offers challenging work for aviation enthusi-

asts and innovative people from around the world seeking

the opportunity to shape the future of air transport.

The financial strategy of DFS promotes the financial sta-

bility of the company and is based on the following areas

of focus:

■ A good to very good credit rating: Investors, business

partners and employees should be able to continue

to trust in the financial stability of the company. The

company secures a very good investment grade rating,

both in combination with its Shareholder and from a

stand-alone perspective (see section on Financial man-

agement).

■ Adequate liquidity: The company keeps an operational

reserve of €160 million to be able to react flexibly to

changed conditions in its environment. This ensures the

company's ability to act.

■ Adequate capital structure and equity ratio: The capital

structure and equity ratio are strengthened continu-

ously. The negative impact on the equity as defined

under IFRS stemming from the revised standard on the

recognition of long-term employee benefits (see Note

25.8) from the 2013 business year will be reduced step

by step over the next 15 years, starting from 2015

due to higher air navigation charges. DFS will continue

Distribution of responsibilities among the DFS Managing Directors

Chairman andCEO

■ Strategy, organisation, international affairs■ Institutional and legal affairs, insurances,

risk management, compliance■ Safety and security management systems■ Auditing, quality management■ Corporate communications, public relations,

environment■ Finance incl. taxes and charges■ General administration■ Procurement■ Consulting services and system deliveries

Managing Director Operations

■ Air traffic services■ Airspace management■ Air traffic flow management■ Aeronautical information service■ Communication, navigation

and surveillance services■ Product/system management for

technical systems, logistics■ Research and development■ Military affairs■ Technical and infrastructural facility manage-

ment■ Development of ATM systems

and business and administrative information technology

Managing Director Human Resources – Labour Director –

■ Human resources strategy■ Collective bargaining (strategies

and policies)■ Staff planning, human resources

management■ Human resources development,

initial and continuation training, Academy

■ Payroll accounting■ Compensation and incentive systems■ Occupational pensions■ Social and health management■ Industrial safety, accident prevention■ Labour law, collective bargaining law

13

to maintain the equity ratio shown in 'adjusted equity'

(see Note 35.4) of around 25 percent and to progress

towards a fully funded status for occupational pensions

in a step-by-step manner.

■ Low debt and unencumbered assets: The take-up of

loans is tightly linked to the capital expenditure to be

financed both as regards timing and purpose, and the

loans are paid back over the normal useful life of the

capital expenditure. The infrastructure of the company

is unencumbered and remains the property of the com-

pany. This creates a stable asset base that is for all

intents and purposes freely available.

■ Ability to pay a dividend: The provision of cost-effective

operational air navigation services ensures that the

capital provided by the Shareholder earns an adequate

return.

A modern risk management system supports the planning

and control of financial risks in a consistent manner.

Starting from the DFS vision with its long-term focus,

the Board of Managing Directors has developed strate-

gic guidelines and installed a five-point programme to

realign DFS with the demands of the future. In doing so,

it has defined fundamental strategic objectives. They

focus on cooperation among air navigation service pro-

viders in Europe, the optimisation of air traffic services,

the increase of productivity, the commercial business

and the reorganisation of the human resources function

at DFS.

Air navigation services in Europe

As a strong air navigation service provider, DFS is actively

shaping the European consolidation process. It cooper-

ates with European partners in a reliable and predictable

manner.

It analyses the competition and acquires new business

both in the commercial business and in the business

financed by air navigation charges. The company supports

suitable and appropriate regulations to implement the

SES objectives.

Air traffic services

DFS is reacting to the demands of customers by creat-

ing the conditions for the flexible deployment of staff

and improving both airspace structures and proce-

dures. ATS systems continue to be harmonised across

Europe.

Increase in productivity

By 2019, DFS aims to reduce operating costs by

approximately €100 million per year. The company is in

close dialogue with the employees, staff councils and

trade unions affected to avoid a further increase in head-

count and uses natural staff turnover to reduce staff

numbers. All measures will be introduced in a socially

compatible manner. Mandatory redundancies are not

planned.

The company is critically appraising capital expenditures

and reducing general administrative expenses.

Commercial business

DFS is improving its competitiveness and is systemati-

cally expanding its commercial business.

Human resources

DFS is strengthening its reliable and trust-based working

relationships with its staff, executives and the staff rep-

resentatives. It is improving the ability of staff members

to combine work and family life over the long term and is

reorganising the human resources function.

1.5 Planning and control

Corporate management at DFS is based on the regulation

targets, the strategic guidelines and objectives laid down

by the Board of Managing Directors, the requirements of

the business financed by air navigation charges and the

commercial business as well as the organisational struc-

ture and the five-point programme of DFS. The planning

and control process identifies suitable measures, embeds

14


them in the yearly rolling five-year plan and continuously

monitors the results of the Group, the segment financed

by air navigation charges, all other segments and the

group companies.

Performance and cost objectives as well as internal

goals from the five-point programme determine the

requirements placed on the individual organisational units

(business units, corporate service centres and corporate

development centres).

The achievement of these objectives and goals is meas-

ured by means of planned/actual comparisons which

are carried out both on a regular basis and as needed

(monthly, yearly and ad hoc). Achievement is monitored

and reported at a group, corporate, unit and product

level. For this purpose, a system of financial indicators

has been developed. The system is composed of indica-

tors derived primarily from IFRS accounting standards.

The system lays down budgets and cost ceilings. The

goals for operating costs are determined and laid down

using the following framework:

Staff costs

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

+ Depreciation and amortisation

= Primary costs

+ Charges from internal cost allocation (ILV)

– Income from internal cost allocation (ILV)

= Operating costs

The commercial business is materially influenced by

the competitive environment in which it operates. Plan-

ning and control is carried out by means of contribution

margins and return on sales metrics, whereby a positive

contribution to earnings should be generated.

Planning and control also uses non-monetary indicators,

such as those from the traffic forecast.

DFS continuously measures safety and air traffic control

capacity. It reviews infringements of separation as well as

punctuality indicators.

1.6 Operating segments

1.6.1 Overview

DFS divides its business activities between the "Segment

financed by air navigation charges" and "All other seg-

ments". The segment financed by air navigation charges

is the focus of the main business in Germany. It is divided

into the material areas en-route services and terminal

services, which fall under the responsibility of the busi-

ness units Control Centre and Tower and their technical

support units

1.6.2 Segment financed by air navigation charges

1.6.2.1 En-route services

Within the scope of adopting of the Single European Sky

(SES) II package, EU Regulation 691/2010 and EU Reg-

ulation 1191/2010 introduced a performance scheme

for air navigation services and network functions from

1 January 2012. EU Regulation 691/2010 lays down

a performance scheme for air navigation services and

network functions (formerly EC Regulation 2096/2005)

and EU Regulation 1191/2010 lays down a common

charging scheme for air navigation services (formerly

EC Regulation 1794/2006). The core elements of these

Regulations are European and national requirements

covering safety, environment, capacity and cost-efficien-

cy. For the first reference period, target values have

been laid down in the performance plan (capacity and

environment) for the Functional Airspace Block Europe

Central (FABEC) and for the German contribution to the

performance plan (cost-efficiency performance area).

The respective national supervisory authority lays down

the charges to be levied for one reference period on the

basis of EU regulations. The first period covers 2012 to

2014. In Germany, the Federal Supervisory Authority for

Air Navigation Services (BAF) is the national supervisory

authority.

15

1.6.2.2 Terminal services

Terminal services will continue to be subject to the

existing system of full cost recovery until the end of

2014. The calculation of charges results in operational

over- and under-recoveries for the business year that

are carried forward as liabilities or receivables into

future periods (business year + 2) and offset when

calculating charges for airspace users. Over-recoveries

reduce the future basis for billing, while under-recover-

ies increase it.

1.6.2.3 All other segments

This segment covers the activities that are not individually

reportable as they are below the quantitative thresholds.

These activities primarily relate to commercial services,

investments and financial transactions that do not impact

air navigation charges. Commercial services are offered

globally. In contrast to the business financed by air navi-

gation charges, the activities under all other segments

are not subject to economic regulation or full cost recov-

ery. Commercial services make up the major component

of all other segments.

Intersegment transactions are conducted at arm's length

conditions and prices (see Note 30).

1.7 Research and development

German airspace demands a particularly well-performing

air navigation services organisation over the long term

as its airspace is considered to be extremely busy and

complex in international comparison. Technological and

operational innovations represent an important means

to manage the growing cost pressure, the increasing

requirements as regards environmental sustainability

and the rise in air traffic predicted in all forecasts for the

medium term. This must all be managed while maintain-

ing an unrestricted safety level. Therefore, DFS has been

involved in international and national research projects for

many years. It concentrates on applied research which

leads to new products, procedures and working methods

and which pursues the path from invention to innovation.

SESAR is the leading project in the international area,

which encompasses all areas of air navigation services.

It is organised within the scope of the SESAR Joint

Undertaking, which DFS joined as an active member in

June 2009, along with other leading organisations (air

navigation service providers, airspace users, airports

and the manufacturing industry). National activities focus

on regional challenges such as the optimisation of flight

routes for overflights and the operation of busy airports

En-route

■ Until the end of 2011: Full cost recovery

■ Since 2012: Economic regulation

Terminal services

■ Until the end of 2014: Full cost recovery

■ From 2015 onwards: Economic regulation

Commercial business

Investments

Financial transactions not impacting air navigation

charges

Segment financed by air navigation charges All other segments

Germany WorldGermany

16


such as those in Frankfurt and Munich (including their

approach and departure procedures) by means of real-

time and fast-time simulations. This also covers testing

new key technologies and the subsequent development

of air traffic control software and suitable simulators.

Within the scope of the German aeronautical research

programme with its technology line of funding for effec-

tive, safe and efficient flight guidance and flight control

sponsored by the Federal Ministry for Economic Affairs

and Energy, DFS was able to once again position itself as

a project manager. The goal is to work jointly with German

partners from research and industry to improve the start-

ing basis for later international activities.

DFS advances innovative developments and markets

some of these through the business unit Aeronautical

Solutions (AS) These include:

■ The remote control of airports (see Outlook).

■ Sectorless flying: a revolutionary concept that assigns

aircraft in the entire controlled area to a particular air

traffic controller and which promises more expeditious

traffic handling with less effort.

■ Surveillance systems that use all available sensors,

such as various radar systems, multilateration and the

position determined by the aircraft itself, to be able to

track the aircraft seamlessly from gate to gate, on the

ground as well as in the air.

■ Support systems for air traffic controllers that reduce

the burden on them by means of optimised information

processing, especially as regards conflict avoidance,

and by means of step-by-step automation.

■ The interoperability of European air traffic control

systems that keeps pace with new developments – an

important precondition of the Single European Sky.

A total of approximately 3.5 percent of the costs and

239 staff posts are allocated to research and own devel-

opments. The costs involved are partially offset by grant

funding of approximately €6.7 million awarded from Euro-

pean research framework programmes, including SESAR

and the German aeronautical research programme.

2. Economic environment2.1 Overall economic situation

The global economy stabilised in 2013 on the modest

level of the previous year with a growth rate of 2.4 per-

cent (status: February 2014). Despite the improved condi-

tions on the financial markets, unemployment and excess

capacity continue to have a negative impact on countries

with a high level of national income.

In contrast, the situation in Europe remained unchanged.

Gross domestic product (GDP) in the 28 EU countries

grew by 0.1 percent compared with the previous

year. In particular the expected stagnation in Italy and

France poses a risk for the further economic growth in

Germany.

German GDP rose in contrast to the situation in the EU

countries by an annual average of 0.4 percent in 2013

compared with the previous year. This growth rate was

within the range forecast by the leading economic insti-

tutes (between 0.3 percent and 0.9 percent) and the

Federal Government (0.4 percent).

As in previous years, exports are the foundation of eco-

nomic growth, which is being materially supported by

domestic consumption and the willingness to invest shown

by the corporate sector.

In a robust labour market, employment and income con-

tinued to increase. In 2013, an average of 41.78 million

people were in employment. The rise of 232,000 persons

compared with the previous year led to a record high.

2.2 Development of air traffic

In addition to the overall economic situation, political, legal

and industry-specific factors in particular have a fundamen-

tal influence on the development of air traffic.

Political unrest

Traffic is being negatively impacted by political unrest in

North Africa and the Middle East as well as the continued

stagnation of the European economy.

17

In the first quarter 2013, traffic volume in Europe was

5 percent below the level reached in 2012. After the

change to the summer schedule 2013, traffic volume

rose and reached the level of the previous year. From

August 2013, the trend in traffic volume was upwards,

restricted only by the loss of tourist traffic to/from Egypt

as a consequence of the renewed unrest. Overall, traffic

volume in Europe declined by 1.1 percent compared with

the previous year.

Grassroots movements, night curfew and the new Berlin

Brandenburg Airport

In Germany, citizens are reacting in an increasingly sensi-

tive manner to noise disturbance caused by air traffic. The

night curfew at Frankfurt Airport, the referendum against

the third runway at Munich Airport and the renewed post-

ponement of the opening of the new airport in Berlin are

dampening the growth impulses for the national economy.

Climate action plan and emissions trading system

On 2 February 2009, the EU Directive 2008/101/EC on the

inclusion of international aviation activities in the European

emissions trading scheme came into effect. This Directive

was in force until the end of 2012 and was superseded by

the provisions on the new trading period 2013 until 2020

(EU Directive 2009/29/EC). According to this Directive,

all aircraft taking off or landing at an airport in the EU are

included in the emissions trading system. From the total

number of certificates allocated to aviation, 85 percent

were divided among the air carriers involved. The remaining

15 percent were auctioned off. There was considerable

opposition against the inclusion of airlines from non-EU

States in the European emissions trading system, particu-

larly from the USA, the Russian Federation, China and India.

Following the agreement within the International Civil

Aviation Organisation (ICAO) on a climate action plan

for aviation, the European Commission intends to make

permanent changes to emissions trading in Europe. The

exception that requires airlines to only pay for flights that

take off and land in Europe has been limited to 2016 for

the time being.

Air transport tax

In Germany, the law introducing an air transport tax

(Luftverkehrssteuergesetz – LuftVStG) has been in force

since the beginning of 2011. This law governs the levy-

ing of a tax that has to be paid for every passenger that

departs from a German airport. Proceeds are expected

to come in at around €1 billion for 2013, despite a

slight reduction in the rate of this tax in the previous

year. Overall, this passenger-based air transport tax

increases the costs for the entire air transport industry.

According to the second evaluation report of the German

aviation association BDL (Bundesverband der deutschen Luftverkehrswirtschaft), the growth in air transport in

Germany has remained below the Western European aver-

age because of this and it was noted that passengers are

shifting to neighbouring countries. Overall, the drop in pas-

senger numbers can be quantified at five million per year

at least.

Competition, airlines' pressure to reduce costs and restructure

Low-cost airlines and the fast-growing airlines from the Gulf

region are changing and increasing the competition for

lucrative routes and customers in a fundamental manner.

The large European airlines continue to suffer from con-

siderable pressures as regards costs and the need to

restructure. The lasting high kerosene prices continue to

be a significant cost factor.

The airlines are reacting with far-reaching changes in their

capacity plans and are changing the size and load factors

of the aircraft used. As part of cost-cutting programmes,

Lufthansa German Airlines (DLH) and Air Berlin have

reduced the flights they offer by 7.5 percent and 4.7 per-

cent, respectively.

In addition, Lufthansa has brought together all its Euro-

pean direct connections under the Germanwings brand.

This low-cost airline subsidiary has taken over all routes

that do not involve the large hubs in Frankfurt and Munich.

With over 80 aircraft, the new Germanwings will have

more than doubled in size. Lufthansa expects savings of

hundreds of millions of euro per year from this initiative.

18


11.0

11.7

Following Lufthansa's retreat from decentralised Euro-

pean routes, it is becoming apparent that the German

market is attracting more and more low-cost airlines. As

a consequence, the number of flights conducted by low-

cost airlines rose by over 10 percent.

Court cases on the admissibility of wind farms

The disturbance-free operation of the air navigation facili-

ties operated by DFS is being put into question in some

court cases involving the building of numerous wind tur-

bines. Based on the current state of technology, distur-

bance is to be expected when wind turbines are erected

within a radius of 15 kilometres around VOR and DVOR

facilities. (VOR is the short form of VHF omnidirectional

radio range and the acronym VHF itself stands for very

high frequency, while DVOR stands for Doppler VOR.) In

accordance with Article 18a of the German Aviation Act

(LuftVG), such construction projects have to be notified

to the Federal Supervisory Authority for Air Navigation

Services (BAF). On a case-by-case basis, DFS checks

the disturbance potential of any additional wind turbines

to be erected on the operation of a VOR or DVOR facil-

ity. DFS informs the BAF of its assessment in an expert

opinion and the BAF takes its decision on the basis of

this opinion. According to Article 18a of the German

Aviation Act, it is not permitted to erect structures which

might interfere with air navigation services facilities.

In a case before the administrative court of Oldenburg

located in northern Germany, the competent authority of

the German Federal State in question approved five wind

turbines against the decision of the BAF and ordered

the immediate enforcement of the ruling. DFS lodged an

appeal, which has not been finally decided on yet.

DFS views that its right to operate its air navigation

services facilities without disturbance has been infringed

upon. The undisturbed operation of air navigation services

facilities is a precondition for the safe, orderly and expedi-

tious handling of air traffic.

IFR flights 2013

In Germany, the number of civil IFR flights in 2013 fell by

1.4 percent compared with the previous year. The rise

in low-cost airlines could not fully compensate for the

decline in traffic of the traditional air carriers as part of

their cost-cutting programmes, despite the growth in the

economy. There was therefore a significant shortfall in

IFR flights compared with the rise of 0.7 percent planned

for 2013. The volume of civil traffic declined by 1.3 per-

cent over the previous year, while military air traffic saw

7.8 percent fewer flights.

With a share of only 11.0 percent and 51.8 percent

respectively, the number of domestic flights and arrivals

and departures continued to decline, while the share of

overflights at 37.2 percent increased.

IFR flights in Germany

2013 2012

Total 2,952,624 2,993,866

Compared with previous year (%) -1.4 -2.2

2013

2012

51.8

52.2

37.2

36.1

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

Domestic flights

Flights arriving in or departing from Germany

Overflights

Distribution of IFR flights (%)

19

2.3 Overview of the business development

Impact of the revised IAS 19 standard

DFS offers defined benefit pensions to its staff. The

revised provisions of IAS 19 (Employee Benefits) have had

to be applied since the business year 2013. The amend-

ments to the accounting standard relate to the elimination

of an option for recording actuarial gains and losses.

Since 2013, such gains and losses as well as other

measurement changes have to be immediately recog-

nised in full in equity under other comprehensive income

(OCI). DFS can no longer use the corridor method it had

previously applied. Changes in interest rates that impact

occupational pensions can no longer be smoothed. Gains

and losses from the subsequent measurement of pension

obligations as well as the associated plan assets are fully

recognised in equity without impacting the income state-

ment (see Note 25.8).

The immediate impact of this is increased equity volatil-

ity. This volatility has been dampened when determining

charges by the introduction of an imputed model.

DFS has developed, under the auspices of its regulatory

authority, a model for the calculation of occupational

pensions that conforms to European regulations on the

performance plan and on the determination of charges.

It has been in use since 1 January 2012. Air navigation

charges take the length of service and interest cost into

account in a mutatis mutandis application of IAS 19. The

discount rate used to determine the obligation is orien-

tated in a prospective manner and in the medium term to

the interest rate that can be earned on the plan assets.

The differences between the obligation and plan assets

(plan deficit/plan surplus) are allocated in a rolling fashion

over the average remaining time to work (15 years) of the

staff and also taken into account in the following refer-

ence periods as a component of the charges. Additional

conservative assumptions for interest rate, salary and

inflation trends support the correct matching of the cost

of occupational pensions and avoid random fluctuations in

the cost-base for charges and therefore arbitrary charges

for airspace users.

In a directive dated 12 December 2012, the Federal

Supervisory Authority for Air Navigation Services (BAF)

laid down that the actual financing expense for occupa-

tional pensions should not be subject to the cost-efficien-

cy targets of the performance plan, but is instead to be

considered as a determined cost in the performance plan

and therefore part of the cost-base. The model is adjust-

ed as part of the performance planning when drawing up

the following performance plan. The financing difference

(delta) that is determined in the planning phase for the fol-

lowing reference period is distributed over 15 years (roll-

ing view) and increases revenues and liquidity in the IFRS

group financial statements.

In the first reference period from 2012 to 2014, the

company has used a uniform interest rate of 4.65 per-

cent based on prudent commercial considerations. This

uniform rate is used for the assets underlying the occu-

pational pension scheme as well as for discounting the

corresponding obligations.

A conflict of norms between those governing the levying of

charges and those governing the determination of results

In accordance with European regulations for air navigation

service providers, DFS switched the cost-base for cal-

culating charges from German Commercial Code (HGB)

to the International Financial Reporting Standards (IFRS)

issued by the International Accounting Standards Board

(IASB) as at 1 January 2007.

Since that time, DFS has been exposed to a material con-

flict of norms between the standards used to determine

charges and the standards used to draw up the commer-

cial and tax accounts. This conflict is eating into the sub-

stance of DFS. (See the last paragraph of this section for

the tax solution.) On the one hand, there were European

regulations requiring the application of IFRS for the rec-

ognition and measurement of issues that impact charges

and, on the other hand, there were commercial and tax

regulations that required measurements to be made that

significantly deviated from those required by those same

European regulations.

20


There is a divergence between the commercial account-

ing rules and the cost-related basis for determining

revenues from air navigation charges. This divergence

leads to a corresponding divergence in the expense line

items. The regulatory authority has given DFS the right

to spread the effects from the conversion to the new

accounting standards (catch-up effects) that lead to ex-

post financing requirements over a period of 15 years

after first recognising them directly in equity (Article 6 of

EC Regulation 1794/2006). These catch-up effects may

be invoiced to airspace users. They were included in rev-

enues for the first time in 2007.

The catch-up effects relate particularly to the following

balance sheet line items: non-current assets (development

costs, borrowing costs, depreciation and amortisation),

pension obligations and other provisions.

Therefore, the revenues earned in the area financed by

air navigation charges do not match the corresponding

costs in the accounts drawn up under commercial law.

In addition, it must be borne in mind that the day-to-day

accounting treatment of the same underlying issues can

lead to differences between the accounts from a charges

perspective, the accounts under IFRS and the accounts

under German Commercial Code (HGB) when the catch-up

effects are included.

Article 29 of the Law on the Implementation of the Mutual

Assistance Directive as well as on the Change to Tax

Regulations (AmtshilfeRLUmsG) dated 26 June 2013 now

governs the determination of the tax base previously set

out in Article 31b paragraph 3 of the German Aviation

Act (LuftVG). The positive or negative difference between

the profit from air navigation charges as calculated under

income tax law (EStG) and the result from the provision of

air navigation services as calculated under the provisions

governing charges are not considered when determin-

ing income for DFS. Taxation is therefore based on the

charges-related result. At a minimum, this regulation

resolves the existing tension between the charges and tax

perspective for the determination of profit. Nevertheless,

significant differences still remain from the divergence

between the determination of profit under the provisions

governing air navigation charges and those under com-

mercial law.

Unclear legal situation as regards uncontrollable costs

The current debate on the revised Regulations on

performance (EU Regulation 390/2013) and charges

(EU Regulation 391/2013) is still ongoing although

these Regulations have already been adopted. The

European Commission is investigating revising the rules

on uncontrollable costs. This investigation also covers

the approval process as well as amended rules on the

return on equity, on the consideration of the interest

on borrowings and on occupational pensions. The cur-

rent status quo requires the Commission to give the

final approval for each of these cost items. The timing

of this approval (annually/at the end of the reference

period) is currently being negotiated. The new rule

is to apply retroactively to the uncontrollable costs

incurred in the first reference period. Considering the

unclear legal situation, DFS does not yet consider those

costs that DFS itself believes, in its own legal opinion,

should be borne by airspace users when drawing up its

financial statements. On the other hand, provisions for

obligations are being recognised for the uncontrollable

costs that have to be reimbursed.

Five-point programme

The Board of Managing Directors is driving the expan-

sion of the commercial business. With the acquisition

of Eisenschmidt in 2013 (see section 1.2), it expanded

the commercial portfolio to include the production and

sale of aeronautical charts, publications and other aero-

nautical information, also in electronic form, including

the sales of technical devices for the preparation and

conduct of flights. It plans further expansion in those

commercial business areas directly connected to air

navigation services when opportunities arise in the mar-

ket. Our marketing and consulting activities are being

expanded worldwide.

21

In the core business, the productivity will be boosted,

staff flexibility enhanced and the rise in staff numbers

contained to respond to fluctuating demand. Vacant posi-

tions are not being filled and the natural turnover will be

used to reduce staff numbers. Airspace structures and

procedures are being optimised and capital expenditure

on recoverable, high-performance and harmonised ATM

systems is being stepped up. Project and general costs

are being reduced.

Purchase of a stake in the UK air navigation service

provider NATS

The evaluation process begun in the previous business

year on the possible purchase of a significant stake in the

UK air navigation service provider NATS was completed.

The sellers decided to sell their shares to a financial

investor.

Ryanair

Incomplete information submitted by the low-cost airline

Ryanair in the business years 2010 to 2012 led to a

basis for determining charges that was disadvantageous

for DFS. In 2013, DFS invoiced for the associated short-

fall in terminal services. However, contrary to the position

of DFS on this matter, EUROCONTROL decided not to

invoice for the amounts for en-route services after consul-

tation with the States affected and at its own reasonable

discretion. DFS is currently reviewing if it is possible to

enforce its claims in this matter.

2.4 Results of operations

2.4.1 Service units and unit rates

2.4.1.1 En-route services

For en-route services, a service unit is computed as the

square root of the weight factor multiplied by the distance

factor. The economic value of each flight conducted

is taken into account so that the value of the air traffic

control service performed is considered by the legislator

when establishing the relevant air navigation charges.

Definition of service units:

max. take-off weight in tonnes x

distance in km 50 100

En-route:

The amount to be paid by the airspace user is given by

multiplying the service unit by the unit rate.

The national unit rate for en-route charges comprises

air-traffic-related cost elements of DFS, the German

Meteorological Service (DWD), EUROCONTROL, the

Maastricht Control Centre, and other national bodies that

are involved with air navigation services, such as the Air

Navigation Services Division (LR23) of the German Fed-

eral Ministry of Transport and Digital Infrastructure (BMVI)

and the Federal Supervisory Authority for Air Navigation

Services (BAF). In 2013, the service units rose slightly

compared with 2012 and came in within the forecast of

the economic plan from the year 2012. The development

Development of service units – en-route

2013 2012

Total 12,506,062 12,442,470

Compared with previous year (%) +0.5 -1.7

En-route unit rate (€)

2014 2013 2012 2011 2010 2009

Total 77.32 76.50 74.19 71.84 68.86 67.02

DFS share 62.55 63.22 60.41 58.24 54.39 53.30

Compared with previous year (Total, in %) +1.1 +3.1 +3.3 +4.3 +2.7 +3.6

22


of service units remained well below the expectations set

out in the performance plan, as the overall economy has

suffered significantly since the plan was drawn up.

In 2013, the national unit rate for en-route services rose by

around 3.1 percent primarily because of the consideration

of the under-recovery from 2011, which was caused by

the slowdown in traffic. The EU Regulation on the common

charging scheme for air navigation services contains com-

pensation mechanisms within a reference period to partly

offset losses in revenues as a consequence of fluctuations

in traffic volumes as well as an inflation adjustment. The

adjustment to the unit rate from 2014 is primarily attributa-

ble to the two issues from 2012. The DFS share of the en-

route unit rate remains stable at approximately 81 percent.

2.4.1.2 Terminal services

For terminal services, a service unit is the quotient

obtained by dividing by fifty the maximum take-off weight,

expressed as a figure taken to two decimal places, to the

power of 0.7.

Definition of service units:

0.7

max. take-off weight in tonnes50

Terminal services:

The amount to be paid by the airspace user is given by

multiplying the service unit by the unit rate for terminal

services.

The unit rate for terminal services comprises air-traffic-

related cost elements of DFS, the German Meteorologi-

cal Service (DWD), and other national bodies that are

involved with air navigation services, such as the Air

Navigation Services Division (LR23) of the German Fed-

eral Ministry of Transport and Digital Infrastructure (BMVI)

and the Federal Supervisory Authority for Air Navigation

Services (BAF). The service units 2013 remained below

expectations, in particular due to the fact that the Ger-

man airlines conducted fewer flights as a result of their

cost-cutting programmes.

The 2013 unit rate for terminal services rose by 6.2 per-

cent compared with the previous year. Two factors are

primarily responsible for this. Firstly, traffic in 2011 was

below expectations. Secondly, material costs, such as

energy costs, as well as the costs for staff and occupa-

tional pensions rose more strongly than assumed in the

planning process. There are two main factors responsi-

ble for the rise from 2014. DFS was not allowed to fully

offset the under-recovery from 2011 in 2013. Instead,

the under-recovery has to be evenly distributed over

the years 2013, 2014 and 2015 in accordance with a

directive issued by the Federal Supervisory Authority

for Air Navigation Services (BAF). In addition, the carry-

over from the traffic-related under-recovery from 2012

increases the unit rate. The DFS share of costs of the

unit rate for terminal services amounts to approximately

96 percent.

Development of service units – terminal services

2013 2012

Total 1,287,989 1,310,562

Compared with previous year (%) -1.7 -1.3

Terminal unit rate (€)

2014 2013 2012 2011 2010 2009

Total 183.87 181.99 171.29 163.05 162.54 167.78

DFS share 177.20 175.84 165.70 155.76 154.33 160.80

Compared with previous year (Total, in %) +1.0% +6.2 +5.1 +0.3 -3.1 +3.4

23

0.59

-0.55

1.04

1.56

5.17

20.41

71.78

-10 0 10 20 30 40 50 60 70 80

Over-/under-recovery

Government reimbursements:Exempted flights

Other air navigation services

Other revenues

Government reimbursements:Military flights

Terminal services

En-route services

2.4.2 Revenues

In the business year 2013, DFS generated revenues of

€1,109.2 million. Revenues rose slightly compared with

the previous year by 0.7 percent despite the decline in

flight movements.

For DFS, the shift from full cost recovery to a perfor-

mance-oriented charging structure for en-route services

brings with it significant changes in the breakdown of

revenues. Within certain limits, DFS is exposed to oppor-

tunities and risks resulting from the development of air

traffic (see section 2.4.5).

Revenues from air navigation services increased from

€1,080.9 million to €1,091.9 million after netting the

2011 under-recovery (€32.3 million) and taking into

account the 2013 under-recovery (€22.2 million, including

the carry-over from the en-route area).

The increase resulted primarily from adjusted unit rates,

with which DFS can charge retroactively for the under-

recovery from 2011, as well as by a slightly higher num-

ber of service units when compared with the plan.

Revenue breakdown (in %)

(includes result contribution from netting over-/under-recovery)

Revenues from en-route charges (€m)

2013 2012 2011 2010 2009

Total 796.2 753.4 739.1 665.3 629.9

Compared with previous year (%) +5.7 +1.9 +11.1 +5.6 -3.1

24


Revenues from government reimbursements (€m)

2013 2012 2011 2010 2009

Military operational air traffic 57.4 57.1 57.7 55.4 60.8

Exempted flights 6.5 6.5 6.5 6.5 6.5

Total 63.9 63.6 64.2 61.9 67.3

Compared with previous year (%) +0.5 -0.9 +3.7 -8.0 +6.5

Revenues from other air navigation services (€m)

2013 2012 2011 2010 2009

Aeronautical publications 7.5 3.3 3.6 2.8 2.9

Flight inspection services 2.5 3.0 3.1 2.9 2.5

Other air navigation services 1.5 1.1 0.9 0.4 0.3

Total 11.5 7.4 7.6 6.2 5.7

Compared with previous year (%) +55.4 -2.6 +22.6 +8.8 +5.6

Other revenues (€m)

2013 2012 2011 2010 2009

Total 17.2 20.4 20.1 18.2 17.2

Compared with previous year (%) -15.7 +2.0 +10.4 +5.8 -23.2

Reimbursements for military flights contain services pro-

vided by the Maastricht unit. The exempted flights relate

to en-route flights under visual flight rules.

DFS generated other revenues primarily from consult-

ing and staff services, apron management services and

training services.

Within other air navigation services and other revenues,

commercial services made up roughly 83.4 percent,

generating revenues of €24.1 million (previous year:

€23.8 million), exceeding the planning forecast due to

increased marketing activities.

Revenues from terminal charges (€m)

2013 2012 2011 2010 2009

Gross 227.3 218.3 207.4 196.8 188.9

Reimbursements paid 1 (0.9) (0.7) (0.6) (0.5) (7.7)

Net 226.4 217.6 206.8 196.3 181.2

Compared with previous year (net, in %) +4.0 +5.2 +5.3 +8.3 -1.8

1 Since 2010, the air-traffic-related cost elements of the German Meteorological Service (DWD) have no longer been considered in the revenues of DFS. The air-traffic-related cost elements of the Federal Supervisory Authority for Air Navigation Services (BAF) remain.

25

2.4.3 Other operating income

Other operating income (€m)

2013 2012 2011 2010 2009

Total 33.7 77.8 38.4* 29.7 33.1

Compared with previous year (%) -56.7 +102.6 +29.3 -10.3 -39.2

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

Other operating income came in within the level reached

in the years 2009 to 2011, after achieving a record high

in the previous year primarily attributed to the special

item from the QTE transaction (€52.2 million). Due to

the end of the principal contracts and the transfer of the

remaining shell structure (see 6.2.2.4), the deferral of the

net present value generated at the start of the transac-

tion was completely reversed in the income statement. In

contrast to the adjusted value of €25.6 million from the

previous year, the figure rose by approximately 31.6 per-

cent in 2013.

Material components:

■ Derecognition of liabilities (€8.6 million)

■ Project-specific funding by the European Commission

(€6.7 million)

■ Reversal of provisions (€5.5 million)

■ Reimbursement of costs of the business year

and of previous years (€4.1 million)

■ Benefits-in-kind (€3.1 million)

■ Income from the QTE transaction,

exchange rate gain (€2.6 million)

Employee expenses (€m)

2013 2012* 2011 2010 2009

Total 808.5 772.2(789.1) 701.9 625.8 608.1

Thereof wages and salaries 585.7 586.1 550.3 527.6 485.7

Thereof social security costs and expenses for pensions and assistance

197.8 160.2(177.2) 130.2 78.7 96.0

Thereof costs of personnel belonging to the Federal Aviation Office (LBA)**

25.0 25.9 21.3 19.5 26.4

Share of total costs (%) 76.7 75.1(75.5) 72.5 71.4 70.4

Compared with previous year (%) +4.7 +10.0(+12.4) +12.2 +2.9 +3.1

* Prior-year figures adjusted to IAS 19 (revised 2011). Figure in brackets: Originally reported figure.** LBA: Luftfahrt-Bundesamt (Federal Aviation Office)

2.4.4 Principal expense categories

The change compared with the previous year is primarily

attributable to the higher service cost and the changed

recognition of actuarial gains and losses (now only in

equity) due to the revised IAS 19 (revised 2011).

Interest of €98.0 million accruing from provisions for

pensions and early retirement is charged to the financial

result. The return on plan assets (€46.7 million) is cred-

ited to the financial result.

26


Material components:

■ Spare parts and maintenance (€41.7 million)

■ Occupancy costs (€23.4 million)

■ Costs of external personnel (€10.7 million)

■ Legal and consultancy costs (€9.1 million)

■ Rental and leasing (€8.9 million)

■ Telecommunication costs (€8.3 million)

■ Allowance for bad debts (€6.8 million)

■ Travel costs (€6.6 million)

■ Other employee expenses (€4.7 million)

■ Vehicle costs (€3.1 million)

In 2013, no impairment losses were recognised.

2.4.5 Earnings

In 2013, DFS realised net income of €35.8 million. In the

previous year, the figure was €73.1 million as originally

reported and €87.9 million after adjusting for IAS 19

(revised 2011). The operational under-recovery, including

the carry-over from the en-route area was €26.2 million,

reaching the same level of the previous year of €26.2 mil-

lion, including the carry-over from the en-route area.

Owing to the special regulatory influences acting on

the company, the results are impacted by the catch-up

effects, the inclusion of the imputed model (for pensions)

and the tax expense calculated based on the charges-

related result (see section 2.3).

Depreciation and amortisation (€m)

2013 2012* 2011 2010 2009

Total 102.4 105.0 102.5 100.8 116.3

Share of total costs (%) 9.7 10.2(10.0) 10.5 11.5 13.5

Compared with previous year (%) -2.5 +2.4 +1.7 -13.3 +6.2

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

Other operating expenses (€m)

2013 2012* 2011 2010 2009

Total 35.8 87.9(73.1) 79.6 104.8 99.4

Compared with previous year (%) -59.3 +10,4(-8.2) -25.2 +5.4 +100.4

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

Other operating expenses (€m)

2013 2012* 2011 2010 2009

Total 138.3 144.0 155.0** 144.9 133.8

Share of total costs (%) 13.1 14.0 (13.8) 16.0 16.5 15.5

Compared with previous year (%) -4.0 -7.1 +7.0 +8.3 -6.3

* Prior-year figures adjusted to IAS 19 (revised 2011). Figure in brackets: Originally reported figure.** Due to a reclassification, the disclosures are not directly comparable with the previous years.

27

Adjusted earnings before taxes (€m)

Net income 35.8

./. Taxes on income and revenues* 0.1

EBT 35.7

./. Catch-up effects from IFRS conversion 47.7

./. Catch-up effects from occupational pensions 73.9

Adjusted EBT -85.9

* This relates to the correction of a tax relief for 2013 overall.

The result in 2013 contains the costs reimbursed by

airspace users for previous years of €47.7 million

(previous year: €45.8 million) from the conversion of

the basis for calculating charges from the German Com-

mercial Code to IFRS as of 1 January 2007 (catch-up

effects). It also contains an amount of €73.9 million

(previous year: €23.4 million) from the change in the

charges-related parameters for expenses for occupa-

tional pensions (imputed model, see section 2.3) within

the scope of the introduction of regulated charges as of

1 January 2012.

Adjusted for the above factors, the adjusted earnings

before taxes amounts to minus €85.9 million.

The incomplete information provided by the low-cost air-

line Ryanair (see section 2.3) resulted in an allowance for

doubtful accounts of €5.6 million being charged against

receivables in the en-route area for 2010 to 2012.

The changeover from full cost recovery to charges

based on performance in the en-route area has a mate-

rial impact on the cost structures. Savings or additional

expenses are no longer passed on in the following

periods but directly impact the earnings of DFS. Cur-

rently, there are still issues concerning interpretation and

application which could influence the future development

of the company's economic situation. From the point of

view of DFS, there are a small number of measurement,

accounting and charging issues which have not been

unequivocally resolved since the date of the transition

(31 December 2011/1 January 2012). The regulatory

authority and DFS continue to work in a critical dialogue

on drawing up a binding catalogue of qualifying uncontrol-

lable costs. Such costs will have to be borne in full by

airspace users.

For the en-route area, the EU Charging Scheme

1191/2010 has split the chances and risks resulting

from the differences between planned and actual traffic

volume between the airspace users and DFS since 2012.

If defined thresholds are exceeded, DFS is authorised and

obliged to return or demand any over- or under-recoveries

(carry-over). The carry-over for 2013 will be carried

forward and taken into account in the determination of

charges for the second reference period.

Chance/risk transfer from deviation in traffic volume

Deviation in traffic volume (v) DFS share User share

v ≤ 2.0% 100.0% ---

2.0% < v ≤ 10.0% 30.0% 70.0%

v > 10.0% --- 100.0%

28


Terminal services will continue to be subject to full cost

recovery until the end of 2014. The principles governing

air navigation charges laid down by ICAO and EUROCON-

TROL continue to stipulate that – after making allowance

for a reasonable return on capital employed – over- or

under-recoveries have to be passed on in subsequent

years. Accordingly, the operational over-recovery from the

business year 2013 for terminal services will be taken into

account when determining charges for the year 2015.

Overall, the positive earnings have been impacted by the

material special items.

2.5 Assets and financial position

2.5.1 Capital expenditure

DFS invests in the preservation and further development

of the necessary infrastructure if the measures are

based on legal obligations or support the development

of earnings in an economically sound manner. Regula-

tions and standards from ICAO, EUROCONTROL and the

EU are adhered to. The safety of air traffic plays a deci-

sive role when it comes to decisions on capital expendi-

ture. Against this background, capital expenditure of

€124.6 million was made in the business year 2013.

As at 31 December 2013, a further €18.5 million of an

inter-Group long-term loan approval of €50 million from

DFS was drawn down.

The following projects are currently underway and repre-

sent the highest share of capital expenditure:

Construction of the Langen technical centre

DFS is constructing a new technical centre to set up ATC

test and reference installations and house the administra-

tive computer centre.

iCAS (interoperability Through European Collaboration Centre

Automation System) software

The future control centre ATS system iCAS will in par-

ticular meet the interoperability requirements of the SES

regulations.

Voice switching system ISIS-XM

(Improved Speech Integrated System) in Langen

DFS is harmonising its voice switching systems and is

replacing the system in Langen within the scope of the

LASER project. In the future, ISIS-XM is to be installed

at all DFS control centres to achieve a homogeneous

system landscape. Using a uniform user interface and

concept will increase training efficiency and create the

necessary conditions to enable the transfer of services

(e.g. consolidating control centres at night) and new con-

cepts to ensure ATC operations in contingencies.

Extension to the Munich Control Centre

Building work was required because of the increase in

space needed for the installation of the P2/ATCAS air

traffic management system. This is the successor system

to P1/ATCAS (P1 air traffic control automation system)

in the control centres for lower airspace. The building

work covers a control room with roughly 100 controller

working positions as well as office and functional rooms

for operations. In addition, two equipment rooms and two

centres each for the provision of air-conditioning, cooling

and electricity were fitted out.

Radio Site Upgrade and Modernisation (RASUM) 8.33

DFS is equipping 95 radio stations for the 8.33 kHz chan-

nel spacing requirements in lower airspace, including the

necessary structural and infrastructural measures. The

project caters for future traffic growth and implements

the Conclusion taken by the ICAO European Air Navigation

Planning Group (EANPG) 48 dated November 2006 and

EU Regulation 1079/2012.

P2 Langen Control Centre

The goal of the project is the installation and commis-

sioning of P2 in the new control room of the Langen

Control Centre. Frankfurt and Düsseldorf have separate

ATS, communication (COM) and air traffic flow manage-

ment (ATFM) systems. These are to be integrated into

one ATS, one COM and one ATFM system. At the same

time, the engineer on duty (EoD) Langen is to start work.

29

When it goes into operation, a centrally developed new

P2 controller working position will be employed that can

be used in various roles and will be used during the tran-

sition to iCAS and during future iCAS operations. After P2

starts up, the old P1/ATCAS systems will be uninstalled

from the old control room and equipment rooms. A new

cooling plant will be commissioned in the Langen Control

Centre for the new P2 components to be installed.

Rehosting ATCAS hardware and software

To ensure the product life cycle, ATCAS is being rehost-

ed. The software is being ported to Linux using Intel-

compatible hardware.

P1/ATCAS software extensions for PSS Langen

PSS is an extension within the area of flight data pro-

cessing and display in the ATS system P1/ATCAS used

in Bremen, Munich and Langen. PSS replaces paper

flight progress strips with electronic flight progress

strips and exchanges data with the FDPS (flight data

processing system) of P1/ATCAS. As PSS is an integral

component of ATCAS, software maintenance and fur-

ther development, especially the different functionality

PSS Langen (different when compared with Bremen and

Munich), will be carried out by the DFS Systems House

as part of the ATCAS maintenance processes. On a

case-by-case basis, external vendors will also provide

support.

Extension of VAFORIT software (Very Advanced Flight Data

Processing Operational Requirements Implementation)

The new air traffic management system for upper air-

space, which was put into operation in December 2010,

is being extended. VAFORIT is fully stripless and replaced

the old system KARLDAP (Karlsruhe Automatic Data Pro-

cessing and Display System).

SDDS-NG

The current RADNET network is made up of RMCDE sys-

tems. (RMCDE stands for Radar Message Conversion and

Distribution Equipment.) The life-cycle of these systems is

now exhausted. Vendor support ends in 2017. To ensure

the iCAS implementation in Karlsruhe, which requires the

expansion of RADNET, and to ensure the provision of

radar data at DFS, the SDDS-NG systems were procured,

which will replace the RMCDE over the next few years in a

step-by-step manner.

Multiplexer networks

Today, the switching of almost all radiotelephony

between air traffic controllers and pilots is made over

the MONIQUE multiplexer network. This network covers

not only the area under the responsibility of DFS but

also the area of the Benelux States. The DFS part of the

network primarily provides the transmission bandwidths

for all transmission services of DFS and the connection

of radar and radio stations. As part of the connection of

new radio stations and the new connections of existing

radio station, an expansion of the existing network is

necessary.

In the 2013 business year, assets under construction

worth a total of €49.4 million were completed. The main

projects included:

Extension to the Munich Control Centre

(see above)

P1/ATCAS software extensions for PSS Langen

(see above)

P2 Langen Control Centre

(see above)

Mode Select (Mode S) for Willy Brandt Airport Berlin (BER)

Currently, only the Berlin-Tegel Airport has a radar facility

with Mode S capability. To meet operational requirements

and an EU implementing regulation, two sensors with

Mode S capability will be needed. To provide Mode S

service at BER Airport, an additional Mode S radar sensor

is necessary.

With these projects, DFS secures its position as a reliable

partner for aviation.

30


2.5.2 Balance sheet structure

In 2013, the balance sheet total increased by

15.9 percent to €1,400.0 million (previous year:

€1,207.5 million).

Impact of the revised IAS 19 standard

The application of the revised provisions of the new IAS

19 had a material influence on the balance sheet struc-

ture. The discontinuation of the corridor approach led

to far-reaching changes in equity and the provisions for

pensions and similar obligations. There was a particularly

negative impact on equity from this change-over.

Equity, reconciliation (€m)

2013 2012*

31 Dec without application of IAS 19 (revised 2011) 34.3 -2.5

Remeasurement of pension obligations +555.5 -869.2(Impact in the running year)

Carry-over of the remeasurement reserve from the previous year -1,294.8 -440.4

Adjusted net income – +14.8

31 Dec according to IAS 19 (revised 2011) -705.0 -1,297.3

* Prior-year figures adjusted to IAS 19 (revised 2011).

More detailed overviews and reconciliations can be found

in the Notes. Because of the provisions of IAS 8 (account-

ing policies, changes in accounting estimates and errors),

the figures of the previous year were adjusted in line

with the revised IAS 19 for information and comparison

purposes. This means that comparisons with the years

before 2012 are limited.

Relevant Note:

4.2.1 Occupational pensions

9. Employee expenses

12. Financial result

24. Shareholder's equity

25. Provisions for pensions and similar obligations

Based on the adjusted prior-year figures, the number

reported in the balance sheet (the difference between

obligation and plan assets) declined at the end of

the year to approximately €1,346.1 million (previous

year: €1,827.2 million). This decline was due to the

significant rise in the discount rate, the moderate

salary adjustment in 2013 and the good growth in

investments, which when measured using the current

discount rate under IFRS made a significant positive

contribution in the general investment. The provisions

for pensions were adjusted by €1,295 million in total

at the expense of the remeasurement reserve. The left

hand side of the balance sheet and the original bal-

ance sheet total 2012 remain unchanged following the

adjustments.

31

Assets

The increase in the balance sheet total relates primarily

to the rise in current assets of approximately 52.4 per-

cent due to a significantly higher level of liquid assets

from the issuance of a new debenture loan (€110 million)

as well as the rise in non-current assets by approximately

4.7 percent, which is attributable to a rise in property,

plant and equipment and financial assets. The change

in financial assets was caused by additional drawdowns

(€18.5 million) under the existing loan contract with the

subsidiary DFS Energy GmbH, who is the borrower.

Equity and liabilities

Based on the adjusted prior-year figures, the negative

equity improved by 45.7 percent, while the non-current

debt declined by 17.0 percent.

The improvement in equity in comparison with the previous

year was attributable to the change in remeasurement

reserves in connection with pension provisions (€555.5

million) and the net income (€35.8 million) of the busi-

ness year.

Non-current debt was impacted by the positive develop-

ment in the net liability from pension obligations (primarily

from actuarial gains) and the rise in the financial liabilities

(primarily from the issuance of a new debenture loan).

Overall, current debt was constant. Current trade paya-

bles (chiefly relating to domestic suppliers) declined

considerably, while liabilities to affiliated companies rose

slightly, primarily due to higher cash pool credit balances.

Net financial indebtedness amounted to €128.3 million

at 31 December 2013, the leverage ratio at the balance

sheet date thus amounted to around 9.1 percent. Inter-

est expenses, driven primarily by pension obligations,

were higher than interest income by €53.9 million.

Balance sheet indicators

2013 2012 2011

Net financial indebtedness (€m)(Financial liabilities – liquid funds)

128.3 182.6 145.3

Leverage ratio (%)(Net financial indebtedness/balance sheet total)

9.1 15.1 13.1

Asset intensity (%)(Non-current assets/balance sheet total)

68.9 76.4 75.8

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

2013 2012* 2011

Net financial indebtedness (€m)(Financial liabilities – liquid funds)

128.3 182.6(182.6) 145.3

Leverage ratio (%)(Net financial indebtedness/balance sheet total)

4.6 5.8(10.0) 8.7

Asset intensity (%)(Non-current assets/balance sheet total)

34.9 29.5(50.3) 49.9

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

32


In Note 35.4, a detailed reconciliation can be found of

the equity as at 31 December 2013 to the charges-relat-

ed equity after the integration of DFS Energy and taking

into consideration the catch-up effects from the conver-

sion to IFRS and the procedure approved by BAF for

costs to be recovered from the treatment of occupational

pensions (see section 2.3).

2.5.3 Liquidity

2.5.3.1 Financial management

Financial management at DFS secures and supports the

statutory obligation in the Group. DFS optimises its per-

formance through an appropriate equity and debt struc-

ture, the economical use of equity capital, an optimised

use of debt and the planning and control of cash flows

in accordance with the plan. In this way, DFS also pro-

motes the competitiveness of the commercial business.

The company finances itself primarily by drawing on the

cash inflows from operating activities and on funds from

a money and capital market programme. Furthermore,

there are special items impacting assets that have a tem-

porarily favourable effect on liquidity (see section 2.4.5).

The Group Treasury department plans and controls the

level of cash and cash equivalents and the procure-

ment of funds and incorporates subsidiaries in the flow

of funds by means of a cash pool. Funds are collected

and centrally controlled where legally allowed and when

commercially sensible. The financing requirements of

subsidiaries are satisfied by inter-Group settlement

accounts and loans. The company pays attention to a

balanced financing structure and holds liquid reserves to

effectively meet unexpected changes in traffic volumes

(see section 6.2.1).

Business dealings with a selected group of principal bank-

ers are conducted using uniform standards and existing

two-way cash flows are continuously improved.

DFS finances its non-current liabilities congruently with

debenture loans and bonds traded on the exchange in

Luxembourg. Short-term liquidity is covered by means

of a multi-currency commercial paper programme. This

programme is supported by a syndicated line of credit

of €160 million as a back-up facility, which was not

used.

With its money and capital market programme, DFS

attracts both national and international investors. These

investors base their investment decisions and price fix-

ing on the credit rating of each debtor. To support their

decision-making process, DFS has its creditworthiness

rated by means of standardised credit ratings from credit

rating agencies according to internationally uniform and

consistent procedures. The rating agencies Standard &

Poor's and Moody's confirmed the ratings for DFS for

2013, both for the short- and long-term area (AAA/A-1+

and Aa3/P-1).

To cover its running capital requirements, DFS exploited

the favourable market environment and placed a deben-

ture loan of €110 million in the over-the-counter capital

market in February 2013. The loan has a remaining term

of ten years.

At year-end 2013, DFS had an issuing volume of bonds

with a nominal value of €47.2 million with remaining

terms of up to five years as well as debenture loans of

€285.0 million with remaining terms of up to 10 years.

The existing debenture loans and bonds have fixed

interest rates or have been swapped from variable

to fixed rates. The average nominal interest rate of

the bonds and debenture loans, taking the swaps into

account, amounted to 2.941 percent at the balance

sheet date.

33

2.5.3.2 Cash flow statement

Cash and cash equivalents at year-end are made up

as follows:

No payout was made to the Shareholder in the 2013 busi-

ness year. Detailed information can be found in Annex 5

and in Note 31.

2.6 Overall assessment on the economic situation

The results and financial position have been influenced

primarily by the legal framework conditions, economic

regulation, stagnating air traffic, the continuing low inter-

est level as well as measures taken by the Board of Man-

aging Directors to reduce costs. They show a negative

trend when special items are factored out.

In the business year 2013, revenues rose by 0.7 per-

cent compared with the previous year. Overall, DFS

generated net income of €35.8 million. While this

figure remained clearly in positive territory, it came in

below the result of the previous year of €87.9 million

(€73.1 million excluding the adjustment effects from

the application of IAS 19 (revised 2011)). It must be

noted in this comparison that the prior-year figure was

significantly impacted by the special item from the

termination of the QTE transaction (€52.2 million) (see

section 2.4.3).

As part of the five-point programme, the initial areas

have already been selected to reduce costs and boost

corporate flexibility. The objectives apply company-wide,

although the specific implementation measures will be

developed by each organisational unit.

3. PersonnelMotivated and qualified employees are an absolute must

for the long-term success of DFS. This is why human

resources management at DFS stresses a holistic

approach, ranging from selection through appropriate

compensation and targeted training and development to

the long-term retention of staff. Financial incentives are

supported by HR policies aligned with different phases of

life and family needs.

DFS employs non-exempt staff (covered by collective

agreements), exempt employees (not covered by collective

agreements), personnel of the Federal Aviation Office (LBA)

working for DFS and soldiers released from regular ser-

vice. Non-exempt employees are subject to the provisions

of the company-specific collective bargaining agreements.

Exempt status for employees is characterised by the

ability to negotiate contracts freely on an individual basis.

These employees have target agreements covering cor-

porate goals and their area of expertise. The degree of

fulfilment of these agreements determines the variable

salary components.

Cash and cash equivalents (€'000)

Cash inflow (+) / cash outflow (-) 2013 2012* Change (%)

Operating activities 184,425 137,988 33.65

Investing activities -140,693 -117,077 20.17

Financing activities 108,815 -40 -272,137.50

Changes impacting cash flow 152,547 20,871 630.90

Cash and cash equivalent at the beginning of the year 105,534 84,663 24.65

Cash and cash equivalent at the end of the year 258,081 105,534 144.55

* Prior-year figures adjusted to IAS 19 (revised 2011).

34


The personnel of the Federal Aviation Office (LBA) work-

ing for DFS comprise the third employee group at DFS.

These established and non-established civil servants, who

have remained in an employment relationship with the

Federal Government, still fall under the collective agree-

ment for the public service (Tarifvertrag für den öffentli-

chen Dienst – TVöD). The collective agreements at DFS

do not apply to them. DFS bears the relevant expenses.

As a rule, air traffic controllers (from the age of 55) and

flight data assistants (from 59) receive transitional pay-

ments in the period before their formal retirement. This

right to receive transitional payments accounts for a

significant component of the pension commitment. Infor-

mation on the compensation structure of the Board of

Managing Directors can be found in Note 42.1.

DFS is continuing to expand measures to support staff

in combining work and family life. Since 2011, DFS has

been involved in a childcare centre in Langen, where its

Headquarters is located. Places are available for employ-

ees' children there. Such places are also available at the

other DFS branches.

Over the course of their whole career, staff can avail of

flexible working-time models, health programmes, semi-

nars and further training opportunities. The validation of

the support measures related to the family is being made

through participation in the work and family audit initiative

(audit berufundfamilie).

As at 31 December 2013, DFS had a total of 6,046

employees.

Staff headcount is also impacted by the planned long-

term reduction in operating costs (see five-point pro-

gramme in section 1.4). Despite the continuing need for

specialists, staff numbers declined slightly.

Employees (as at 31 December)

2013 2012 2011 2010 2009

Permanent employees (total) 6,046 6,100 6,064 5,938 5,596

Salaried staff 5,552 5,560 5,239 5,074 4,745

Soldiers released from regular service 235 246 259 263 268

Wage-earners 27 28 31 31 32

Technical/commercial students & apprentices 50 51 51 45 45

Air traffic control trainees 172 193 189 213 175

Personnel belonging to the Federal Aviation Office (LBA) 245 268 295 312 331

of which established civil servants (188) (204) (227) (240) (255)

of which non-established employees (57) (64) (68) (72) (76)

Compared with previous year (%) -0.9 +0.6 +2.1 +6.1 +4.8

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

Share of foreign employees (%) 4.1 4.3 4.3 3.9 3.1

35

There were 682 part-time employees – 465 women and

217 men. The share of part-time employees increased

over the previous year and amounts to 12 percent.

Foreign employees mainly come from the USA and the

United Kingdom, followed by Spain and Austria. Overall,

46 nations are represented. The age structure of staff

is well balanced, with the average age being 42 years.

The average age for men is 43, while the average female

employee is 40 years old. The turnover rate – which only

considers employees who leave DFS voluntarily – was

1.6 percent in 2013.

The subsidiary The Tower Company GmbH had a staff

of 40 at the end of December. This number includes

27 qualified or trainee air traffic controllers.

DFS is well aware of its responsibility to society and has

been offering job-starters attractive trainee and college

places for years.

In addition to training air traffic controllers, the spectrum

of training currently offered at DFS encompasses appren-

ticeships and college places for dual courses of studies

graduating with a bachelor's degree in professions cur-

rently in short supply: engineering degrees (electronics and

telecommunications), IT, air navigation technology, service

technology and aviation management. This allows DFS

to meet its demand for qualified staff. As these staff are

trained internally, they will, in all likelihood, take on duties in

the company on completion of their training or degree.

In the future, DFS will continue to offer interesting and

promising trainee and college places.

4. Supplementary reportAfter the balance sheet date, there were no events that

individually or bundled had a material influence on the

assessment of the results and financial position.

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

2013

2012

49

48

8

8

43

44

Air traffic control

Operational engineering

Supporting functions

Employees by area of duties (%)

People starting training at DFS

2013 2012

Total 222 244

Air traffic controllers 172 189

Flight data assistants 0 4

Dual course of studies/apprenticeship 50 51

Compared with previous year (%) -9.0 +1.7

36


The State-owned DFS is subject to the Public Corporate

Governance Code of the Federal Government. Under this

code, the Board of Managing Directors has to ensure

adherence to and compliance with legal provisions

and corporate guidelines. On the basis of this, DFS

introduced a compliance management system (CMS) in

2011.

Together with the risk management system (RMS) and

the internal control system (ICS) for accounting and

financial reporting, these elements form the three pillars

of the corporate structure for risk management. This

system was further validated in 2012 and a compliance

officer was appointed as of 20 December 2012.

The compliance committee advises the compliance

officer. The committee is made up of the executive man-

agement level of Corporate Audit, Corporate Safety and

Security Management and Corporate Management. To

ensure the connection of the compliance management

system to the internal control system and the risk man-

agement system, the committee is supplemented by the

heads of Financial Management and Risk Management

who are permanent guests of the committee. In 2013,

the Compliance Committee had four scheduled meetings.

The main activities in 2013 related to a new assessment

of the compliance risk area. The results were presented

to the audit committee. With the first compliance half-

year report 2013, an additional new reporting path to

the Board of Managing Directors and the Supervisory

Board was introduced.

The compliance management system is constantly upgrad-

ed and expanded. Organisationally, the issue is assigned

to Institutional and Legal Affairs. There is a direct report-

ing channel from the compliance officer to the Board of

Managing Directors and the Supervisory Board.

6. Risk report6.1 Risk management system

DFS uses a comprehensive set of instruments to iden-

tify, analyse, monitor, and manage the risks associated

5. Compliance

Accounting Law Modernisation Act (BilMoG)

Public CorporateGovernance Code (PCGK)

Audit/monitor

Audit/support

Audit

Internal audit

Auditor

Corporate Governance

in the DFS Group

Board of Managing Directors

DFS departments

(represented by managers)

Supervisory Board Audit Committee

Risk management

Accounting policiesCompliance

Compliance officerCompliance committee

Compliance ICS Accounting policies – ICS

Expe

rts

exch

ange

kn

owle

dge

37

with its business. The risk management process is man-

aged centrally by the independent Risk and Contract

Management department. This department is supported

by the risk management committee (RMC) when con-

ducting evaluations that span several organisational

units and processes. As a rule, the members of this

body belong to the executive management level who

are closely involved in the business decision-making

processes, know company-wide interrelationships, and

are hence in a position to contribute to forming a com-

prehensive overview.

The Risk and Contract Management department takes

account of the changes taking place in the aviation

industry and the company, advances risk management

methodically and therefore ensures the early identifica-

tion of risks and the combating of business risks.

This specialist department uses a process description

and an operational instruction to lay down standards for

the ongoing company-wide recognition, assessment,

documentation and reporting of business risks. The

early identification of risks begins with the applications

for approval of business plans and projects. Possible

effects encompass the following topics: operations: e.g.

fulfilling the statutory mandate, infrastructure; finance:

e.g. costs, financial markets, customers/suppliers; man-

agement: e.g. strategy, personnel, organisation as well

as external environment: e.g. politics and legislation,

disasters and terrorist attacks.

The heads of the organisational units identify the

risks that have arisen as part of their management

duties. They report quarterly unless an ad-hoc report

is required. The heads of the organisational units are

responsible for ensuring that the statements on the risk

situation in their areas are correct. A risk announcement

contains a description and an assessment of the risk as

well as the causes and countermeasures. In general, the

forecast period is one year.

Risks are assessed across all segments and are based

on an evaluation of the probability of occurrence and the

possible level of damage of the hazard under considera-

tion as reported by the organisational unit concerned.

The goal is a quantified assessment; in well-founded

cases a qualified assessment is permissible. Criteria

for a qualified assessment are laid down centrally in an

assessment matrix. Based on this, the reported risks

are categorised as "red"/threat to going-concern status,

"yellow"/material and "green"/internal to the organisa-

tional unit.

The direct and indirect investments of DFS are sys-

tematically managed and monitored using in-house risk

management systems. The risk management systems of

subsidiaries are aligned with group regulations. DFS risk

management analyses, plans and controls the effects on

the Group.

The reporting of risks to the Board of Managing Direc-

tors takes place on a quarterly basis, while the Super-

visory Board is informed on a half-yearly basis. Both

reports include an overview of changes from the prior

period and all reports that were no longer judged to be

as business risks in the period under review.

The integrity of the risk management system is tested

by Internal Audit as well as in the course of the audit of

the annual financial statements by the external auditors.

6.2 Material risks

6.2.1 Corporate strategy risks

Corporate strategy risks arise primarily from misjudge-

ments of environmental conditions and future market

developments. They can lead to an inadequate alignment

of corporate activities, with negative consequences for

the earnings position. DFS has hardly any influence on

the development of air traffic. For this reason, the devel-

opment of air traffic is analysed in detail and forecast.

The same is true for the European charging and perfor-

mance scheme.

38


The DFS forecasts are highly reliable, which stands in

sharp contrast to the assumptions on which the regula-

tory provisions are based.

Since 2011, DFS has had to revise downwards the medi-

um-term forecast on which the regulatory provisions

are based year after year. As a result of the decline in

traffic, the traffic risk that DFS has to bear in the first

reference period (2012–2014) is in the tens of millions

of euro.

Starting from the vision of DFS with its long-term focus,

the Board of Managing Directors has developed stra-

tegic guidelines. The five-point programme has been

successfully installed and will realign the company with

the demands of the future (see section 1.4). The Board

of Managing Directors regularly reviews the achievement

of the goals of the five-point programme, discussing

potential risks, analysing variance and deciding on and

introducing suitable countermeasures. The continued

development of the company is ensured by close coop-

eration between the Board of Managing Directors, the

Supervisory Board and the Directors of the business

units. Against this background, corporate strategy risks

are judged to be low.

6.2.2 Financial risks

6.2.2.1 Principles of financial risk management

As part of its business activities, DFS is exposed to

numerous financial risks. The management of these

risks is an integral component of the planning and imple-

mentation system. The Board of Managing Directors

lays down the associated corporate policy. The objec-

tive of the corporate policy is to contain and/or mitigate

existing risks. Financial management implements these

targets and uses a system to manage financial risks that

is tailored to the specific business of DFS. Particularly

since the beginning of the global financial market crisis,

DFS has been continuously following and analysing the

developments on the financial markets in a critical dia-

logue with its principal bankers and the rating agencies

to reassess any existing strategies and develop new

strategies as necessary.

As part of its overall risk management system, DFS

performs Value-at-Risk (VaR) analyses to manage market

price risks (interest, currencies). The risk position is

assessed weekly by the Treasury department based

on market price risks and is reported to the Board

of Managing Directors at regular intervals. The VaR

indicates the absolute loss for a company of a defined

risk position which will not be exceeded with a previ-

ously defined probability over a given period of time.

The calculation of the VaR at DFS is based on a holding

period of 10 days and a probability of 95 percent. On

31 December 2013, the cumulative loss at a confidence

level of 95 percent amounted to under €3,064 thousand

(previous year: €1,675 thousand).

The VaR is determined with the help of statistical time

series on the relevant financial market data (interest

rates, exchange rates). Historical simulations are com-

puted by extrapolating scenarios from the past to the

future using simulated changes in market values for

financial instruments. This market risk analysis includes

all money market transactions of DFS, the issued bonds,

debenture loans, interest derivatives, securities, cur-

rency hedges as well as all associated risk positions

(foreign currency purchases and foreign currency

receivables/liabilities).

Quantitative information on VaR values for risks from cur-

rency and interest rate changes is summarised in Note 34.

Clearly defined framework conditions support the planning

and control of risks based on the reporting. Speculative

transactions with derivative instruments where there is no

underlying transaction are forbidden. As regards financial

investing, transactions are only entered into with counter-

parties who either have a long-term rating of at least AA-/

Aa3, short-term A-1/P-1, a correspondingly high credit-

worthiness or other form of collateral.

39

6.2.2.2 Liquidity risk

Daily liquidity is monitored by the Treasury department

and is managed with the help of liquidity planning dur-

ing the year and over the medium term (see section

2.5.3.1).

6.2.2.3 Default risk

DFS is exposed to default risk and, increasingly, a col-

lection and enforcement risk from the operating busi-

ness in en-route and terminal services, from the com-

mercial business as well as from financial instruments.

That is why receivables are monitored constantly in

the operating business and default risks considered by

means of specific allowances. In addition, for terminal

services DFS demands security deposits from custom-

ers with relevant sales volumes when defined warning

thresholds are exceeded.

In the en-route area, EUROCONTROL invoices all flights

on the basis of the data transmitted by the individual

Member States and supplementary information from the

Network Manager. The invoices are issued based on the

data (operator, weight, distance) known at that point in

time. In individual cases, agreements are reached under

which third parties make partial payments of outstanding

amounts for services received after consultation with

the Member States and at EUROCONTROL's reasonable

discretion. EUROCONTROL does not require any security

to be lodged but initiates enforcement measures to col-

lect amounts due which have not been paid within the

deadlines laid down. This requires a resolution from the

Member States.

DFS has no influence on the discretion applied when

EUROCONTROL makes such decisions. Notwithstand-

ing these restrictions, the regulatory authority currently

rejects the inclusion of these collection, default and

enforcement risks as uncontrollable costs. The maxi-

mum default risk is reflected in the carrying amounts of

the financial assets recognised on the balance sheet.

Warranty obligations from the commercial business are

managed as part of a contract-related quality management.

6.2.2.4 Rating risk

The business and performance of DFS are monitored by

external rating agencies and the Deutsche Bundesbank

(eligibility of DFS). Negative analyses and the downgrad-

ing of the ratings could make the take-up of external

financing more difficult and negatively influence the

conditions for such financing and lead to higher interest

rates.

DFS concluded a US lease-in/lease-out transaction (five

tranches) with two US investors (QTE transaction) for a

portion of its air navigation systems under non-current

assets in 2002 and 2003. This transaction was basi-

cally terminated in the second quarter of 2012. The

remaining German shell structure with a remaining term

up to and including 2021 is restricted to a receivable

to Nord/LB Bank (the borrower) and a liability to KfW

Bank (the lender). The associated cash flows match

as regards amount, term and currency. Over its term,

DFS bears the default risk to Nord/LB Bank to the

amount of €55 million as of the balance sheet date

(previous year: €61 million). KfW Bank is authorised to

extraordinarily terminate the loan if the rating of DFS

falls under AA- (Standard & Poor's) or Aa3 (Moody's).

In such a case, DFS has to name a third party within

a period of 30 days that will acquire the receivable of

KfW against DFS to the amount of €57 million (previous

year: €63 million).

6.2.2.5 Interest rate risk

DFS is exposed to interest rate risk from the financing

area, from financial assets as well as from the measure-

ment of obligations under occupational pensions.

In 2013, DFS made use of financial derivatives to hedge

interest rate risk and to minimise expenses. The effec-

tiveness of the hedges is guaranteed by the matching

of maturities and volumes between the hedge and the

40


underlying transaction. DFS monitors the impact of regu-

lation to be able to react with appropriate measures to

changes in the area of occupational pensions.

Variances in the value of the present value of the

pension obligations for changes in parameters of

+/- 0.5 percentage points are shown in the sensitivity

analysis in the Notes (See Note 25.3).

6.2.2.6 Currency risk

DFS is exposed to transaction risks as part of cross-

border procurement transactions. The majority of for-

eign currency purchases/liabilities result from suppliers

invoicing in US dollars. The total volume amounted to

approximately US$4.6 million in the reporting period

(previous year: US$8.5 million). Other currencies are

only of minor importance.

These risks are limited by means of hedging using deriv-

ative financial instruments. Currency risks from financial

transactions (foreign bonds, commercial paper) are

hedged immediately on conclusion of the transaction.

6.2.3 Performance-related and IT risks

The top priority for DFS is to ensure air safety, which

is why DFS has installed a safety management system

that corresponds to the provisions of EU Regulation

1035/2011.

A variety of measures are taken at all levels of plan-

ning, implementing and operating DFS infrastructure to

minimise the probability of downtime of the operational

infrastructure of DFS which would endanger air safety

and impact the business performance of DFS.

The risk management system of DFS has incorporated

the ATM-related systems and applications as well as the

administrative systems and applications.

Measures to avoid downtime that would have safety-

related or economic repercussions include the redundancy

and spatial separation of critical systems, the extensive

storage of data on separate data carriers as well as the

SAP backup computer centre.

6.2.4 Staff-related risks

The commitment and dedication of its staff are crucial

for DFS to maintain safety in German airspace and to

ensure the future development of the company.

A particular risk that cannot be underestimated stems

from demographic change and increasing competition

among companies for highly qualified staff and execu-

tives. DFS has set up targeted HR marketing initiatives

to counteract this trend for the technical professions

that are in short supply. DFS uses internal training pro-

grammes to retain talented young professionals. DFS

has a comprehensive in-house health management pro-

gramme to ensure that staff remain healthy and maintain

their ability to perform.

6.2.5 Insured risks

DFS has taken out insurance to cover common insurable

risks, including those of subsidiaries where DFS has a

direct majority shareholding. It particularly includes com-

pensation for the loss or damage of material assets and

the resulting interruption of operations minus the usually

agreed deductible.

It should be kept in mind when assessing the insured

risks that DFS mainly performs sovereign functions on

behalf of the Federal Republic of Germany in keeping

with Article 87d of the German Basic Law (Grundgesetz) in conjunction with Articles 31b and 31d of the German

Aviation Act (LuftVG). As a consequence, the Federal

Republic of Germany is liable for claims brought by third

parties for damages in line with the principles of State

liability. In the case of damage culpably caused by DFS,

aviation liability insurance covers a limit of €767 mil-

lion per instance of damage, thus releasing the Federal

Republic of Germany from its liability to this amount.

For non-sovereign tasks, statutory liability, and in some

41

cases such as apron management services, contractual

liability, are covered up to the named amount.

In addition, claims for damages by third parties from

employer's liability risks are covered by insurance.

6.2.6 Internal control and risk management system in

accordance with Article 315 paragraph 2 no. 5

of the German Commercial Code (HGB)

DFS implemented an internal control and risk man-

agement system as regards (group) accounting and

financial reporting. This ensures an orderly and efficient

presentation of all asset and liability transactions impact-

ing the finances or accounts and the associated flow of

money, goods and services. The assessment of transac-

tions and their recognition are conducted by adhering

to international and national accounting and disclosure

standards as well as by adhering to the applicable

European and national statutory provisions covering air

navigation charges, to tax and corporate law and to the

German principles of proper accounting (GoB).

DFS has set up the necessary organisational structures

and processes in the responsible divisions. Their tasks

are described in functional diagrams and ISO-certified

documents. Process and competence-based job descrip-

tions are available for each member of staff in these

divisions.

All recordable transactions are recognised using a

standardised enterprise resource planning (ERP) soft-

ware product – SAP R/3. This software carries out

programmed plausibility checks. Access rights and the

separation of functions in the system are administered

outside of the Finance division.

The statutory regulations and the regulations laid down

in the Articles of Association are supplemented in all

divisions by detailed internal instructions. These include

the mandatory provisions laid down in internal account-

ing handbooks, guidelines and orders that reflect IAS/

IFRS, the German Commercial Code (HGB), legislation

governing charges and tax law. These provisions are

constantly updated and revised as necessary. Special

issues due to complex, one-off and non-routine transac-

tions are also governed by decisions on their accounting

treatment.

Our internal accounting standards are based on special

European regulations tailored to the business model

used at DFS. Cost-efficiency is reviewed and there is

a separation between the tasks financed by air naviga-

tion charges and the commercial business. In the area

financed by air navigation charges, a differentiation is

made between the regulated sub-area of en-route and

the not (yet) regulated sub-area of terminal services.

Internal and external bodies concerned with accounting

report to the Board of Managing Directors on a monthly

basis on potential problem areas and identified risks.

Variances to planned figures are analysed. This report-

ing is supplemented by constant and standardised infor-

mation to the Supervisory Board. Early warning signals

are defined, with whose support the variances from the

ongoing business are counteracted systematically.

The preparation of the annual and group financial state-

ments is an organised process coordinated by a central

department. To ensure the completeness and correct-

ness of the processed information, a detailed procedural

plan as well as standardised information and request

methods and checklists tailored to DFS are used. To

ensure an optimal exchange of information, all those

involved in the process participate in regular coordina-

tion rounds. The staff members involved in the account-

ing and financial reporting receive regular training. There

is a clear separation of duties among those involved in

preparing the annual and group financial statements.

This separation of functions and segregation of duties

are strictly applied. Complex actuarial expert reports

and valuations are drawn up by specialised external

providers. DFS reviews the plausibility and usability of

42


these. Any advances in knowledge gained are used to

improve the efficiency, transparency and reliability of

the process. The external auditors participate in the con-

sultations of the Supervisory Board and report on the

results of their audit.

The Internal Audit department carries out compliance

audits at irregular intervals. Processes that are relevant

to the financial statements are also investigated.

The interlocking instruments described above provide

DFS with an internal control and risk management

system for accounting and financial reporting which

ensures a true and fair view of the actual assets, liabili-

ties, financial position and profit or loss of the Group.

Conscious or unconscious erroneous actions are thus

avoided to the greatest possible extent and discovered

with a high degree of probability. Complete certainty

cannot be guaranteed despite the highest possible level

of care.

6.3 Overall assessment of risk situation

Based on the assessment of the risk situation of the

company by the Board of Managing Directors of DFS, no

risks are currently discernible which individually, or as a

group, would pose a threat to the going-concern status

of DFS.

7. Outlook7.1 Development of the economic environment and

the effects on aviation

The leading economic institutes expect growth in GDP

in Germany of between 1.5 percent and 1.9 percent

for 2014. They assume that the peripheral countries

will stabilise and that the economic recovery in the

core countries of the eurozone will continue. The

Federal Government forecasts an increase in the real

gross domestic product of 1.8 percent for 2014 in its

Annual Economic Report for 2014. It expects growth to

accelerate, which will in particular lead to companies

investing more and more in equipment and buildings as

well as to employment and income rising considerably,

thus strengthening private consumption. Between 1995

and 2010, a one percent increase in economic growth

led to a rise in air traffic of 1.8 percent. Since the

introduction of the air transport tax in 2010, however,

air traffic has only grown slightly more strongly than the

economy. Therefore, for 2014 DFS expects a rise in IFR

flights in Germany to be within the bounds of the eco-

nomic growth set out by the economic institutes.

The International Air Transport Association (IATA) has

forecast an increase in passenger numbers to more

than 3.3 billion globally (6 percent more than in the

previous year) for 2014. The association sees improve-

ments to the structure and efficiency of the industry as

the foundation for this growth. This improvements stem

from such factors as increases in productivity and joint

ventures on the side of the airlines. For Europe, IATA

forecasts growth of a maximum of 2 percent, which is

within the bounds expected by DFS.

In the base scenario of the current STATFOR 7-year fore-

cast, EUROCONTROL expects traffic in German airspace

for 2014 to remain at the level of the previous year

(EUROCONTROL 7-year IFR Flight Movements and Ser-

vice Units Forecast: 2014–2020, EUROCONTROL Doc

522, Status: February 2014). Over the whole medium-

term period of the outlook until 2020, the organisation

expects growth of around 14 percent compared with the

year 2013.

In contrast, DFS expects growth of around 10 percent

compared with the year 2013 in the forecast period

until 2020. The major differences from the estimates by

EUROCONTROL relate to the expected economic growth

and to the assumed development of the airlines. DFS

expects medium-term growth in GDP of 1.4 percent in

line with the estimates published by the Federal Govern-

ment as well as a modest growth in fleet size on the

part of the German air carriers. In addition, DFS uses a

43

standardised planning approach over a five-year period

and therefore considers the fluctuations in air traffic.

The traffic forecast sets the framework for shaping

the second reference period from 2015 to 2019. The

impact on the financial position of the company in the

medium term can only be made after the determination

by the Federal Supervisory Authority for Air Navigation

Services (BAF) and the confirmation by the European

Commission.

7.2 Future development of the DFS Group

7.2.1 Single European Sky (SES) and regulatory

requirements

The initiative of the European Commission on forming

and managing a single cross-border European sky (SES)

represents a significant influencing factor. Future air

traffic management under SES will be based on traffic

flows rather than national borders, thus further enhanc-

ing airspace capacity and service quality.

A pillar of the SES initiative is the formation of functional

airspace blocks, in which air navigation services are to

be provided independently of national borders. Together

with the Benelux States, France, Switzerland and the

EUROCONTROL Control Centre in Maastricht, Germany

is actively participating in implementing this project

within the scope of FABEC (Functional Airspace Block

Europe Central). The FABEC Treaty entered into force

with the ratification by the Kingdom of Belgium on 1

June 2013. All the States involved had then completed

the ratification process and submitted the ratification

documents. At the moment, the FABEC air navigation

service providers are planning numerous airspace struc-

ture projects to ensure sufficient capacity and en-route

efficiency for the period until 2020.

Since 2012, a performance scheme for air navigation

services and network functions in the area of en-route

control services has been in operation based on EU Reg-

ulation 691/2010 and EU Regulation 1191/2010 from

the SES II package. EU Regulation 691/2010 lays down

a performance scheme for air navigation services and

network functions (formerly EC Regulation 2096/2005)

and EU Regulation 1191/2010 lays down a common

charging scheme for air navigation services (formerly

EC Regulation 1794/2006).

The goal is to enhance the performance of air naviga-

tion services, network functions and the cost situation in

the Single European Sky. The performance scheme has

mandatory performance goals for predefined periods

(reference periods) at the European level for the areas

of safety, environment, capacity and cost-efficiency.

On the basis of European target values, the FABEC per-

formance plan lays down joint capacity and environment

targets for the first reference period (2012–2014) as

well as the particular cost-efficiency target which has

been determined in the German contribution to the per-

formance plan.

The European performance scheme is supported at

FABEC level by the planned effective use of civil-military

airspaces.

As part of the preparations for the second reference

period (2015–2019), the EU Regulations from the cur-

rent regulation period were revised and their current

version dated 23 May 2013 is legally binding (EU Regu-

lations 390/2013 and 391/2013).

The expansion of economic regulation from the en-route

area to terminal services, the extension of the refer-

ence period from three to five years, the introduction

of compulsory European targets (which now include the

key performance area safety) as well as the mandatory

application of a financial incentive system for the capac-

ity value are the principal new components of these

regulations. The expansion of economic regulation to

terminal services in the second reference period (the

exact contents of which are not yet finalised) means that

44


the risk to revenues stemming from the splitting of the

traffic risk between airspace users and the air navigation

service providers has increased. The risk to revenues

can only be estimated with great uncertainty given the

range of fluctuations in the traffic forecasts and the long

forecast periods (five to seven years).

7.2.2 Centralised services

In spring 2013, EUROCONTROL introduced the central-

ised services initiative, in which nine supporting services

have been identified that should no longer be provided

nationally but centrally for all EUROCONTROL Member

States. DFS supports the basic approach of centralised

services proposed by EUROCONTROL. DFS has the goal

of exploiting the opportunities and minimising the risks

coming from the implementation of the EUROCONTROL

initiative. EUROCONTROL has laid down that centralised

services can only be provided by consortia and not by

individual vendors. DFS will participate in the tender for

selected services after weighing up the opportunities

and risks and seeking consortium partners.

7.2.3 Remote Tower Control (RTC)

Remote Tower Control (RTC) is the bundling of several

aerodrome control towers in one remote control centre

with the help of remote tower operations. Remote tower

operations involves the transfer of the aerodrome con-

trol unit from the original aerodrome to a different loca-

tion without changing the operational concept of having

a visual control procedure. In a remote tower centre,

several aerodrome control units are brought together

and operated remotely using one uniform concept of

endorsements and operations.

The business unit Tower is pursuing the strategy of

reducing costs by using new technologies and pro-

cedures and an optimised and efficient deployment

of staff. This is illustrated in the RTC project, which

involves the step-by-step consolidation of aerodrome

control for the international airports of Saarbrücken

(SCN), Erfurt (ERF) and Dresden (DRS) at one central

location in Leipzig (LEJ). At DFS, the implementation of

Remote Tower Control means a change of paradigm in

the provision of aerodrome control service.

7.2.4 iCAS programme

DFS initiated the iCAS programme to consolidate all

projects, sub-projects and individual measures for the

development of the ATS system iCAS, the future air

traffic control system at all DFS control centres. It com-

prises both concrete procurement and development

measures to provide the air traffic control system iCAS

for the DFS control centres as well as varied bilateral

and multinational cooperation measures at a European

level. The iCAS programme is to ensure that the multina-

tional initiatives to shape the future European air traffic

management system and the development of the air traf-

fic control system iCAS are conducted congruently and

in line with the requirements of DFS.

7.2.5 SESAR

In addition, DFS supports the European requirements for

the modernisation of the air traffic management network

through its participation in the SESAR project. Under the

auspices of the SESAR Joint Undertaking, it develops,

together with its partners, technologies and procedures

that are fit for purpose.

7.2.6 Commercial business

The business unit Aeronautical Solutions is strengthen-

ing its marketing activities with a focus on Asia and is

paving the way for growth by bundling together the com-

mercial business of DFS under one uniform strategic

responsibility.

7.2.7 Group structure

DFS is increasingly separating at the organisational

level the commercial business from the business

45

financed by air navigation charges. The company is

bringing together the group companies exposed to

competition in the holding company DFS IBS. In 2013,

for instance, DFS IBS acquired R. Eisenschmidt GmbH,

a company with a long tradition in the provision of

aviation supplies and accessories. In 2014, DFS will

transfer all the shares in TTC and its minority interest in

GroupEAD to DFS IBS.

7.3 Delopment of results and financial position

7.3.1 Interference in the determination of charges

for terminal services

In a directive dated 12 December 2012, the Federal

Supervisory Authority for Air Navigation Services (BAF)

laid down that the under-recovery concerning charges

from 2011 had to be distributed over the years 2013–

2015. The BAF also reduced the planned rise in staff

costs from 3 percent to 1 percent and raised the traffic

forecast, which now lies above EUROCONTROL's short-

term forecast (as at 12/2012) and the DFS forecast for

2013. This measure provides relief for airspace users

in the short term. Deviating from current practice, the

under-recovery concerning charges from 2011 is now

spread over a longer period of time instead of including

it in full in 2013. This impacts the cost-base for deter-

mining charges and the liquidity situation.

7.3.2 Revenues and costs

DFS is currently observing a significant variance

between the actual air traffic volume and the traffic fore-

cast for the first reference period.

The charges laid down per service unit are not sufficient

to offset the excessively high values in the plan. This had

a significant negative impact on the revenues of DFS in

the first reference period. The current forecast shows

that the service units for 2014 are 9.5 percent below

the traffic figures set out in the performance plan.

The stagnating traffic is forcing the Board of Managing

Directors to critically review the increase in staff num-

bers in air traffic control which has already been carried

out. With the exception of a few sectors, staffing levels

of operational personnel meet demand.

As a result, DFS is significantly reducing the recruitment

of new operational personnel to curb expenses. The

discussions with the local staff councils on the practical

implementation of the collective agreement on the grad-

ing system (ETV), which runs until the end of October

2016, have not yet been completed. In 2013, the col-

lective agreement on remuneration was cancelled within

the time prescribed. Negotiations are continuing.

The stagnation in air traffic is having a significant nega-

tive effect on revenues. Expenses will primarily be

influenced by the current collective bargaining negotia-

tions. The requirements of the regulatory authority on

cost-efficiency in the second reference period are not

yet available but are expected in spring 2014. At the

present moment, DFS is not able to make further state-

ments on the development of revenues and costs from

2015.

Measures and impact by business year (€m)

2013 2014 2015

Allocation of under-recovery -7.4 +3.7 +3.7

Staff costs due to salary rises under collective agreements -1.9 --- +1.9

Adjustment of traffic forecast -2.8 --- +2.8

46


7.3.3 Capital expenditure

In the future, capital expenditure for air navigation sys-

tems to expand capacity and for the infrastructure at

the international airports in Munich and Berlin as well as

replacement investments will lead to marginally higher

charges for depreciation. Additional capital expenditure

will be financed from cash flow and loans and amortised

by matched depreciation charges.

7.3.4 Liquidity

Currently, the financial strategy of DFS is primarily being

influenced by two counteracting effects from events on

the capital markets. Low interest rates on the capital

markets are favouring the take-up of debt and ensuring

low interest expenses. However, the low returns that

can currently be earned on the market mean that the

pension plan assets are not yielding substantial income.

The growth in plan assets is slowing down. In addition,

under IAS 19.78 the discount rate with which the obliga-

tion is to be measured and discounted is determined

by reference to market yields on high quality corporate

bonds. This rate is lower than the company-specific

discount rate used previously and leads to significantly

higher expenses for the vested benefits of staff, which

has a considerable impact on staff costs.

The regulatory authority has laid down that the actual

financing expense for occupational pensions should not

be subject to the cost-efficiency targets of the perfor-

mance plan, allowing a reliable servicing of this obligation

until further notice.

The forecast operating losses for 2014 will be financed by

means of a debenture loan issued in 2013. DFS assumes

that the regulatory authorities will set out an appropriate

return that is aligned with the business model from 2015.

7.3.5 Regulation of terminal services from 2015

The economic regulation of terminal services starts in

2015, but currently the regulatory authorities have not

yet laid down the rules. The Board of Managing Direc-

tors expects that the rules for terminal services from

2015 will be based on the framework used for the en-

route area. The chances and risks stemming from the

development of traffic will probably be split and limited.

Cost risks will be offset by an adequate return on the

equity tied up that is relevant to charges. Possible

chances and risks stemming from regulation are inte-

grated in the planning process.

The Board of Managing Directors does not expect any

influence on the results and financial position before full-

cost recovery is discontinued in 2015. DFS assumes in

its planning that regulation will take into account current

traffic and a determination of charges that considers risk.

7.3.6 General statement and earnings forecast

The Board of Managing Directors expects an overall

stagnation in air traffic volume in Europe. In its current

traffic forecast for 2014 for the en-route area, it antici-

pates that the number of service units will be approxi-

mately 9.5 percent lower than forecast in the FABEC

performance plan. However, the performance plan laid

down by regulation assumes a constant unit rate.

The slight increase in the number of service units

expected in 2014 when compared with 2013 (DFS fore-

cast) will unfortunately be offset by the slight decline in

the unit rate (see section 2.4.1.1). Therefore, based on

present knowledge, DFS will generate revenues at the

same broad level as last year in the en-route area.

As is common in this industry, expenses are particularly

influenced by staff costs and occupational pensions.

The Board of Managing Directors is counteracting these

challenges using collective bargaining measures and

by the targeted reduction of costs under the five-point

programme. It focuses on boosting productivity, react-

ing to fluctuating demand with increased staff flexibility

and limiting the planned increase in headcount. Vacant

47

positions are successively not being filled and the natural

turnover is being used to reduce staff numbers. Airspace

structures and procedures are being optimised and capi-

tal expenditure on recoverable, high-performance and

harmonised ATM systems is being stepped up. Project

and general costs are being reduced.

The Board of Managing Directors is counteracting the

possible decline in revenues in a targeted manner by

expanding the commercial business and with its five-

point programme. DFS intends to reduce its annual

operating costs by approximately €100 million by 2019

(see section 1.4).

These measures will only have a limited effect on offset-

ting the expected rise in costs, with revenues trending

at a constant level. The Board of Managing Directors

anticipates a small operational loss in 2014, which will

be offset by the catch-up effects (see section 2.3), and

a result at approximately the prior-year level.

Langen, 12 March 2014

The Board of Managing Directors

Prof Klaus-Dieter Scheurle

Robert Schickling

Dr Michael Hann

48


Group statement of comprehensive incomefor the period 1 January 2013 to 31 December 2013

Note 2013 2012*€'000 €'000

Revenues 5 1,109,197 1,101,317Changes in inventory and other own work capitalised 6 1,417 2,588

Other operating income 7 33,650 77,779

Total operating revenues and income 1,144,264 1,181,684

Cost of materials and services 8 -5,483 -6,705

Employee expenses* 9 -808,477 -772,172

Depreciation and amortisation 10 -102,410 -105,026

Other operating expenses** 11 -138,313 -143,968

Earnings before interest and taxes (EBIT) 89,581 153,813

Financial income* 12 61,322 73,137

Financial expenses 12 -115,261 -125,308

Financial result 12 -53,939 -52,171

Profit (loss) before income taxes 35,642 101,642

Income taxes 13 124 -13,756

Net income** 35,766 87,886

Of which attributable to the Shareholder of the parent company 35,766 87,886

Other comprehensive incomeItems that cannot subsequently be reclassified in profit or loss:Remeasurement of the net defined benefit liability* 24 555,524 -869,198

Tax effects 24 0 0

Items that can subsequently be reclassified in profit or loss:Change in the fair value of available-for-sale financial assets 24 -25 -101

Tax effects 24 993 -55

Total other comprehensive income 24 556,492 -869,354

Of which attributable to the Shareholder of the parent company 556,492 -869,354

Total result 592,258 -781,468

Of which attributable to the Shareholder of the parent company 592,258 -781,468

* Prior-year figures adjusted to IAS 19 (revised 2011)** Figure rounded down by €1 thousand for reconciliation purposes

49

Group balance sheet as at 31 December 2013

Note 31 Dec 2013 31 Dec 2012 1 Jan 2012€'000 €'000 €'000

Assets

Intangible assets 14 233,698 234,074 236,434Property, plant and equipment 15 531,459 511,486 508,873Investment property 16 843 873 903Financial assets 17 59,026 40,526 35,032Trade receivables 19 7 7 0Other receivables and assets 18 137,755 135,229 50,642Deferred tax assets 13 2,307 0 6,291

Non-current assets 965,095 922,195 838,175

Inventories 21 4,735 5,068 5,026Trade receivables 19 146,490 142,060 147,268Future receivables from construction contracts 20 2,770 1,415 3,998Other receivables and assets 18 21,417 20,061 24,746Current income tax assets 1,378 4,150 2,188Securities 22 0 7,018 0Liquid funds 23 258,081 105,534 84,663

Current assets 434,871 285,306 267,889

Balance sheet total (assets) 1,399,966 1,207,501 1,106,064

Note 31 Dec 2013 31 Dec 2012* 1 Jan 2012*€'000 €'000 €'000

Equity and liabilities

Subscribed capital 24 153,388 153,388 153,388Capital reserves 24 74,296 74,296 74,296Remeasurement reserves* 24 -739,298 -1,294,822 -440,428Retained earnings 24 -193,400 -229,166 -302,248Other reserves 24 0 -968 -812Shareholder's equity -705,014 -1,297,272 -515,804

Provisions for pensions and similar obligations* 25 1,346,114 1,827,237 988,344Other provisions 26 132,499 127,864 127,933Financial liabilities 27 381,931 284,544 229,940Trade payables 28 1,094 798 1,123Other liabilities 29 3,075 4,672 50,533Income tax liabilities 30,869 30,869 30,869Deferred tax liabilities 13 0 7,349 0Non-current debt 1,895,582 2,283,333 1,428,742

Other provisions 26 30,783 31,055 38,189Financial liabilities 27 4,423 3,627 0Trade payables 28 35,536 51,754 41,471Other liabilities 29 135,979 134,904 112,779Income tax liabilities 2,677 100 687Current debt 209,398 221,440 193,126

Balance sheet total (equity and liabilities) 1,399,966 1,207,501 1,106,064* Prior-year figures adjusted to IAS 19 (revised 2011)

50


Group statement of changes in equity for the period 1 January 2013 to 31 December 2013

Of which attributable to

Remeasure- the ShareholderSubscribed Capital ment Retained Other Total of the parent

capital reserve reserves* earnings reserves company€'000 €'000 €'000 €'000 €'000 €'000 €'000

Note (24) (24) (24) (24) (24)

As at 1 Jan 2012* 153,388 74,296 -440,428 -302,248 -812 -515,804 -515,804Payment of dividendto Shareholder 0 0 0 0 0 0 0

Total result

Net income 0 0 14,804 73,082 0 87,886 87,886

Other comprehensive incomeRemeasurement of the net defined benefit liability* 0 0 -869,198 0 0 -869,198 -869,198Change in the fair valueof available-for-salefinancial assets 0 0 0 0 -101 -101 -101Tax effects 0 0 0 0 -55 -55 -55

As at 31 Dec 2012* 153,388 74,296 -1,294,822 -229,166 -968 -1,297,272 -1,297,272Payment of dividend to Shareholder 0 0 0 0 0 0 0

Total result

Net income** 0 0 0 36,766 0 36,766 36,766

Other comprehensive incomeRemeasurement of the net defined benefit liability 0 0 555,524 0 0 555,524 555,524Change in the fair valueof available-for-salefinancial assets 0 0 0 0 -25 -25 -25Tax effects 0 0 0 0 993 993 993

As at 31 Dec 2013 153,388 74,296 -739,298 -192,400 0 -704,014 -704,014


51

Group cash flow statementfor the period 1 January 2013 to 31 December 2013

Note 2013 2012*

(31) €'000 €'000

Net income* ** 35,766 87,887Depreciation and amortisation on intangible assets and property plant and equipment 102,410 105,026

Income taxes 8,540 171

Income from investments 0 -339

Gains (-) from the measurement of bonds -5,676 -3,534

Gains (-) from the measurement of securities -25 -7

Gains (-) from asset disposals -60 -1,775

Losses (+) from asset disposals 1,795 996

Non-cash changes from the QTE transaction -930 2,651

Increase (-) in other receivables and assets -3,770 -19,078

Increase (-) / decrease (+) in deferred tax assets -1,314 6,235

Decrease (+) / increase (-) in inventories 333 -42

Increase (-) / decrease (+) in trade receivables -4,430 5,201

Increase (-) / decrease (+) in future receivables from construction contracts -1,355 2,583

Decrease (+) / increase (-) in current tax assets 2,771 -1,962

Increase (+) / decrease (-) in provisions for pensions and similar obligations* 74,401 -30,306

Increase (+) / decrease (-) in other provisions 4,363 -7,203

Increase (+) / decrease (-) in other liabilities -9,988 -22,834

Decrease (-) / increase (+) in trade payables -15,921 9,957

Increase (+) / decrease (-) in income tax liabilities 2,577 -586

Decrease (-) / increase (+) in deferred tax liabilities -7,349 7,349

Taxes paid (-) -3,213 -2,741

Dividend received (+) 0 339Cash inflow from operating activities 178,925 137,988

Payments (-) for investments in intangible assets and property, plant and equipment -124,643 -107,441Payments (-) for investments in financial assets -18,500 -12,606

Proceeds (+) from disposal of intangible assets and property, plant and equipment 932 2,970

Proceeds (+) from disposals of financial assets 7,018 0Cash outflow for investing activities -135,193 -117,077

Payments (-) / proceeds (+) for finance leases -33 169Taking on (+) of financial assets (debenture loan) 110,000 0

Interest result 4,648 6,271

Interest received 2,821 1,159

Interest paid -8,621 -7,639Cash outflow for financing activities 108,815 -40Net change in cash and cash equivalents 152,547 20,871Cash and cash equivalent at the beginning of the year 105,534 84,663Cash and cash equivalent at the end of the year 258,081 105,534


Notes 2013

52

1. General basisDFS Deutsche Flugsicherung GmbH (DFS) is a company under private law. It has its Headquarters (registered office) in

63225 Langen, Am DFS-Campus 10, Germany. The company is registered on the Commercial Register (HRB 34977) at

Offenbach am Main district court, Germany, as a limited liability company (GmbH). DFS is wholly owned by the Federal

Republic of Germany, represented by the Federal Ministry of Transport and Digital Infrastructure (BMVI).

The main business of DFS is defined by the tasks set out in Article 27c of the German Aviation Act (LuftVG). Under this

act, DFS is entrusted with providing air navigation services (a sovereign task). The group management report contains

information on the business activities of DFS and the object of the company (see sections 1.1 and 1.3 in the group man-

agement report).

2. Application of accounting standardsThe regulations:

EC Regulation 1606/2002 of the European Parliament and of the Council dated 19 July

2002 on the application of international accounting standards

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

EC Regulation 1794/2006 of the Commission dated 6 December 2006 laying down a

common charging scheme for air navigation services

EU Regulation 1191/2010 dated 16 December 2010 amending EC Regulation1794/2006 of the Commission on the development of a common charging scheme for air navigation services

EU Regulation 390/2013 of the Commission dated 3 May 2013 laying down a

performance scheme for air navigation services and network functions

EU Regulation 391/2013 of the Commission dated 3 May 2013 laying down a common

charging scheme for air navigation services

oblige DFS to draw up its group financial statements as of 31 December 2013 in line with International Financial Reporting

Standards (IFRS). DFS applies the standards of the International Accounting Standards Board (IASB) and the interpreta-

tions of the International Financial Reporting Interpretations Committee (IFRIC) as recognised and endorsed by the Euro-

pean Union (EU).

These financial statements consider EU Regulation 1606/2002, which is enacted in Article 315a of the German Com-

mercial Code (HGB) by means of the Accounting Law Reform Act (BilReG) dated 4 December 2004.

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

The business year at the DFS group corresponds to the calendar year (1 January to 31 December).

Notes to the group financial statements 2013

53

The Board of Managing Directors drew up the group financial statements and approved them for submission to the Audit

Committee of the Supervisory Board on 12 March 2014. The Audit Committee checked the group financial statements and

stated its opinion of them. The Supervisory Board discussed the group financial statements and the opinion of the Audit

Committee and issued a recommendation to the Shareholder to approve the group financial statements. The Shareholder

may amend the group financial statements released by the Board of Managing Directors. The approved group financial

statements are available via the electronic German Federal Gazette in accordance with Article 325 paragraph 2a no. 1 of

the German Commercial Code (HGB) and from the website at www.dfs.de.

3. Scope of consolidation

Acronym Company Registered office Shareholdingin %

DFS DFS Deutsche Flugsicherung GmbH Langen, Germany Parent company

Affiliated companiesDFS IBS DFS International Business Services GmbH Langen, Germany 100.00

Formerly known as:DFS ESSP DFS European Satellite Services Provider

Beteiligungsgesellschaft mbH

U-Kasse DFS Unterstützungskasse GmbH (Benevolent fund) Langen, Germany 100.00

TTC The Tower Company GmbH Langen, Germany 100.00

DFS Energy DFS Energy GmbH Langen, Germany 100.00

Investments

FCS FCS Flight Calibration Services GmbH Braunschweig, Germany 55.00

GroupEAD GroupEAD Europe S.L. Madrid, Spain 36.00

BILSODA BILSODA GmbH & Co. KG Pullach, Germany 24.90

Investments through affiliated companies

Shares and investments through DFS International Business Services GmbH:

Eisenschmidt R. Eisenschmidt GmbH Egelsbach, Germany 100.00

ESSP SAS European Satellite Services Provider Toulouse, FranceSociété par Actions Simplifiée 16.67

Investment through The Tower Company GmbH:

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

DFS recognises its stakes in affiliated companies and investments at cost (see Notes 17 and 41.1). Even when taken as a

whole, the stakes do not impact the results and financial position of the group and are therefore not included in the scope

of consolidation.

Although DFS holds more than half the shares in FCS, individual provisions of the articles of association of FCS as well as the

rules of internal procedure for the board prevent DFS from exercising control. Therefore, FCS is included under investments.

With the purchase and assignment contract dated 3 July 2013, DFS ESSP acquired 100 percent of the shares in R. Eisen-

schmidt GmbH for a purchase price of €296 thousand. The fully paid-in capital amounts to €26 thousand.

Notes 2013

54

With the notarial recording dated 26 August 2013, the Shareholder changed the name of DFS European Satellite Services

Provider Beteiligungsgesellschaft mbH to DFS International Business Services GmbH. The entry in the Commercial Register

was made on 3 September 2013.

4. Accounting policiesDFS and its subsidiaries carry out their accounting and measurement using uniform standards. They apply the histori-

cal cost principle, unless IFRS prescribes a different measurement principle. The associated disclosure is made with the

respective accounting policy.

4.1 New and revised international financial reporting standards and interpretations

4.1.1 Mandatory standards and interpretations

DFS uses the following new and revised standards that are mandatory for business years beginning on or after 1 January

2013. The endorsement by the European Union is made with the publication of the standard in the Official Journal of the

European Union.

Standard Title Publication EU EffectiveIASB endorsement date

IAS 1 Presentation of financial statements 16 Jun 2011 5 Jun 2012 1 Jul 2012(Presentation of components of

other comprehensive income)

IAS 19 Employee benefits 16 Jun 2011 5 Jun 2012 1 Jan 2013

IAS 12* Income taxes (Deferred tax– recovery 20 Dec 2010 11 Dec 2012 1 Jan 2013of underlying assets)

IFRS 1* First time adoption of IFRS 20 Dec 2010 11 Dec 2012 1 Jan 2013

(Severe hyperinflation and removal offixed dates for first-time adopters)

IFRS 13 Fair value measurement 12 May 2011 11 Dec 2012 1 Jan 2013

IFRIC 20* Stripping costs in the production phase 19 Oct 2011 11 Dec 2012 1 Jan 2013of a surface mine

IFRS 7 Financial instruments: Disclosures 16 Dec 2011 13 Dec 2012 1 Jan 2013(Offsetting of financial assets and

liabilities)IFRS 1* First time adoption of IFRS 13 Mar 2012 4 Mar 2013 1 Jan 2013

(Government loans)Catalogue Improvements to international financial 17 May 2012 27 Mar 2013 1 Jan 2013

reporting standards (2009 to 2011) * The revisions to the standards IAS 12, IFRS 1 and the interpretation IFRIC 20 are materially relevant for DFS. As such issues currently do not arise,

the standards and interpretation have no impact on the group management report, the net income as well as the results and financial position of the group financial statements.

DFS has retrospectively applied IAS 1 (Presentation of financial statements) for the first time effective from the business

year beginning 1 January 2013. IAS 1 was endorsed by the EU on 5 June 2012. When certain preconditions are met, the

revision splits the line items in other comprehensive income into items that could be reclassified to profit or loss in subse-

quent periods and items that remain in equity. The revisions to the standard impact merely the presentation of the state-

ment of comprehensive income.

55

DFS has applied IAS 19 (Employee benefits) for the first time effective from 1 January 2013. IAS 19 was endorsed by

the EU on 5 June 2012. The transitional provisions require retrospective application in conformity with IAS 8 (Accounting

policies, changes in accounting estimates and errors). The revised standard eliminates the option of using the corridor

method for actuarial gains and losses. They are now treated as remeasurements and recognised directly in equity. In

the case of plan amendments and plan curtailments, the resulting effects are recognised directly in profit or loss at the

point in time they occur. The expected return on plan assets and the interest expense for plan obligations are discounted

uniformly and reported as the net interest component. IAS 19 requires comprehensive disclosures on the characteristics,

risks and contributions of defined benefit plans, sensitivity analyses on actuarial assumptions, reconciliations and the pres-

entation of future cash flows. Overall, the changes lead to higher equity volatility. The impact of the retrospective appli-

cation of IAS 19 is presented in Note 4.2.1. As regards past service costs, DFS anticipates that there will be an annual

rise of around €3,000 thousand to €4,000 thousand, while the net interest expense will see an annual decline of around

€2,000 thousand to €4,000 thousand.

DFS has applied IFRS 13 (Fair value measurement) prospectively for the first time effective from 1 January 2013. IFRS 13

was endorsed by the EU on 11 December 2012. The new IFRS describes a uniform cross-standard framework for measur-

ing fair value, defines the term and presents possible methods for determining fair value. The fair value is defined as the

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market partici-

pants at the measurement date. The first-time application of the standard did not result in any changes to the DFS group

financial statements.

DFS has retrospectively applied IFRS 7 (Financial instruments: disclosures) for the first time effective from 1 January 2013.

IFRS 7 was endorsed by the EU on 13 December 2012. The amendments cover additional disclosures to be made when

netting financial assets and financial liabilities. DFS presents the net amount of financial receivables and liabilities to the

Shareholder, affiliated companies and investments (see Note 29). The standard was already applied and resulted in no

changes to the group financial statements.

DFS has applied the Improvements to International Financial Reporting Standards (2009 to 2011) for the first time effec-

tive from 1 January 2013. They were endorsed by the EU on 27 March 2013. The amendments are to be retrospectively

applied in conformity with IAS 8. Within the scope of the regular IASB project, non-urgent improvements and inconsisten-

cies in IFRS are tackled. This relates in particular to the clarification of wording and the correction of existing require-

ments as well as additional guidance. There was no impact on the group financial statements from the improvements of

IFRS already applied.

4.1.2 Voluntary standards and interpretations

The IASB has published the following revised or new standards and interpretations. The standards have already been incor-

porated into European law as part of the endorsement procedure. They become effective from the point in time given and

earlier application is permitted.

Notes 2013

56

DFS is currently examining the impact of the new and amended standards on the group's results and financial position. The

standards will be applied when they become effective and earlier application will not be availed of.

Standard Title Publication EU EffectiveIASB endorsement date

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

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

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

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

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

IAS 32 Financial instruments: Presentation 16 Dec 2011 13 Dec 2012 1 Jan 2014(Offsetting of financial assets and liabilities)

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

IFRS 10 Group financial statements (Investment entities) 31 Oct 2012 20 Nov 2013 1 Jan 2014

IFRS 12 Disclosure of interests in other entities 31 Oct 2012 20 Nov 2013 1 Jan 2014(Investment entities)

IAS 27 Separate financial statements (Investment entities) 31 Oct 2012 20 Nov 2013 1 Jan 2014

IAS 36 Impairment of assets – disclosures on the 29 May 2013 19 Dec 2013 1 Jan 2014recoverable amount for non-financial assets

IAS 39 Financial instruments: Recognition and 27 Jun 2013 19 Dec 2013 1 Jan 2014measurement – novation of derivativesand continuation of hedge accounting

The new and revised standards IFRS 10, 11 and 12 as well as IAS 27 and 28 are the result of the IASB consolida-

tion project. The EU endorsed the standards on 11 December 2012 and made their first-time application mandatory

for companies retrospectively effective from 1 January 2014 in conformity with IAS 8. An early voluntary application

is permitted if all the standards mentioned are adopted at the same time. IFRS 10 creates a uniform basis for the

definition of the relationship between parent and investee and regulates the inclusion of companies in the scope of

consolidation. The standard also offers guidance in cases of doubt. IFRS 11 regulates the accounting by entities that

jointly control an arrangement either by joint venture or joint operation. IFRS 12 consolidates in one standard the quan-

titative and qualitative disclosures for all types of interests in other companies. After the introduction of this new group

standard, IAS 27 now only relates to the accounting for separate financial statements. IAS 28 describes the account-

ing for investments in associates and joint ventures. The option for proportionate consolidation for joint ventures was

discontinued. The amendments published on 4 April 2013 on new group standards regulate the transitional provisions.

The amendments published on 20 November 2013 aim to better reflect the business model of investment entities.

In addition to definitions and disclosures, the revised regulation requires that investment entities not consolidate the

subsidiaries they control and hold for investment purposes. Instead, fair value should be used to measure those invest-

ments. DFS does not expect the new and revised standards to impact the scope of consolidation as the investments in

affiliated companies are immaterial even when viewed as a whole.

57

The amendments to IAS 32 (Financial instruments: presentation – offsetting financial assets and financial liabilities) was

endorsed by the EU on 13 December 2012 and retrospective application is required for the first time effective from

1 January 2014. Early voluntary application is possible. The amendments clarify offsetting by providing additional guid-

ance. They specify that offsetting is only permitted when the entity currently has a right to set-off, it may not be contin-

gent on a future event and it must be legally enforceable in all of the following circumstances: (i) the normal course of

business; (ii) an event of default; and (iii) an event of insolvency or bankruptcy of the entity or any of the counterparties.

The amendments also regulate that gross settlement mechanisms are to be deemed equivalent to net settlement under

certain circumstances.

On 19 December 2013, the EU endorsed the amendments to IAS 36 (Impairment of assets – disclosures on the recov-

erable amount for non-financial assets). Application is retrospectively required effective from 1 January 2014. Early

application is permitted. These amendments regulate that the asset has to be carried at its recoverable amount if the

asset is an impaired or revalued asset determined on the basis of the fair value less costs to sell.

On 19 December 2013, the EU adopted the revised standard IAS 39 (Financial instruments: recognition and measure-

ment – novation of derivatives and continuation of hedge accounting). It is retrospectively effective from 1 January

2014. Early voluntary application is permitted. Due to the change, the novation of hedges to a central counterparty

(CCP) as a consequence of laws or regulations does not lead to the expiration or termination of the hedging instrument

under certain circumstances.

4.1.3 Published, though not yet mandatory, standards and interpretations

The IASB has issued the following standards which are not yet mandatory. Before these can be applied, they have to be

recognised and endorsed by the EU. They become effective from the point of time given.

DFS is currently examining the possible impact on the group financial statements. DFS does not avail of the right of earlier

application of new or revised standards.

Notes 2013

58

Standard Title Publication Expected RelevantIASB effective date for DFS

IFRS 9 Financial instruments 12 Nov 2009 Open YesIFRS 7/ IFRS 9 Financial instruments – amendments and 16 Nov 2011 Open Yes

mandatory effective date and transition disclosures

IFRIC 21 Disclosures 20 May 2013 1 Jan 2014 YesIAS 39/ Financial Instruments – changes and 19 Nov 2013 Open YesIFRS 7/ IFRS 9 hedge accountingIAS 19 Employee benefits (Defined benefit 21 Nov 2013 1 Jul 2014 Yes

plans: employee contributions)Catalogue Improvements to international financial 11 Dec 2013 1 Jul 2014 Yes

reporting standards (2010 to 2012)Catalogue Improvements to international financial 11 Dec 2013 1 Jul 2014 Yes

reporting standards (2011 to 2013)IFRS 14 Regulatory deferral accounts 30 Jan 2014 1 Jan 2016 Yes

4.2 Changes in accounting policies

4.2.1 Occupational pensions

The changes to IAS 19 (Employee benefits) are retrospectively effective from 1 January 2013. DFS therefore changed

its accounting policies for defined benefit obligations. The net interest component replaces interest expense of the

defined benefit obligation and the expected return on plan assets. The net interest expense (income) is calculated based

on the net defined benefit liability (asset). The uniform discount rate for the obligation and plan assets is the yield on

high quality fixed-rate corporate bonds measured at the beginning of the year. Net interest is disclosed in the financial

result. Actuarial gains and losses are recognised directly in the balance sheet (not in profit or loss) as remeasurements

of the defined benefit obligation in other comprehensive income in equity. The corridor method has been discontinued.

Amendments to benefit plans lead to past service costs. These are fully recognised in employee expenses immediately

when incurred. A reconciliation of the affected items is presented below.

59

Reconciliation of the group statement of comprehensive incomeValue after Adjustment Value after

IAS 19 publicationadjustment of IAS 19

(revised 2011) (corridor method)2012 €'000 €'000 €'000Employee expenses -772,172 16,966 -789,138(Amortisation of actuarial gains and losses)

Earnings before interest and taxes (EBIT) 153,813 16,966 136,847

Financial income 73,137 -2,162 75,299(Expected return on plan assets)

Financial result -52,171 -2,162 -50,009

Profit (loss) before income taxes 101,642 14,804 86,838

Net income 87,886 14,804 73,082

Remeasurement of the net defined benefit liability -869,198 -869,198 0

Other result after taxes -869,354 -869,198 -156

Total result -781,468 -854,394 72,926

Reconciliation of group balance sheetValue after Adjustment Value after

IAS 19 publicationadjustment of IAS 19

(revised 2011) (corridor method)1 Jan 2012 €'000 €'000 €'000

Remeasurement reserves -440,428 -440,428 0

Shareholder's equity -515,804 -440,428 -75,376

Provisions for pensions and similarobligations 988,344 440,428 547,916Non-current debt 1,428,742 440,231 988,511

31 Dec 2012 €'000 €'000 €'000

Remeasurement reserves* -1,294,822 -1,294,822 0

Retained earnings* -229,166 0 -229,166

Shareholder's equity -1,297,272 -1,294,822 -2,450

Provisions for pensions and similarobligations 1,827,237 1,294,822 532,415Non-current debt 2,283,333 1,294,822 988,511

* Adjustments to expenses and income due to IAS 19 (revised 2011) under remeasurement reserves

There are no disclosures on changes to agreements covering part-time work for older employees (Altersteilzeit).

Notes 2013

60

4.2.2 Introduction of new statutory regulations

Article 29 of the Law on the Implementation of the Mutual Assistance Directive as well as on the Change to Tax Regula-

tions (known in German as AmtshilfeRLUmsG) dated 26 June 2013 now regulates the determination of the tax base

previously set out in Article 31b paragraph 3 of the German Aviation Act (LuftVG). The positive or negative difference

between the profit from air navigation charges as calculated under income tax law and the result from the provision

of air navigation services as calculated under the provisions governing charges are not considered when determining

income for DFS. Taxation is therefore based on the charges-related result. The effects of this also impact the determina-

tion and calculation of deferred taxes.

In principle, differences in measurement between IFRS and tax regulation lead to deferred taxes. However, if deferred

taxes stem from charges-related issues there is no future tax expense/relief as the valuation differences between the

result from the charges perspective and the result from the tax perspective under Article 31b paragraph 3 of the Ger-

man Aviation Act (LuftVG) are not taxed. The designations of the accounts booked were adjusted to the current legisla-

tion.

At the same time, DFS adjusted the forecast period for the general composition of the deferred taxes as regards recov-

erability/settlement. Until the end of full cost recovery in 2012, the forecast period had extended over 15 years, until

the end of the catch-up effects from the conversion from German Commercial Code (HGB) to IFRS in 2021. Following

the introduction of the new regulatory regime, the forecast period was shortened to the next reference period from

2015 to 2019. DFS does not currently have reliable information on the development of the results and financial position

that stretch beyond the next reference period.

4.3 Use of assumptions and discretionary decisions

At the balance sheet date, DFS makes annual forecasts of future developments for accounting and measurement pur-

poses. The comprehensive set of assumptions, estimates and judgements made may have a considerable influence on

the representation of the results and financial position of DFS. They are based on experience and expectations about the

occurrence of future events which appear commercially reasonable in the given circumstances. DFS continuously proves

its estimates and prognoses. If external conditions develop differently than expected, the actual amounts may vary from

the estimates. Any variances from the actual circumstances are recognised in profit and loss when they occur. The key

assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date which

have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next

business year are described below.

4.3.1 International financial reporting standards and interpretations

Revisions to accounting policies resulting from new and revised standards and interpretations are applied retrospec-

tively, unless otherwise regulated. The prior-year statement of comprehensive income and the opening balance sheet for

the prior-year period are adjusted as if the new accounting policies had always applied.

61

4.3.2 Useful lives of property, plant and equipment

DFS estimates the useful lives of property, plant and equipment based on their probable usability. As an orientation,

DFS uses the official tax depreciation table (AfA-Tabelle) for general purpose assets (see letter from the German Federal

Ministry of Finance dated 15 December 2000 in the Federal Fiscal Gazette (Bundessteuerblatt) I 2000 – page 1532).

Adjustments are made, as necessary, based on historical experience.

4.3.3 Impairment of internally generated intangible assets

Impairment tests are carried out on internally generated intangible assets to determine the present value of expected future

cash flows if there are objective indications of impairment (see Note 4.5.2). DFS evaluates current requirements due to

changing market conditions as well as the progress of new intangible assets that are already in the development process.

4.3.4 Intrinsic value of financial assets

Impairment tests are carried out on financial assets to determine the present value of expected future cash flows if

there are objective indications of impairment (see Note 4.5.2). DFS evaluates, in addition to other factors, the tim-

ing and extent of variances from cost, interest and exchange rates, the financial situation, the short-term business

prospects as well as the general economic situation. If there is doubt about whether financial assets carried under the

category "Held-to-maturity" will be settled in full, DFS evaluates the need to impair the receivable using the estimated

probability of default. When there are doubtful trade receivables, DFS evaluates the creditworthiness of customers and

determines the allowance for doubtful accounts required based on probable default risks from information on insolven-

cies (see Note 4.6.8).

4.3.5 Long-term service contracts

DFS realises revenues from long-term service contracts using the percentage-of-completion method (see Note 4.5.1).

To determine the percentage of completion and thus the performance progress, estimates are required of the material

influencing factors such as costs incurred, contract income and contract risks. The responsible expert departments

constantly review all the estimates and make any necessary adjustments.

4.3.6 Pensions and similar obligations

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

year (see Note 25.2). The discount rate at the balance sheet date is based on the market yield on high quality corporate

bonds with an average rating of AA using the standard procedure. DFS uses bonds which, like the pension obligation, are

measured in euro. The term of the corporate bonds corresponds to the term of the obligation. The interest rate for the

expected return on plan assets corresponds to the discount rate. The percentage rates for the salary trend and the pro-

jected increase in benefits are based on past experience. Biometric data serve as the basis for the estimates of average

life expectancy (mortality tables taken from Heubeck-Richttafeln 2005 G). Any change to these assumptions has an impact

on the present value of the pension obligations (see Note 25.3). DFS recognises changes in value (particularly actuarial

gains and losses) directly in equity as a remeasurement of defined benefit obligations under other comprehensive income.

Notes 2013

62

4.3.7 Other provisions

The measurement of other provisions requires judgements on estimated costs, expected cash flows and their maturities

(see Note 4.6.15). The provisions relate to contracts, collective agreements, legal provisions or other obligations. They

are recognised based on financial and actuarial calculations and historic experience using sound commercial judgement.

The premises underlying other provisions are reviewed annually and adjusted to current circumstances as necessary.

The discount rates for non-current provisions were adjusted to the development of interest rates in the business year

(see Note 26).

4.4 Currency translation

The group financial statements and the separate financial statements are drawn up in the reporting currency euro. All

amounts are given in thousands of euro (units of currency). The common method of rounding is used.

Non-monetary items (intangible assets, property, plant and equipment, and inventories) in foreign currencies are carried at

historical cost. Monetary items (liquid funds, receivables as well as liabilities) in foreign currencies are translated by DFS

using the rate at the reporting date and the currency effects are recognised in the income statement.

Currency ISO code Standard EMU Standard EMUconversion conversion conversion conversion

Mean exchange Asked price Mean exchange Asked pricerate rate

1 EUR = 31 Dec 2013 31 Dec 2013 31 Dec 2012 31 Dec 2012

U.S. dollar USD 1.37910 1.38210 1.31940 1.32240

British pound GBP 0.83370 0.83570 0.81610 0.81810

Swiss franc CHF 1.22760 1.22960 1.20720 1.20920

Japanese yen JPY 144.72000 144.96000 113.61000 113.85000

4.5 Items in the statement of comprehensive income

4.5.1 Income and expense recognition

Revenues and other operating income are recognised if:

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

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

■ there is no right of disposition nor effective control;

and

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

63

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

incurred.

DFS accounts for revenues and expenses from long-term service contracts using the percentage-of-completion method.

Revenues are recognised based on the stage of completion. The stage of completion results from the relationship

between the contract costs incurred up to the balance sheet date and planned contract costs to this date. If the execu-

tion of the service contract requires a significant period of time, contract costs may also include direct borrowing costs.

Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with

the customer. The contract costs are expensed using the matching principle. If the total contract costs exceed the total

contract revenue, the expected loss is expensed immediately. If the results of a service contract cannot be estimated

reliably, the probable revenues are recorded at the value of the costs incurred. Revenues from long-term service con-

tracts accounted for using the percentage-of-completion method are reported by DFS under "Future receivables from

construction contracts" in the balance sheet after deducting any payments received.

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

4.5.2 Impairment

Non-financial assets are reviewed at the balance sheet date to determine if there are indications of impairment. This

involves comparing the carrying amount with the recoverable amount of the asset.

The carrying amount is the amount at which an asset is recognised after deducting any accumulated amortisation/

depreciation and accumulated impairment losses thereon. The recoverable amount is the higher of the net realisable

value and the value in use. The net realisable value is equal to fair value less costs to sell. Value in use is the present

value of the future cash flows expected to be derived from the continuing use of an asset and its disposal at the end of

its useful life. DFS calculates the present value with an interest rate before tax that reflects market conditions, calculat-

ed using the estimated zero-coupon curves of the German Bundesbank (the Svensson method is used). No risk premium

in accordance with IAS 36.55 (b) was used, as the assets are not exposed to any special risks.

If the recoverable amount of an asset is less than the carrying amount, an impairment is made to the recoverable

amount. If a recoverable amount cannot be determined for the individual asset, then it is determined for the smallest

cash generating unit to which the relevant asset can be allocated. Impairment losses are recognised in profit or loss in

other operating expenses.

If at a later date the reasons for impairments made in previous years no longer apply, either in full or in part, the impairment

loss is reversed accordingly. The reversal is limited to the carrying amount which would have applied if the impairments from

the past were excluded and it is recognised in the income statement. It is not permissible to reverse impairments of good-

will.

Notes 2013

64

4.6 Items in the balance sheet

4.6.1 Intangible assets

Assets acquired for valuable consideration are capitalised at cost when it is probable that the asset will generate future

economic benefits for the company and the costs can be measured reliably.

Intangible assets that arose from own development activities are capitalised at cost. This presupposes that future

economic benefits will be generated from the products. Production costs comprise all direct costs and an appropriate

share of development-related overhead. Borrowing costs are capitalised as part of production costs in accordance with

the requirements of IAS 23.

Prepayments are measured at cost. The prepayments are allocated to the respective intangible assets at the time of com-

missioning and written off over their useful life.

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

Intangible assets Useful lifeConcessions, industrial and similar propertyrights and assets as well as licences in suchrights and assets 3–8 years

Internally generated intangible assets 8 years

Prepayments Only after commissioning

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

4.6.2 Property, plant and equipment

Tangible assets acquired for valuable consideration are capitalised at cost when it is probable that the asset will generate

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

Costs include the purchase price as well as all directly attributable costs required to bring the asset to the site and get it

into the working condition as intended by management.

DFS divides property, plant and equipment (in particular buildings) into the material economic components and reports

them separately. Costs for the replacement of components and general overhaul are capitalised separately.

Production costs for internally generated property, plant and equipment comprise direct production costs (prime costs), an

appropriate share of manufacturing overhead as well as the borrowing costs that are directly attributable up to the time of

completion in accordance with IAS 23.

65

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

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

Property, plant and equipment Useful life

Building – Structure 25–40 years

Building – Façade 25–30 years

Building – Interior finishing 25 years

Building – Heating, ventilation, water 15–25 years

Building – Electronics 15–25 years

External facilities 5–19 years

Technical equipment 3–20 years

Operating and office equipment 5–20 years

Costs for repairs and ongoing maintenance of property, plant and equipment that do not lead to an extension or material

improvement are recognised under other operating expenses in the income statement.

When property, plant and equipment are sold, decommissioned or scrapped, any gains or losses from the difference

between the net disposal proceeds and the amortised cost are recognised in other operating income or expenses

4.6.3 Leases

DFS concludes rental and lease contracts with limited or unlimited terms to maintain flexibility as regards liquidity. The

company examines the contracts in accordance with IAS 17 to establish whether they are finance leases that have to be

capitalised or operating leases to be expensed.

A lease is considered a finance lease when the lessor transfers all the material risks and rewards from ownership of an

asset to the lessee (IAS 17.10). If these conditions are not met DFS classifies the lease as an operating lease.

For finance leases, DFS capitalises the lower of the present value of the minimum lease payments or the fair value of the

leased asset. The payment obligations resulting from future lease instalments are recognised as a financial liability at

the corresponding value of the leased asset. The minimum lease payments are split between a principal component and

an interest component, with the interest being calculated using the effective interest rate method. DFS depreciates the

leased asset over the shorter of the estimated useful life or the term of the lease.

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

basis.

Notes 2013

66

4.6.4 Investment property

Some property is not used operationally at DFS but is exclusively held either for rental income or capital gains. Such

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

4.6.5 Financial instruments – Financial liabilities

Financial instruments relate to all contractual claims and obligations that directly or indirectly lead to an exchange of

cash. Such an instrument is a contract which results in a financial asset for one party and either a financial liability or an

equity instrument for the other party.

Financial assets are classified as "At fair value through profit or loss", "Held-to-maturity", "Loans and receivables" or

"Available-for-sale" (see Note 32).

■ The category "At fair value through profit and loss" comprises financial assets that are held for trading. Financial

assets are assigned to this category if they were acquired with the intention to sell in the short term. Derivatives also

belong to this category unless they qualify as hedging instruments. DFS exclusively employs effective derivatives to

hedge existing and future interest rate and currency risks under a hedging policy defined by the Board of Manag-

ing Directors and monitored by the Treasury department (see sections 2.5.3.1 and 6.2.2 in the group management

report). While interest rate swaps are used to manage interest risk, cross-currency swaps hedge both interest rate

risk and currency risk from financing in foreign currencies. Initial recognition as of the time of settlement and subse-

quent measurement occur at fair value. Financial instruments are deemed current if their realisation is expected within

12 months. Otherwise, they are disclosed as non-current. Derivative financial instruments with positive fair values are

reported as receivables; those with negative fair values are reported as liabilities. All derivative financial instruments

were accounted for without the creation of designated hedging relationships. The changes in the fair value between

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

■ The category "Held-to-maturity" contains non-derivative financial assets with fixed and determinable payments, and

a fixed term. The company must have the intention and ability to hold the financial instruments until maturity. Initial

recognition occurs at fair value as of the time of settlement (plus direct transaction costs). Receivables denominated

in a foreign currency are translated using the rate at the reporting date and recognised in the income statement. Sub-

sequently, financial instruments are carried at amortised cost using the effective interest method. If there are doubts

about the collectibility of receivables, they are written down to the lower recoverable amount based on the estimated

probability of default. If the amount of the write-down declines in the following periods, the required reversals are

made through the income statement. Interest income is reported in the financial result.

■ The category "Loans and receivables" consists of financial assets with fixed or determinable terms of payment

which are not traded on an active market. The assets are broken down into non-current and current remaining

terms. Initial recognition occurs at fair value as of the time of settlement (plus direct transaction costs). Receivables

67

denominated in a foreign currency are measured at the balance sheet date and recognised in the income statement.

Subsequent measurement is at amortised cost using the effective interest rate method for interest bearing and non-

interest bearing loans and receivables. If there are doubts about the collectibility of receivables, they are written

down to the lower recoverable amount based on the estimated probability of default and the impairment loss is rec-

ognised. If the amount of the write-down declines in the following periods, the required reversals are made through

the income statement. Interest income is reported in the financial result.

■ The category "Available-for-sale" includes all other financial assets which cannot be allocated to any other category

(such as financial assets or securities). Initial recognition occurs at fair value as of the time of settlement (plus direct

transaction costs). Subsequent measurement of this category occurs at fair value to the extent this can be reliably

determined at the balance sheet date. Unrealised gains and losses from changes in fair value between the reporting

dates are recognised directly in equity in other reserves. Upon the sale of financial assets or a permanent impairment

of the market value below the carrying amount, other reserves are reversed and the cumulative gains and losses are

recognised in profit or loss.

Financial assets are derecognised when the contractual rights to payments from the financial assets no longer exist or

all risks and rewards have been transferred.

4.6.6 Fair value

The fair value of financial instruments is the price that would be received to sell an asset or paid to transfer a liability

in an orderly transaction between market participants at the measurement date (exit price). The fair value is measured

based on the assumptions that knowledgeable market participants who are independent of each other and who are will-

ing and able to enter into a transaction would make while acting in their economic best interest. Fair value is a market-

based measurement, not an entity-specific measurement.

The fair value measurement assumes that the transaction is made in the principal market for the asset or liability. In the

absence of such a market, the most advantageous market is to be used. This is the market that would maximise the

amount that would be received to sell an asset or minimise the amount that would be paid to transfer a liability, taking

into consideration transport and transaction costs. However, fair value measurements should not be adjusted for trans-

action costs.

DFS uses valuation techniques to determine fair value that are appropriate under the given circumstances and for which

sufficient data are available. The techniques maximise the use of relevant observable inputs and minimise the use of

unobservable inputs.

Notes 2013

68

Inputs

Level 1 Directly observable inputsObservable (unadjusted) quoted prices in accessible active markets for identical assets or liabilities.

Level 2 Indirectly observable inputs

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

a) quoted prices for similar assets or liabilities in active markets.

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

c) inputs other than quoted market prices that are observable.

d) market-corroborated inputs (values derived from market data using statistical methods).

Level 3 Unobservable inputs

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

Valuation techniques

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

Cost approachThis approach is based on the amount required to replace the service capacity of anasset (the current replacement cost).

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

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

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

4.6.7 Investments accounted for using the equity method

Investments accounted for using the equity method are capitalised at cost at the acquisition date and, in subsequent

periods, adjusted to account for the associated changes in equity. If there are indications for an impairment of invest-

ments, the lower recoverable amount is used as required by the regulations of IAS 36 (see Note 4.5.2).

4.6.8 Trade receivables

Trade receivables are carried at amortised cost. DFS assumes that trade receivables can be sold for at least their car-

rying amounts in the short term and sets the fair value at the same level.

69

DFS determines the allowance for doubtful accounts required based on probable default risks from information on insol-

vencies. DFS also demands security deposits from customers with relevant sales volumes when defined warning thresh-

olds are exceeded. The allowances for doubtful accounts are recognised in a separate allowance account in the income

statement. The write-downs are reversed directly through the income statement should the reasons for the impairment

no longer apply in subsequent periods. If a receivable that had already been written down is classified as uncollectible, it

is written off completely.

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

4.6.9 Other receivables and assets

Receivables and other assets are carried at amortised cost. DFS assumes that other receivables and assets can be

sold for at least their carrying amounts in the short term and sets the fair value at the same level.

After the probable default, allowances for doubtful accounts are measured based on an analysis of their age and matu-

rity and information on insolvencies, and recognised as an expense on a separate allowance account.

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

statement.

4.6.10 Deferred taxes

IAS 12 regulates the treatment of deferred taxes using the liability method. Deferred tax assets and liabilities are rec-

ognised by DFS for all temporary differences between the tax base of assets and liabilities and their carrying amounts

in the group balance sheet according to IFRS as well as for consolidation adjustments recognised in profit or loss. The

differences are limited to those items whose changes influence taxable earnings.

Issues related to the calculation of charges are excluded (see Article 31b paragraph 3 sentence 3 of the German Avia-

tion Act (LuftVG) and Note 4.2.2).

Deferred tax assets are also recognised for future claims to tax reductions resulting from tax loss carryforwards.

Deferred tax assets for deductible temporary differences and for tax loss carryforwards are only recognised to the

extent that there are future taxable profits which either the temporary differences or unused taxable losses can offset.

The computation of deferred taxes is based on the existing or applicable income tax rates in each country at the date

of valuation. The income tax rate of 29.83 percent (previous year: 29.83 percent) is made up of a corporate income

tax of 15.00 percent, a solidarity surcharge of 5.50 percent and a weighted-average German municipal trade tax mul-

tiplier rate of 400.00 percent on a tax rate (Steuermessbetrag) of 5.00 percent. The effect of changes in tax rates on

deferred tax assets and liabilities is reflected in the income tax expense for the period in which the law was changed.

Notes 2013

70

Deferred tax assets and liabilities are netted if permitted under law and the receivables and payables are against the

same tax authority.

Deferred tax assets and liabilities are not discounted.

4.6.11 Liquid funds

Liquid funds include cash, cash accounts as well as short-term money market investments and certificates of deposit at

credit institutions. Cash and cash equivalents are carried at amortised cost.

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

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

liabilities.

4.6.12 Inventories

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

Production costs comprise direct production costs (especially direct materials and direct labour) as well as an appropri-

ate share of the necessary material and manufacturing overhead. Administrative expenses and costs of employee assis-

tance programmes are included to the extent they can be allocated to production. Financing costs are not recognised

as part of production costs.

Subsequent measurement occurs at the lower of deemed cost and net realisable value. Inventory risks resulting from

the duration of storage or impaired usability led to write-downs upon determination of the net realisable value. If the

reasons for a write-down no longer apply, the write-down is reversed. Lower values at the reporting date due to lower

prices on sales and purchase markets were taken into account.

4.6.13 Other reserves

This item relates to changes recognised directly in equity, provided they are not based on capital transactions with the

Shareholder. This includes, in particular, the changes in fair value of the available-for-sale financial assets and their asso-

ciated tax effects.

4.6.14 Provisions for pensions and similar obligations

Defined benefit plans are measured in accordance with IAS 19 using the projected unit credit method on the basis of

actuarial reports at the balance sheet date. This requires, in particular, assumptions to be made about long-term salary

trends and average life expectancy. The premises on salary trends are based on historical trends and take into account

country-specific interest and inflation levels. Biometric data serve as the basis for the estimates of average life expec-

tancy (mortality tables taken from Heubeck-Richttafeln 2005 G).

71

The rate used to discount pension obligations is determined by reference to market yields at the end of the reporting

period on high quality fixed-rate corporate and treasury bonds. The discount rate is an actuarial assumption and it is set

at the beginning of each business year (see Note 25.2). With the help of this interest rate, DFS calculates the net inter-

est result, for which the net pension obligation or net defined benefit liability is multiplied by the interest rate. The net

pension obligation results from the deduction of plan assets with their fair value from the gross pension obligation and is

therefore a net amount. In the event of an asset surplus (i.e. a net defined benefit asset), a corresponding procedure is

applied. DFS reports the net interest result in the financial result.

Remeasurements of the net defined benefit liability are recognised directly in equity in other comprehensive income.

This includes in particular the actuarial gains and losses resulting from changes in expectations as regards the esti-

mates made at the beginning of the year compared with the actual development during the business year. In addition, a

portion of the actual return on plan assets at the end of the year in excess of the expected return on plan assets at the

beginning of the year is recognised directly in equity. The remeasurement recognised in equity cannot be recognised in

profit or loss in the following periods.

The service cost is made up of the current and past service costs. The latter reflects the change in pension obligations

as a consequence of plan adjustments and plan curtailments. It is recognised in profit or loss when incurred in the state-

ment of comprehensive income and reported under employee expenses.

The development of plan assets is made up of the contributions, payments and income from a matched reinsurance

contract. The reinsurance contract requires an investment in the general cover fund of the insurer in accordance with

section 54 of the Insurance Supervision Act (VAG) as well as a separate fund-based investment in accordance with sec-

tion 54b of the VAG. This fund-based investment allows the DFS group contract with the insurer to have a higher equity

ratio to gain a long-term increase in return compared with the return provided by the general cover fund of the insurance

consortium. The fund investment is restricted to a maximum of half of the whole capital reserve of the reinsurance con-

tract. The expectations placed on the fund investment are formulated by the strategy commission. It considers the lat-

est expectations for the capital markets and risk issues. Pension obligations for which there are plan assets are netted

against the fair value of these plan assets.

No provisions are recognised for defined contribution plans. The level of contributions at DFS is dependent on the

income relevant for pension calculations. The payments for defined contribution plans are expensed when due and

reported as part of employee expenses.

4.6.15 Other provisions

Other provisions are recognised for past events that result in present obligations to third parties. These provisions must

be capable of being estimated reliably and lead to an outflow of resources in the future with a probability of at least

50.00 percent. A provision is recognised with the settlement amount, which represents the highest probability of occur-

rence based on best estimates and under consideration of all discernible risks.

Notes 2013

72

DFS expects the majority of the other provisions to fall due in the next one to thirty years. Some of the individual provi-

sions may involve time periods of up to thirty years. Therefore, uncertainties remain as to the timing and concrete

amount of the expenses. Nevertheless, DFS expects to utilise the full amount of the provisions (100%) and expects that

the outflow of economic benefits will equal the amount set aside in the provisions.

Provisions for obligations which in all probability will not lead to a reduction in assets in the subsequent year are dis-

counted at prevailing market rates and carried at the present value of the expected outflow of resources, provided

the interest effect is material. The discount rates are based on the yields on debt securities outstanding issued by

residents, public debt securities and listed Federal securities corresponding to their remaining term as published by the

German Bundesbank. In addition to these yields, a company-internal risk premium of 0.25 percent is added.

If a change in an estimate results in a reduction of the obligation, then the provision is reversed proportionally and the

income reported under other operating income.

4.6.16 Financial instruments – Financial liabilities

Financial liabilities generally give rise to a claim for repayment in cash or in the form of another financial asset. The

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

■ Financial liabilities of the category "At fair value through profit and loss" (derivative financial instruments) are held

exclusively for trading purposes (see sections 2.5.3.1 and 6.2.2 in the group management report). The initial and sub-

sequent recognition are at fair value. The changes in fair value between the reporting dates and interest expenses are

recognised in profit or loss in the financial result.

■ The category "Amortised cost" contains all other financial liabilities which cannot be allocated to another category. The

initial recognition is at fair value, including transaction costs directly connected with the issuance of the liability. Sub-

sequent measurement of liabilities is at amortised cost using the effective interest rate method for liabilities with high

or low interest rates. Bonds and debenture loans are carried at amortised cost using the effective interest method.

Owing to the short-term maturity of the other financial instruments in this category, DFS sets the carrying amount as

the fair value. Amounts derecognised and allowance for doubtful accounts are disclosed in profit and loss, and inter-

est expenses in the financial result.

For financial liabilities with maturities up to one year the fair value corresponds to the carrying amount. If the maturity is

longer than one year, the fair value is calculated by discounting the settlement value at a risk-free rate.

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

73

Notes to the statement of comprehensive income

5. Revenues

2013 2012

€'000 €'000

Revenues from air navigation services 1,091,949 1,080,935

Other revenues 17,248 20,382

1,109,197 1,101,317

Revenues from air navigation services

2013 2012

€'000 €'000

En-route charges 796,206 753,373

Terminal charges 227,282 218,257

Payments to German MET Service (DWD) and MoT (BMVI)from terminal charges -878 -694

Offsetting over-recovery/under-recovery from previous year -28,346 12,810

Under-recovery of charges for current year 22,246 26,225

Revenues from en-route and terminal charges 1,016,510 1,009,971

Reimbursements by the State for military flights and facilities 57,394 57,064

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

Aeronautical publications 7,565 3,349

Flight inspection services 2,473 2,990

Other air navigation services 1,507 1,061

Revenues from air navigation services 1,091,949 1,080,935

6. Changes in inventory and other own work capitalised

2013 2012

€'000 €'000

Changes in inventory of finished goods and work in progress -171 129Other own work capitalised(Primarily internally generated IT systems) 1,588 2,459

1,417 2,588

Notes 2013

74

7. Other operating income

2013 2012

€'000 €'000

Income from derecognition of liabilities 8,567 5,254R&D project funding by the EU Commission and Germanfederal and regional ministries recognised in the income statement 6,706 7,192

Income from reversal of provisions 5,474 801

Cost reimbursements 4,137 4,827

Income from QTE transaction 2,600 52,248

- of which income from reversal of QTE provision 0 495

- of which income from exchange rate gain for the QTE liability 2,600 0

Rental income 778 648

Income from asset disposals 61 1,775

Miscellaneous 5,327 5,034

33,650 77,779

8. Cost of materials and services

2013 2012

€'000 €'000

Cost of raw materials, consumables and supplies, and of purchased goods 935 935

Cost of purchased services (flight inspection and consulting services) 4,548 5,770

5,483 6,705

75

9. Employee expenses

2013 2012***

€'000 €'000

Wages and salaries* 585,742 586,068

Expenses for IFRS pensions** *** 134,184 93,263

Social security costs and expenses for assistance 63,570 66,957

Cost of personnel belonging to the Federal Aviation Office (LBA) 24,981 25,884

808,477 772,172

* See Note 42.1 for the remuneration of the Board of Managing Directors** For the expenses and income for occupational pensions contained in the statement of comprehensive income see Note 25.11*** Prior-year figures adjusted to IAS 19 (revised 2011) – see Note 4.2.1

Besides the usual outlays for wages, salaries and social security expenses for DFS personnel, this item also includes the

costs charged by the Federal Aviation Office (LBA) for personnel belonging to the LBA.

Average annual number of employees

2013 2012

Salaried staff 5,302 5,280

Soldiers released from regular service 235 246

Wage-earners 28 29

Technical and commercial students and apprentices 256 266

DFS personnel 5,821 5,821

Employees covered by the collective agreement for the public service (TVöD) 62 67

Established civil servants 197 216

Personnel belonging to the Federal Aviation Office (LBA)

Air Navigation Services Directorate (Abteilung Flugsicherung) 259 283

6,080 6,104

10. Depreciation and amortisation

2013 2012

€'000 €'000

Intangible assets 33,675 33,650

Property, plant and equipment 68,705 71,346

Investment property 30 30

102,410 105,026

The impairment tests carried out in the business year resulted in no impairment charges being recognised for intangible

assets; property, plant and equipment; investment property and financial assets.

Notes 2013

76

11. Other operating expenses

2013 2012

€'000 €'000

Spare parts and maintenance 41,653 37,369

Occupancy costs 23,351 22,264

Costs of external personnel 10,734 12,430

Legal and consultancy costs 9,100 13,324

Rent and leasing costs 8,919 12,291

Telecommunication costs 8,265 8,618

Write-downs and write-offs of receivables 6,762 2,185

Travel costs 6,572 7,572

Other employee expenses 4,685 9,640

Costs from previous years 3,332 658

Vehicle costs 3,105 3,330

Insurance policies 2,122 2,184

QTE costs 1,989 2,695

- of which expenses for exchange rate losses forthe QTE receivable 1,989 0

Asset disposals 1,824 419

Magazines, journals, stationery 1,194 1,280

Costs of monetary transactions 1,137 817

Advertising costs 857 1,112

Entertainment 639 930

Apportionment EUROCONTROL 17 1,753

Remaining 2,056 3,097

138,313 143,968

77

12. Financial result

2013 2012*

€'000 €'000

Income from fund assets to finance retirement obligations* 46,749 64,867

Interest income from QTE transaction 6,617 1,734

Income from foreign currency translation 5,686 3,561

Interest income from affiliated companies 843 44

Income from profit transfer agreements with affiliated companies 776 1,333

Other interest income 651 1,259

Income from investments 0 339

Financial income 61,322 73,137

Expenses from discounting provisions -96,653 -110,960

Interest expense from QTE transaction -6,324 -3,513

Result from fair value adjustment of derivatives -5,311 -4,289

Other interest expense -6,435 -5,774

Expenses from loss transfer agreements with affiliated companies -526 -751

Expenses from foreign currency translation 0 -21

Expenses from securities -12 0

Financial expenses -115,261 -125,308

Financial result -53,939 -52,171

* Prior-year figures adjusted to IAS 19 (revised 2011)

Additional disclosures on the financial result

2013 2012

€'000 €'000

Interest result from financial instruments determined using the effective interest method not classified in the category"At fair value through profit or loss" -1,184 -3,352

Interest income from impaired financial assets 332 284

Impairment losses recognised directly in equity from thecategory "Available-for-sale" -25 -101

Notes 2013

78

13. Income taxes

2013 2012

€'000 €'000

Current income taxes 8,540 171

Deferred income taxes -8,664 13,585

-124 13,756

Current income taxes relate to corporation taxes, including the solidarity surcharge, and German municipal trade taxes.

The computation of income taxes is based on applicable tax regulations in connection with the newly created Article 31b

paragraph 3 sentence 3 of the German Aviation Act (LuftVG).

Breakdown of effective income taxes

2013 2012

€'000 €'000

Corporation tax 3,836 0

Solidarity surcharge 211 0

Municipal trade tax 4,411 0

Foreign taxes 82 171

8,540 171Reclassification from periods not under review to current provisions for taxes 0 0

In addition to the tax liabilities from the current business year, possible estimated additional tax demands are also included

to the extent that they might result from the current tax audit.

DFS owes tax as the dominant enterprise for the subordinated companies TTC and DFS Energy. Therefore, the deferred

taxes of the subordinated companies are reflected in the dominant enterprise. The spin-off of the energy plant, which is

assigned to those areas relevant for air navigation charges, into DFS Energy led to a continuation of the tax measurement

for this legal entity. Therefore, in determining taxes, the special situation as regards air navigation charges at DFS is also

taken into consideration at DFS Energy. This does not lead to taxable temporary differences in value between the IFRS and

the tax accounts. At TTC, there are deferred tax assets of €105 thousand (previous year: €87 thousand) for valuation dif-

ferences concerning provisions for transitional payments between the IFRS and the tax accounts. The business activities of

TTC are assigned to the commercial business.

The Law on the Implementation of the Mutual Assistance Directive as well as on the Change to Tax Regulations (Amtshilfe-

RLUmsG) was published in the Federal Law Gazette on 29 June 2013. Section 29 of this law contains the change to Article

31b paragraph 3 of the German Aviation Act (LuftVG). Consequently, the positive or negative difference between the profit

from air navigation charges under income tax law and the result under the regulations governing charges will not be consid-

ered when determining income. The difference is therefore not subject to tax.

The tax loss carryforward from the year 2012 was fully used up.

79

Reconciliation from expected to current income tax expense

2013 2012

€'000 €'000

Net income before income taxes 35,643 86,837

Expected income tax rate (in %) 29.83 29.83

Expected income tax expense 10,632 25,904

Tax expense/income not relating to the period under review 0 0

Reduction in the tax base due to Article 31b LuftVG 2,312 0

Reduction in EBT under the commercial code due to the plan deficit 0 -1,970

Variances in municipal trade tax 436 390

Revenues exempt from tax 0 -96

Foreign establishments 0 -459

Foreign taxes 82 171

Change in the measurement logic of deferred taxes due to Article31b LuftVG -9,638 0Derecognition of deferred for the changes in fair value of the available-for-sale financial assets 993 0

Variance of allowance n + 2:

- deferred tax assets 0 21,065

- deferred tax liabilities 0 2.050

Recognition of balancing items in the tax accounts (BilMoG) 0 -33,938

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

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

Miscellaneous -19 639

Current income tax expense -124 13,756

Effective tax rate (in %) -0.35 15.84

Notes 2013

80

Deferred taxes by balance sheet item Deferred tax assets Deferred tax liabilities

2013 2012 2013 2012

€'000 €'000 €'000 €'000

Intangible assets 0 0 11,830 12,934

Property, plant and equipment 2,318 8,656 2,720 9,731

Available-for-sale securities 0 0 2,273 4,877

Receivables and other assets 0 91,594 477 638

Provisions for pensions and similar obligations 446,114 187,157 0 0

Other provisions 26,644 21,332 203 1,464

Liabilities 3,545 6,412 922 743

478,621 315,151 18,425 30,387

Impact due to Article 31b LuftVG (until 2012: methodology under n + 2)

Intangible assets 0 0 -11,830 -7,981

Property, plant and equipment -2,263 -8,656 -2,720 -6,526

Available-for-sale securities 0 0 -79 -77

Receivables and other assets 0 -91,594 0 -638

Provisions for pensions and similar obligations -435,348 -187,157 0 0

Other provisions -26,640 -21,332 -203 -1,464

Liabilities -917 0 -439 -229

-465,168 -308,739 -15,271 -16,915

Other allowances -8,097 -376 0 0

Netting -3,154 -6,036 -3,154 -6,036

TTC 105 0 0 -87

2,307 0 0 7,349

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

81

Notes to the balance sheet

14. Intangible assets

CostAs at Additions Disposals Transfers As at1 Jan 31 Dec

2012 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences 526,262 11,416 -6,726 14,046 544,998Internally generated intangible assets 47,967 2,275 0 0 50,242Prepayments 25,910 17,250 0 -13,120 30,040

600,139 30,941 -6,726 926 625,280

2013 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences 544,998 12,792 -4,288 4,807 558,309Internally generatedintangible assets 50,242 1,381 0 0 51,623Prepayments 30,040 20,097 -1,170 -4,545 44,422

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

AmortisationCarryingamount

As at Additions Disposals Transfers As at As at1 Jan 31 Dec 31 Dec

2012 €'000 €'000 €'000 €'000 €'000 €'000

Concessions, rights and licences 345,751 29,680 -6,600 450 369,281 175,717Internally generated intangible assets 17,954 3,971 0 0 21,925 28,317Prepayments 0 0 0 0 0 30,040

363,705 33,651 -6,600 450 391,206 234,074

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

Concessions, rights and licences 369,281 29,712 -4,225 0 394,768 163,541Internally generated intangible assets 21,925 3,963 0 0 25,888 25,735Prepayments 0 0 0 0 0 44,422

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

Notes 2013

82

Individually material intangible assetsCarrying amount Remaining Share of total

31 Dec 2013 useful life carrying amountin years 31 Dec 2013

€'000 in %

VAFORIT software 64,704 5 27.7

P1/ATCAS software including release 18,677 11 8.0

iCAS software 19,914 5 8.5

P1/ATCAS 2007 8,556 11 3.7

PSS software 10,289 4–11 4.4

122,140 52.3

Total carrying amount 233,698 100.0

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

Capitalisation of borrowing costs for intangible assets

31 Dec 2013 31 Dec 2012

Borrowing costs in €'000 1,264 710

Capitalisation rate in % 3.19 3.21

As the intention of DFS to acquire shares in the UK air navigation service provider NATS proved unfruitful, the capitalised

acquisition and consultancy costs of €2,192 thousand were expensed in the business year.

Intangible assets for which there is a contractual obligation to accept but which do not yet come under the economic power of

disposition of DFS are shown in Note 36.2.

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

83

15. Property, plant and equipment


2012 €'000 €'000 €'000 €'000 €'000

Land and buildings 608,110 2,336 -1,698 4,141 612,889

Technical equipment and machinery 1,078,479 33,640 -37,503 11,860 1,086,476

Operating and office equipment 94,223 5,676 -2,426 1,128 98,601

Assets under construction 36,459 34,849 0 -18,055 53,253

1,817,271 76,501 -41,627 -926 1,851,219

2013 €'000 €'000 €'000 €'000 €'000

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

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

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

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

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

Depreciation

Carryingamount


2012 €'000 €'000 €'000 €'000 €'000 €'000

Land and buildings 326,553 21,286 -977 0 346,862 266,027

Technical equipment and machinery 906,296 46,159 -36,192 -452 915,811 170,665

Operating and office equipment 75,549 3,900 -2,391 2 77,060 21,541

Assets under construction 0 0 0 0 0 53,253

1,308,398 71,345 -39,560 -450 1,339,733 511,486

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

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

Technical equipment and machinery 915,811 44,382 -66,013 2 894,182 172,789

Operating and office equipment 77,060 4,365 -2,374 -1 79,050 23,394

Assets under construction 0 0 0 0 0 54,793

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

Capitalisation of borrowing costs for property, plant and equipment

31 Dec 2013 31 Dec 2012

Borrowing costs in €'000 1,903 1,358

Capitalisation rate in % 3.19 3.21

Notes 2013

84

Research and development costs

31 Dec 2013 31 Dec 2012

€'000 €'000

Expenses for research and development 37,874 30,097

- of which research costs recognised in the income statement 36,586 27,882

- of which capitalised additions in assets under construction 1,288 2,215

Capitalised borrowing costs on development costs 93 59

Development costs in assets under construction as at 31 December 0 2,677

Scheduled depreciation of development costs based on thedegree of completion notified 3,963 3,971R&D project funding by the EU Commission and German federal and regional ministries deducted from cost 0 0

At the reporting date, there were no indications that property, plant and equipment may need to be impaired as required

by IAS 36.

DFS concludes rental and lease contracts for land and buildings, technical facilities and machines as well as vehicles.

The material rewards and risks are borne by the respective contracting party. There are no additional risks from these

contracts for DFS. DFS does not make use of purchase price options, rather the items are transferred when the lease

matures. Vehicles are leased for one year without an option to extend.

Maturity of operating leases

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

€'000 €'000 €'000 €'000

2013 6,440 3,830 210 10,480

2012 8,144 4,991 368 13,503

Expenses and income recognised in the statement of comprehensive income

31 Dec 2013 31 Dec 2012

Minimum lease payments from operating leases 8,919 12,291

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

Property, plant and equipment for which there is a contractual obligation to accept but which do not yet come under the

economic power of disposition of DFS are shown in Note 36.2. DFS has not assigned any property, plant and equipment

nor pledged them as collateral. DFS freely controls these assets.

Compensation of €19 thousand (previous year: €10 thousand) for third parties for property, plant and equipment that was

impaired, irrecoverably lost or decommissioned was recognised in the income statement.

85

16. Investment property


2012 €'000 €'000 €'000 €'000 €'000

Investment property Braunschweig 1,210 0 0 0 1,210

2013 €'000 €'000 €'000 €'000 €'000

Investment property Braunschweig 1,210 0 0 0 1,210

Depreciation Carryingamount


2012 €'000 €'000 €'000 €'000 €'000 €'000

Investment property Braunschweig 307 30 0 0 337 873

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

Investment property Braunschweig 337 30 0 0 367 843

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

purposes.


31 Dec 2013 31 Dec 2012

€'000 €'000

Rental income 61 111

Depreciation 30 30

Repairs 0 0

The property is depreciated over the useful life of 40 years using the straight-line method. Impairment tests showed no indi-

cations of a need to impair as required by IAS 36. The appraisal dated 3 December 2012 demonstrates the recoverability

of the carrying amounts.

Appraisal on the value of the property

Date of appraisal 3 December 2012 22 October 2008

Date for which appraisal applies 1 December 2012 1 October 2008

Procedure DCF method DCF method

Market value €980 thousand €1,030 thousand

Fair value €980 thousand €1,013 thousand

Property yield (Liegenschaftszinssatz) of the city of Braunschweig 7.60% 6.30%

Initial discount rate 8.25% 7.75%

Notes 2013

86

The fair value of investment property is determined by an external independent property valuer who possesses the relevant

professional qualification and up-to-date experience on the location and type of property to be valued.

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

Unobservable inputs

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

Level3

Relationship between inputs and fair value

The estimated fair value would increase if

- the risk-adjusted discount rate was lower;

- the risk of default on rents was lower;

- other operating costs were lower.

Reconciliation of the fair value level 3

31 Dec 2013

€'000

As at 1 Jan 2013 980

Ongoing gains and losses 0

Gains and losses recognised in other comprehensive income 0

Additions and disposals 0

Transfers in and out of levels 0

As at 31 Dec 2013 980

DFS is not contractually obliged to conduct repairs, maintenance or improvements. However, DFS is authorised to make

material changes to the premises and the rental object as well as necessary repairs and maintenance without the approval

of FCS. There are no other contractual obligations or restraints on disposition.

87

17. Financial assets

CostAs at Additions Disposals Changes in As at1 Jan market value 31 Dec

2012 €'000 €'000 €'000 €'000 €'000

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

Loans to affiliated companies 0 11,000 0 0 11,000

Investments 748 1,606 0 0 2,354

Long-term securities 7,112 0 -7,112 0 0

35,032 12,606 -7,112 0 40,526

2013 €'000 €'000 €'000 €'000 €'000

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

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

Investments 2,354 0 0 0 2,354

Long-term securities 0 0 0 0 0

40,526 18,500 0 0 59,026

Impairment Carryingamount


2012 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 0 0 0 0 0 27,172Loans to affiliated companies 0 0 0 0 0 11,000

Investments 0 0 0 0 0 2,354

Long-term securities 0 0 0 0 0 0

0 0 0 0 0 40,526

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

Shares in affiliated companies 0 0 0 0 0 27,172Loans to affiliated companies 0 0 0 0 0 29,500

Investments 0 0 0 0 0 2,354

Long-term securities 0 0 0 0 0 0

0 0 0 0 0 59,026

Notes 2013

88

Shares in affiliated companies*DFS IBS U-Kasse TTC DFS Energy

(formerly: DFS ESSP) (Benevolent fund)€'000 €'000 €'000 €'000

Shareholding 100.00% 100.00% 100.00% 100.00%

Share capital 26 26 25 5,000

Capital reserve 198 132

Retained earnings 264

Contributions in kind 21,501

Carrying amount at 31 Dec 2013 21,527 26 223 5,396

Business year 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec

Accounting standards HGB HGB IFRS and HGB IFRS and HGB

* For additional disclosures see Note 3 and Note 41.1

The registered and fully paid-in capital of DFS IBS amounts to €25,600.00. In the business year, a contribution in cash

of €35.41 was made to raise the capital from €25,564.59 (DM50,000.00) for smoothing purposes.

Control contract and a profit-and-loss transfer agreement with affiliated companiesTTC On 21 February 2006, a profit-and-loss transfer agreement was signed with effect from

1 January 2006 and dissolved by mutual consent on 31 December 2013, 24:00 hrs.

A profit in accordance with the German Commercial Code (HGB) of €776 thousand (previous year: €1,333 thousand) was transferred from TTC to DFS for the business year 2013.

DFS Energy On 15 December 2009, the control and profit-and-loss transfer agreement was agreed with effect from 1 January 2010 and a term until 31 December 2014. After this time, this contract extends for one year at a time, provided neither of the parties terminates the contract six months before its expiry. The loss at Energy of €526 thousand under the German Commercial Code (HGB) was taken over by DFS (previous year: loss of €751 thousand).

The loans to affiliated companies relate to a loan to DFS Energy of €50,000 thousand agreed in 2011. The loan has a

term until 31 December 2031. It has been taken up since 1 January 2012 and can be disbursed until 1 January 2014

as necessary. In the business year, €18,500 thousand (previous year: €11,000 thousand) was drawn down. As of

31 December 2013, the loan amounted to €29,500 thousand (previous year: €11,000 thousand). Interest has been

paid on the loan at the end of each quarter in arrears since the beginning of the disbursements with an effective interest

rate of 3.45 percent.

89

Investments

FCS GroupEAD BILSODA

€'000 €'000 €'000

Shareholding 55.00% 36.00% 24.90%

Other SKYNAV S.A., Belgium, FREQUENTIS AG, Austria, AD GrundstücksgesellschaftShareholders 25.00%; 28.00%; mbH & Co. KG, Germany,

AUSTRO CONTROL, Entidad Pública Empresarial 75.10%;Austria, Aeropuertos Españoles y BILSODA Beteiligungs GmbH,20.00% Navegación Aérea, Spain, general partner, Germany,

36.00% 0.00%

Paid-in capital or liability contribution 0 360 2

Other contribution 1,992

Carrying amount at 31 Dec 2013 under €1 thousand 360 1,994

Income from investments 0 0 0

(Previous year) (0) (339) (0)

Total assets* 11,956 2,510 9,006

Total debts* 8,120 848 5,527

Equity* 3,836 1,662 3,479

Net income* 76 555 -85

Revenues* 8,556 6,184 342* Values as at 31 Dec 2012

Business year 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec

Accounting standards HGB Spanish Commercial HGBCode / IFRS

The long-term securities were due on 31 January 2013 and disclosed under current assets (see Note 22).

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

Notes 2013

90

18. Non-current and current other receivables and assets

31 Dec 2013 31 Dec 2013 31 Dec 2012 31 Dec 2012Total Remaining term Total Remaining term

more than 1 year more than 1 year€'000 €'000 €'000 €'000

Under-recovery 87,984 87,984 72,481 72,481

QTE transaction 53,767 49,663 58,945 55,694

Derivative financial instruments 0 0 6,908 6,908

Interest receivables 1,933 0 3,444 0

Receivables from affiliated companies* 4 0 0 0

Receivables from investments* 0 0 33 0

Remaining financial assets 5,667 108 1,194 146

Other financial receivables and assets 149,355 137,755 143,005 135,229

Remaining non-financial assets 9,095 0 8,292 0

Prepayments 722 0 3,993 0

159,172 137,755 155,290 135,229* Disclosures on netting in Note 29

Aged-list

2013 2012

€'000 €'000

Carrying amount 159,172 155,290

Of which not impaired and

- not yet overdue 159,172 155,290

- up to 30 days overdue 0 0

- 31 to 60 days overdue 0 0


- more than 180 days overdue 0 0

Of which impaired 0 0

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

Since 2012, a regulated procedure for determining charges has been in force. Across Europe, the respective national

supervisory authority lays down binding unit rates for the en-route cost unit according to EU regulations. Consequently,

traffic volume and cost changes impact profit and loss (see section 2.4.5 in the group management report and Note 40.1).

If the values fall short, DFS is authorised and obliged to demand any under-recovery and if the values exceed the relevant

thresholds DFS is authorised and obliged to return any over-recovery (carry-over).

91

For terminal services, DFS continues to treat as a receivable the under-recoveries (and over-recoveries as a provision) that

are carried forward until the next reference period to be netted with the users due to the regulations on traffic volume and

cost risk distribution.

The qualified technological equipment transaction with foreign investors was basically terminated in the previous year. DFS

agreed with the remaining contracting parties to keep up the domestic cash flows. The restructuring of the contractual

relationships allowed financial drawbacks to be avoided. The remaining purely inner-German shell structure comprises a

claim against NORD/LB and a liability against KfW Kreditanstalt für Wiederaufbau (see Note 27). The new loan contracts

concluded have fixed interest and principal payments and a term until 2 January 2022 (see section 6.2.2.4 in the group

management report). DFS receives the claims from the ongoing rent from NORD/LB without having to provide a considera-

tion. DFS bears the default risk of NORD/LB during the term. The rating agencies Moody's and Fitch Ratings awarded an

Aa1 or AAA rating for the long-term guaranteed liabilities of NORD/LB. For the liability, temporally limited collateral was

pledged to KfW in the form of the assignment of the receivables against NORD/LB. This hedge was dissolved in the first

quarter of 2013 after a one-off payment. The termination of the QTE transaction led to a significant improvement in the risk

position for the creditors of DFS.

19. Trade receivables

Due dates of trade receivablesUp to 1 year 1 to 5 years More than 5 years Total

€'000 €'000 €'000 €'000

2013 146,490 7 0 146,497

2012 142,060 7 0 142,067

Due date and allowances

2013 2012

€'000 €'000

Carrying amount 146,497 142,067

Of which not impaired and

- not yet overdue 140,276 135,811

- up to 30 days overdue 4,175 4,014



- more than 180 days overdue 1,071 742

Of which impaired 0 0

Trade receivables were written down to the amount that could be recovered as soon as information on the insolvency of

customers was available. There are no indications that the debtors whose receivables were overdue will not be able to fulfil

their obligations.

Notes 2013

92

Development of allowances

2013 2012

€'000 €'000

As at 1 Jan 6,076 4,439

Additions 6,819 2,210

Utilisation 0 0

Reversal -802 -573

As at 31 Dec 12,093 6,076

The receivables of €5,556 thousand in the en-route area from 2010 to 2012 against Ryanair were written off completely

(see section 2.3 in the group management report).


2013 2012

€'000 €'000

Derecognition and write-off of receivables -826 -586

Income from payment of receivables previously written off 1 5

Income from other derecognitions 4 33

Additions to specific allowances -6,819 -2,210

Income from reversal of specific allowances 802 573

Trade receivables in foreign currencies amount to €591 thousand (previous year: €1,161 thousand). Due to the low impact

on the results (<€50 thousand), there is no currency valuation.

DFS did not pledge any receivables as securities for loans.

20. Future receivables from construction contracts

Due dates of future receivables from construction contractsUp to 1 year 1 to 5 years More than 5 years Total

€'000 €'000 €'000 €'000

2013 4,474 0 0 4,474

Prepayments -1,704 0 0 -1,704

31 Dec 2013 2,770 0 0 2,770

2012 7,029 4,046 0 11,075

Prepayments -5,614 -767 0 -6,381

31 Dec 2012 1,415 3,279 0 4,694

93


2013 2012

€'000 €'000

Contract revenue recognised in the business year 2,453 2,983

Costs incurred in the business year 1,688 1,794

Profit earned for ongoing projects 765 1,189

Amounts withheld 0 0

21. Inventories

31 Dec 2013 31 Dec 2012€'000 €'000

Raw materials, consumables and supplies 4,418 4,580

- Impairment 11 23

Finished goods and goods for resale 317 488

- Impairment 52 202

4,735 5,068

22. Securities

31 Dec 2013 31 Dec 2012€'000 €'000

0 7,018

23. Liquid funds

31 Dec 2013 31 Dec 2012

€'000 €'000

Cash in hand and cheques 38 42

Cash at bank 258,043 105,492

258,081 105,534

Notes 2013

94

24. Equity

31 Dec 2013 31 Dec 2012*

€'000 €'000

Subscribed capital 153,388 153,388

Capital reserve 74,296 74,296

Remeasurement reserves* -739,298 -1,294,822

Retained earnings -193,400 -229,166

Other reserves 0 -968

-705,014 -1,297,272


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

The share capital of DM100 thousand and DM299,900 thousand is held by the sole Shareholder, the Federal Republic of

Germany, represented by the Federal Ministry of Transport and Digital Infrastructure (BMVI). The shares may not be sold or

encumbered. Additional shareholders shall not be admitted.

The capital reserves consist of other payments of the Shareholder (Article 272 paragraph 2 no. 4 HGB) and serve to

strengthen the share capital.

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

Shareholder.

The Shareholder approved the group financial statements, the group management report and the financial statements as

of 31 December 2012 under the German Commercial Code (HGB) in resolution no. 133 dated 26 April 2013 and decided

on the transfer of the net income 2012 under HGB to retained earnings:

31 Dec 2013 31 Dec 2012

€'000 €'000

Retained profit 6,433 35,510

Gross dividend to the Shareholder 0 0

Transferred to retained earnings 6,433 35,510

95

Other comprehensive income after taxes contained in the reservesRemeasurement Other Other

reserves reserves comprehensiveincome

31 Dec 2013 €'000 €'000 €'000

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

Change in the fair value of available-for-sale financial assets 968 968

555,524 968 556,492

31 Dec 2012 €'000 €'000 €'000Remeasurement of the net defined benefit liability -869,198 -869,198Change in the fair value of available-for-sale financial assets -156 -156

-869,198 -156 -869,354

25. Provisions for pensions and similar obligations

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

The level of detail presented in the numbers reported in the following sections is based on the collective agreements and

individual contracts relevant for DFS:

Acronym Contents

VersTV (Pensions)* This collective agreement relates to the pensions for the staff employed at DFS.

ÜVersTV This collective agreement relates to the transitional payments for air traffic (Transitional payments) controllers and flight data assistants employed at DFS.KTV This collective agreement covers the health and long-term care insurance for (Insurance) the staff employed at DFS.Miscellaneous The accessory obligations for death grants and under the deferred compensation

scheme for pensions (old) are grouped under "Miscellaneous".

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

Notes 2013

96

25.1 Pension plans

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

agreements.

Under the collective agreement covering pensions (VersTV), employees who began employment by 31 December 2004

receive old-age, disability and surviving dependant's benefits (defined benefit plans) linked to the respective final salary of

the employee (Plan A). However, employees who entered service from 1 January 2005 receive benefits under the collec-

tive agreement covering pensions which are linked to average career earnings (Plan B). Under this system, a pension com-

ponent is calculated each year based on the respective income and the old-age pension is determined based on the sum of

the annual pension components.

Air traffic controllers and flight data assistants receive transitional payments linked to their final salary (ÜVersTV). This is to

cover the period from the end of their operational activity until the earliest possible receipt of the statutory pension.

Both plans (VersTV and ÜVersTV) are financed by congruent reinsurance policies that are recognised as plan assets under

IAS 19.7. The reinsurance contract requires an investment in the general cover fund of the insurer in accordance with the

investment principles of section 54 of the Insurance Supervision Act (VAG) and a separate fund-based investment created

for part of the assets under section 54b of the VAG. The latter, however, is limited to a maximum of half of the actuarial

reserve.

DFS pays an increased employer contribution for health insurance for the employees who were previously employed as

established civil servants with the former Federal Administration of Air Navigation Services (BFS) / the Federal Aviation

Office (LBA). This compensates over the entire active period of employment and in retirement for the fact that these staff

are no longer covered by the German Civil Service welfare provisions for healthcare.

DFS pays death grants to qualifying next of kin of active employees. The grants are equal to the previous remuneration and

are paid for two and half months from the month following the month in which the employee passed away.

In addition, there are individual contractual benefits based on the salary conversion model for exempt employees which

were approved in 2005. The amount of the pension capital underlying the benefit is based on the salary converted with a

return of 6.00 percent.

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

Following changes to the collective agreement relating to health and long-term care insurance in 2012, the calculation of

the grants for the statutory insured transferred established civil servants was adjusted from 1 January 2013. This adjust-

ment meant that DFS has achieved equal treatment of privately and statutory insured transferred established civil servants.

The remeasurement within the scope of this collective agreement led to a rise in the expense charged to net income of

approximately €6,000 thousand. This adjustment is not a plan adjustment within the scope of IAS 19.104.

97

25.2 Actuarial assumptions

In percent 2014 2013 2012 2011 2010

Discount rate 3.60 2.90 4.50 4.90 5.50

Expected return on plan assets 3.60 2.90 4.65 4.00 4.00

Projected increase in salaries 3.50 3.50 3.50 3.50 3.50

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

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

25.3 Sensitivity analysis

The sensitivity analysis takes into account the respective change of the individual assumption compared to the reference

value, which is made up of the sum of the individual present values of the pension obligations from the VersTV (Pensions),

ÜVersTV (Transitional payments) and KTV (Insurance). The remaining parameters of the original calculations remain

unchanged. This ensures that potential correlation effects are excluded.

Changes to Impact on the the actuarial defined benefitassumptions obligations

€'000 in %

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

Discount rate Increase by 0.5 percentage points -268,405 -8.72Decrease by 0.5 percentage points 310,079 10.07

Projected increase in salaries Increase by 0.5 percentage points 142,722 4.64 Decrease by 0.5 percentage points -132,118 -4.29Present value of defined benefit obligations at 31 Dec 2012 3,419,860 Discount rate Increase by 0.5 percentage points -320,075 -9.36

Decrease by 0.5 percentage points 372,656 10.90Projected increase in salaries Increase by 0.5 percentage points 171,582 5.02 Decrease by 0.5 percentage points -157,276 -4.60

The VersTV dated 21 August 2009 sets out a fixed annual adjustment of 1.25 percent. This means there is no sensitivity

calculation from the pension progression.

For a specific group of people, the adjustment logic is set out in the VersTV 2005. This collective agreement has an

adjustment of 2.00 percent per year as well as a lagging correction for inflation that follows a three-year rhythm. As this

represents an immaterial portion of the overall obligation, DFS does not conduct a sensitivity calculation for the pension

progression.

Notes 2013

98

25.4 Risks

The pension obligations and the plan assets are subject to fluctuations over time. The reasons for these fluctuations and

the associated risks arise from the usual actuarial risks and the financial risks in connection with the plan assets.

25.4.1 Market price risks

The amount of the net obligation from occupational pensions is exposed to interest rate risk and is particularly influenced

by the discount rate. The rate is determined by reference to market yields at the reporting date on high quality fixed-rate

corporate and treasury bonds. The current low level of interest rates has resulted in a comparatively high obligation. Poten-

tial fluctuations in the pension obligations are considered when managing the plan assets. Nevertheless, the rise in the

pension obligations can only be partly offset by the rise in the market values of the plan assets. The low interest rate level

means that substantial returns cannot be earned, which reduces the speed at which the assets for occupational pensions

may grow.

25.4.2 Liquidity risks

The daily liquidity of DFS is monitored by the Treasury department and is managed with the help of short- (< year) and

medium-term liquidity plans.

25.4.3 Inflation risks

DFS distinguishes in its pension plans between benefits that are based on the respective final salary of the employee

and benefits based on the career average plan. With the latter, the pension component is directly tied to the respective

income. A rise in salaries tied to inflation would therefore lead to a rise in the pension obligations.

25.5 Duration and expected pension and contribution payments

DFS has concluded congruent reinsurance policies with an insurance consortium consisting of four life insurance compa-

nies to secure its obligations from the collective agreement on pensions and transitional payments. This ensures that the

benefits payable can actually be paid when the insured event arises. The capital investment of the consortium is made

under the provisions of the Insurance Supervision Act (VAG), which requires a separate investment in a fund-based pension

insurance policy under Section 54b of the Act (VAG). All the consortium members to the group insurance policy are also

members of the guarantee fund of the Protektor Lebensversicherungs-Aktiengesellschaft, ensuring that the interests of the

insured are protected in the event of an insolvency of one of the companies (additional information can be found at: www.

protektor-ag.de).

99

Expected due dates of undiscounted payments

2014 2015 to 2018 2019 to 2028

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

€'000 €'000 €'000

Estimated pension payments* 83,380 384,015 1,601,983

- of which reinsured with the insurance consortium 76,839 353,961 1,503,128

Expected employer contributions to plan assets* 144,822 1,267,180 2,794,922

* From the Aon-Hewitt detailed forecast 2013 to 2028 dated 29 May 2013

The weighted duration of the pension obligations amounts to 19.4 years (previous year: 20.7 years) as of 31 December

2013.

25.6 Defined benefit obligations

VersTV ÜVersTV KTV Other Total(Pensions) (Transitional (Insurance)

payments)31 Dec 2012* €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2012 1,522,255 735,707 154,922 5,182 2,418,066

Interest expense 67,798 32,279 6,853 229 107,159

Current service cost 48,460 34,210 1,509 113 84,292

Past service cost 0 0 6,399 0 6,399

Retirements benefits paid -31,362 -32,108 -5,926 -424 -69,820

Actuarial gain (-) and losses (+) 672,431 163,066 37,561 706 873,764

- of which changed parameters 667,164 167,932 44,163 618 879,877

- of which experience-based adjustments 5,267 -4,866 -6,602 88 -6,113

Present value of defined benefit obligations 2,279,582 933,154 201,318 5,806 3,419,860

- of which benefits based on final salary

Retirement payments 2,174,523 - - - -

One-time payments 1,370 - - - -

- of which benefits based on career average plan

Retirement payments 103,689 - - - -

One-time payments 0 - - - -


Notes 2013

100


payments)31 Dec 2013 €'000 €'000 €'000 €'000 €'000

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




Past service cost 0 0 0 0 0

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

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

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


- of which benefits based on final salary

Retirement payments 1,916,948 – – – –

One-time payments 0 – – – –

- of which benefits based on career average plan

Retirement payments 102,771 – – – –

One-time payments 0 – – – –

25.7 Plan assets


payments)31 Dec 2012* €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2012 976,323 428,920 24,479 0 1,429,722

Expected return on plan assets 45,243 19,624 0 0 64,867

Employer contributions 97,189 47,669 0 0 144,858

Retirement benefits paid -23,530 -27,237 -622 0 -51,389

Actuarial gains (+) and losses (-) 14,957 -10,358 -34 0 4,565

Market value of plan assets 1,110,182 458,618 23,823 0 1,592,623Actual return on plan assets 60,200 9,266 -34 0 69,432* Prior-year figures adjusted to IAS 19 (revised 2011)

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

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

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

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

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

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

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

Actual return on plan assets 87,667 17,014 48 0 104,729

101

Composition of plan assets

31 Dec 2013 31 Dec 2012

€'000 €'000

Capital investment in the general cover fund of the insurer under Section 54 VAG 1,046,099 944,201

Capital investment in the fund-based pension insurance policy under Section 54b VAG 668,174 624,599

Capital investment in the general cover fund of the insurer under Section 54 VAG (KTV) 23,202 23,823

Market value of plan assets 1,737,475 1,592,623

The capital investment of the consortium is subject to the provisions of the Insurance Supervision Act (VAG). While the

life insurance policies are subject to the specific investment guidelines under Section 54 of the VAG, the use of Section

54b of the VAG allows the capital investment to have a higher equity allocation. This should lead to higher returns than

available from the regular return under Section 54 of the VAG. The separate investment is managed by an investment

company on behalf of the insurance company and the asset allocation is as follows: equities: 50.90 percent, debt secu-

rities 47.80 percent and cash 1.30 percent.

Each year as of 31 December, the life insurance companies compare the capital reserve of the fund-based pension

insurance policy with the capital reserve of a normal pension insurance policy. They check if there is sufficient cover for

the promised insurance benefits. If this is not the case, the contribution to the fund-based pension insurance policy is

increased to boost the existing capital reserve to the required level.

The capital investment under Section 54b of the VAG is measured at present value and not at market price. It is a com-

ponent of assets and it is determined by the consortium at the balance sheet date.

Notes 2013

102

25.8 Remeasurement of the net defined benefit liability in equity


payments)31 Dec 2012* €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2012 -215,279 -176,383 -48,668 -98 -440,428

Changes in expense in the income statement:

Amortisation of actuarial gains (-) and losses (+) 4,203 7,037 5,723 4 16,967Expected return on plan assets -1,508 -654 0 0 -2,162

Remeasurement of the net defined benefitliability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of theongoing business year -657,474 -173,424 -37,595 -706 -869,199Remeasurement of the net defined benefit liability in equity -870,058 -343,424 -80,540 -800 -1,294,822* Prior-year figures adjusted to IAS 19 (revised 2011)

31 Dec 2013 €'000 €'000 €'000 €'000 €'000As at 1 Jan 2013 -870,058 -343,424 -80,540 -800 -1,294,822Remeasurement of the net defined benefitliability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of theongoing business year 432,601 102,179 20,531 213 555,524Remeasurement of the net definedbenefit liability in equity -437,457 -241,245 -60,009 -587 -739,298

103

25.9 Net defined benefit liability


payments)31 Dec 2012* €'000 €'000 €'000 €'000 €'000

As at 1 Jan 2012 545,932 306,787 130,443 5,182 988,344

Expenses in income statement 71,015 46,865 14,761 342 132,983


Employer contributions -97,189 -47,669 0 0 -144,858

Remeasurement of the net defined benefitliability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of theongoing business year 657,474 173,424 37,595 706 869,199Net defined benefit liability 1,169,400 474,536 177,495 5,806 1,827,237


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

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



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

Remeasurement of the net defined benefitliability in equity (other comprehensive income) = actuarial gains (+) and losses (-) of theongoing business year -432,601 -102,179 -20,531 -213 -555,524Net defined benefit liability 798,464 383,649 158,545 5,456 1,346,114

Notes 2013

104

25.10 Balance sheet amounts


payments)31 Dec 2013 €'000 €'000 €'000 €'000 €'000

Present value of defined benefit obligations 2,019,719 876,667 181,747 5,456 3,083,589Fair value of plan assets 1,221,255 493,018 23,202 0 1,737,475

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

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

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

31 Dec 2012* €'000 €'000 €'000 €'000 €'000


Fair value of plan assets 1,110,182 458,618 23,823 0 1,592,623

Funding status obligation (+) and asset (-) 1,169,400 474,536 177,495 5,806 1,827,237

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

Net amount of debt items (+) and asset items (-) in the balance sheet 1,169,400 474,536 177,495 5,806 1,827,237


105

25.11 Expenses and income recognised in the statement of comprehensive income


payments)31 Dec 2013 €'000 €'000 €'000 €'000 €'000


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

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


Past service cost 0 0 0 0 0


Reversal of the provision for past service cost -6,065

Contributions to the German mutual insurance association 1,663

Payments to defined contribution plans 34,400

- of which contributions to pension insurance 32,716

219,285

31 Dec 2012* €'000 €'000 €'000 €'000 €'000


Expected return on plan assets -45,243 -19,624 0 0 -64,867

Net interest expense 22,555 12,655 6,853 229 42,292


Past service cost 0 0 6,399 0 6,399


Reversal of the provision for past service cost -6,065

Contributions to the German mutual insurance association 2,768

Payments to defined contribution plans 34,912

- of which contributions to pension insurance 32,642

164,598


Notes 2013

106

26. Other provisions

As at Utilisation Reversal Discounting Additions As at Remaining1 Jan 31 Dec term more2013 2013 than 1 year€'000 €'000 €'000 €'000 €'000 €'000 €'000

Over-recovery of charges 61,172 -6,066 0 0 21,604 76,710 70,644

Personnel 39,617 -5,488 0 747 -313 34,563 26,290

Re-conversion 16,688 -60 -339 -931 31 15,389 11,932

Leasehold 16,162 -561 0 -1,037 0 14,564 13,992

Preserving records 10,642 -913 0 -139 451 10,041 9,113

Restructuring 2,277 0 0 0 51 2,328 528

QTE transaction 500 0 -452 0 0 48 0

Miscellaneous 11,861 -103 -5,135 0 3,016 9,639 0

158,919 -13,191 -5,926 -1,360 24,840 163,282 132,499

The provision for over-recovery of charges relates to the over-recovery for the past service cost still to be allocated

over nine years.

Personnel provisions are recognised for early retirement, part-time work for older employees and anniversary payments.

These provisions are recognised based on the expert reports of actuaries. In addition, DFS grants recuperation cures to

air traffic controllers.

The leasehold interest to be paid relates to land in Berlin-Schönefeld which is not used operationally.

The provision for the QTE transaction relates to the costs for the foregoing of collateral by KfW (for additional disclo-

sures on the QTE transaction see Note 18).

The provision for restructuring relates to personnel (severance payments) and infrastructural measures (re-conversion

obligations) in connection with operational units to be closed where no future economic benefits are expected.

Due dates of future non-discounted settlement values2014 2015 2016 2017 2018 From

2019 on €'000 €'000 €'000 €'000 €'000 €'000

Over-recovery of charges 6,065 34,252 6,065 6,065 6,066 18,196

Personnel 8,275 4,332 1,311 1,310 1,310 18,197

Leasehold 572 583 595 607 619 18,220

QTE transaction 48 0 0 0 0 0

Restructuring 1,800 0 140 0 412 0

Preserving records 928 936 944 952 974 6,368

Re-conversion 3,456 0 93 0 88 15,660

Miscellaneous 9,639 0 0 0 0 0

30,783 40,103 9,148 8,934 9,469 76,641

107

Discount rates distributed over the respective remaining terms in years

1 to 2 2 to 3 3 to 4 4 to 5 5 to 6 6 to 7

2013 0.46 0.57 0.80 1.08 1.34 1.57

2012 0.28 0.32 0.40 0.56 0.79 0.96

7 to 8 8 to 9 9 to 10 11 to 15 15 to 30

2013 1.80 1.99 2.21 2.23 2.96

2012 1.12 1.36 1.52 1.48 2.25

Due to the change in the discount rates, the discounted provisions and the interest expense declined by €2,866 thousand

respectively (previous year: €2,042 thousand) in comparison with the application of the previous year's rates.

27. Financial liabilities



Bonds 45,730 45,730 51,406 51,406

Debenture loans 285,000 285,000 175,000 175,000

QTE transaction 55,488 51,101 61,595 58,002

Finance lease liabilities 136 100 170 136

386,354 381,931 288,171 284,544

Bonds and debenture loans

Term Currency Nominal Nominal Effective 31 Dec 2013 31 Dec 2012value interest interest €'000 €'000

2003 to 2018 EUR 25,000 4.840% 4.840% 25,000 25,000

2004 to 2016 JPY 22,200 1.820% 1.820% 20,730 26,406

Bonds 47,200 45,730 51,406

2010 to 2017 EUR 87,500 2.564% 87,500 87,500

2010 to 2020 EUR 87,500 3.007% 87,500 87,500

2013 to 2023 EUR 110,000 2.308% 110,000 0

Debenture loans 285,000 285,000 175.000

DFS hedges its interest rates for bonds and debenture loans with derivative financial instruments (see Note 33).

Notes 2013

108

In the business year, DFS placed a debenture loan of €110,000 thousand on the over-the-counter capital market.

The QTE transaction with foreign investors was basically terminated in the business year. DFS agreed with the remaining

contracting parties to keep up the domestic cash flows (for additional disclosures on the QTE transaction see Note 18).

Future minimum lease payments from finance lease liabilities31 Dec 2013 31 Dec 2013 31 Dec 2013 31 Dec 2013Up to 1 year 2 to 5 years More than 5 years Total

€'000 €'000 €'000 €'000

Future minimum lease payments 44 109 0 153

Interest component 8 9 0 17

Finance lease liabilities (present value) 36 100 0 136

31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2012Up to 1 year 2 to 5 years More than 5 years Total

€'000 €'000 €'000 €'000

Future minimum lease payments 44 152 0 196

Interest component 10 16 0 26

Finance lease liabilities (present value) 34 136 0 170

28. Trade payables



Germany 30,792 0 47,948 0

Abroad 4,510 307 2,957 0

Creditors with debit balances 70 0 250 0

Amounts withheld 1,256 787 1,394 798

Maastricht unit 2 0 3 0

36,630 1,094 52,552 798

Trade payables in foreign currencies amount to €62 thousand (previous year: €613 thousand). Due to the low impact on

the results (<€1 thousand), there is no currency valuation.

Trade payables are regularly secured by means of reservation of title clauses until payment is made in full.

109

29. Other liabilities



Staff costs 35,104 0 37,701 0

Amounts owed to affiliated companies 27,455 0 22,023 0

Outstanding invoices 14,754 0 12,808 0

Interest payable 6,484 0 5,690 0

Amounts owed to Shareholder 3,132 0 3,325 0

Derivative financial instruments 3,075 3,075 4,672 4,672

Liabilities to investments 2,769 0 2,063 0

German Meteorological ServiceShare of charges: En-route 1,642 0 1,660 0Remaining financial liabilities 291 0 787 0

Other financial liabilities 94,706 3,075 90,729 4,672

Staff costs 20,845 0 21,553 0

Amounts owed to the tax authorities 14,348 0 15,057 0

QTE transaction 0 0 0 0

Remaining non-financial liabilities 9,155 0 12,237 0

Other non-financial liabilities 44,348 0 48,847 0

139,054 3,075 139,576 4,672

Owing to the complete termination of the core component of the QTE transactions, the accrued liability was reversed

through the income statement (for additional disclosures on the QTE transaction see Note 18).

Notes 2013

110

Offsetting of financial assets and liabilitiesFinancial Financial Assets (+) and

assets (+) liabilities (-) debts (-) as reported at the balance sheet

31 Dec 2013 €'000 €'000 €'000

ShareholderBMVI (formerly: BMVBS), BMVg, regulatory authority, LBA 3,798 -6,930 -3,132

3,798 -6,930 -3,132

Affiliated companies

DFS IBS 21 -19,282 -19,261

U-Kasse (Benevolent fund) 4 0 4

TTC 866 -1,172 -306

DFS Energy 0 -7,888 -7,888

891 -28,342 -27,451

Investments

FCS 51 -2,788 -2,737

GroupEAD 0 -32 -32

51 -2,820 -2,769

31 Dec 2012 €'000 €'000 €'000

Shareholder

BMVBS, BMVg, regulatory authority, LBA 2,853 -6,178 -3,325

2,853 -6,178 -3,325


DFS IBS 32 -18,882 -18,850

U-Kasse (Benevolent fund) 4 -5 -1

TTC 1,473 -1,574 -101

DFS Energy 0 -3,071 -3,071

1,509 -23,532 -22,023

Investments

FCS 68 -2,131 -2,063

GroupEAD 42 -9 33

110 -2,140 -2,030

The fair value of the offset financial assets and liabilities corresponds to the carrying amount. DFS did not receive col-

lateral for the financial assets nor did it provide collateral for the financial liabilities.

111

Additional disclosures

30. Notes to segment reportingSegment reporting is based on the internal management and reporting systems. Commercial management and reporting

have been based on cost units and contribution margins since the start of economic regulation. This enhances the trans-

parency as well as the planning and control of the individual business units.

Within the scope of segment reporting, the Board of Managing Directors as the chief operating decision-maker allocates

company funds and assesses the performance of the operating segments. The operating result (operating EBIT) is an

important performance indicator for DFS. EBIT is used for resource allocation and to measure the profitability of the seg-

ments. Further data are neither collected nor communicated to the chief operating decision-makers.

The main business of DFS (see section 1.1 in the group management report) is air navigation services and the directly

associated support activities. DFS defines these activities as the "Segment financed by air navigation charges". Since

2012, this segment has been divided into the units: en-route and terminal services.

Commercial services comprise consultancy services offered globally, the sale of ATM systems as well as analysis, simula-

tion and project management activities.

The other products (both commercial and financed by air navigation charges) relate to services which either cannot be

assigned to a particular segment or which would require considerable expense to do so. This includes in particular services

for operational air traffic (OAT), visual flight rules (VFR) and Maastricht Upper Area Control (MUAC).

The determination of segment data is based on the following premises:

■ The assets and liabilities of DFS Energy were included as part of the operating assets in the cost-base for determining

charges. Consequently, in the reconciliation to DFS results, the expenses and income of DFS Energy were disclosed

separately.

■ The financial result and income taxes were not assigned to the individual segments as the departments Treasury and

Taxes are active at the corporate level.

■ The number of staff corresponds to the number of employees.

Notes 2013

112

Information on the business segments by cost typeBusiness All other Reconciliation Total

financed by segmentsair navigation

charges2013 €'000 €'000 €'000 €'000

External revenues 1,058,886 24,060 1,082,946

Intersegment revenues 24,730 -24,730 0

Other operating income 33,763 33,763

Changes in inventory -171 -171

Own work capitalised 1,588 1,588

Total operating revenues and income 1,118,796 24,060 -24,730 1,118,126

Staff costs 778,125 778,125

Material costs 124,999 124,999

Depreciation and amortisation 102,646 102,646

Project costs 18,913 18,913

Intersegment costs 24,730 -24,730 0

Total costs 1,024,683 24,730 -24,730 1,024,683

Internal results for the period 94,113 -670 0 93,443

Under-recovery -13,910 -13,910

Carry-over en-route 40,150 40,150

Balancing items: cost accounting 0 0

Earnings before taxes from a charges-related perspective 120,353 -670 0 119,683

2012 €'000 €'000 €'000 €'000

External revenues 1,051,316 23,821 1,075,137

Intersegment revenues 21,962 -21,962 0

Other operating income 26,363 26,363

Changes in inventory 129 129

Own work capitalised 2,459 2,459

Total operating revenues and income 1,102,229 23,821 -21,962 1,104,088

Staff costs 790,641 790,641

Material costs 127,608 127,608

Depreciation and amortisation 105,547 105,547

Project costs 20,610 20,610

Intersegment costs 21,962 -21,962 0

Total costs 1,044,406 21,962 -21,962 1,044,406

Internal results for the period 57,823 1,859 0 59,682

Under-recovery 6,963 6,963

Carry-over en-route 19,263 19,263

Balancing items: cost accounting 6,065 6,065

Earnings before taxes from a charges-related perspective 90,114 1,859 0 91,973

113

Information on business segments with reconciliation from charges-related resultto IFRS earnings before interest and taxes

EBIT EBIT2013 2012*€'000 €'000

Terminal services 24,242 21,166

En-route services 90,471 62,558

Commercial products -670 1,859

Remaining commercial products and products financed by air navigation charges 5,639 6,390

Earnings before interest and taxes from a charges-related perspective 119,682 91,973

Reconciliation to DFS earnings before interest and taxes under IFRS

Occupational pensions from a charges-related perspective 49,003 82,111

Occupational pensions under IAS/IFRS* -134,184 -93,263

Change in equity relevant for charges (closing deficit) 54,816 23,384

DFS Energy earnings before interest and taxes under IFRS -316 709

QTE transaction 2,600 52,248

Differing apportionment between the accounting perspectiveand a charges-related perspective -2,020 -3,349

DFS earnings before interest and taxes under IFRS 89,581 153,813


Information on important external customers

2013 2013 2012 2012

€'000 in % €'000 in %

DFS total revenues* 1,093,243 100.00 1,041,926 100.00

Lufthansa 219,661 20.09 222,229 21.34

Air Berlin 75,044 6.86 75,021 7.20

Federal Ministry of Defence 62,780 5.74 63,090 6.06

Ryanair 54,771 5.01 41,303 3.96

Germanwings 32,794 3.00 24,505 2.35

KLM 31,900 2.92 30,204 2.90

British Airways 31,763 2.91 28,860 2.77

* Comprising terminal and en-route revenues as well as revenues from military operational air traffic

Notes 2013

114

31. Additional disclosures on the cash flow statementThe cash flow statement shows the change in liquid funds between two balance sheet dates and the movements in cash

and cash equivalents. Cash inflows and outflows are divided into operating, investing and financing activities and only show

cash flows from continuing operations. There are no discontinued operations.

Bank overdrafts are deducted from liquid funds when drawing up the cash flow statement:

31 Dec 2013 31 Dec 2012

€'000 €'000

Cash in hand and cheques 38 42

Cash at bank 258,043 105,492

Current overdraft 0 0

Cash and cash equivalents 258,081 105,534

Cash inflow from operating activities was calculated using the indirect method by adjusting net income for changes in

inventory, receivables, other assets and borrowings as well as depreciation and amortisation and other non-cash income

and expenses. The cash flows from income taxes relate to all of the above areas of activity. However, owing to the time

that would be involved in assigning the cash flows from income taxes to the individual activities, for the purpose of the

cash flow statement they were allocated to operating activities.

In addition to the separate group cash flow statement using the indirect method, DFS has adopted the recommendation

of IAS 7.19 and also shows the cash flows from operating activities according to the direct method. The direct method

provides information that makes it easier to estimate future cash flows. This sort of information is not available under

the indirect method. The direct cash flow statement is oriented towards the structure of the actual cash flows. The cash

inflows from revenues are shown alongside the cash outflows. In particular, the difference between staff costs and the

employee expenses reported in the statement of comprehensive income can be seen, namely the payment of reinsurance

premiums and actual pension payments after the reimbursement from the pension plan reinsurance. These cash outflows

are matched with revenues from air navigation charges that show the actual liquidity inflows, which may not correspond

exactly to revenues reported in the group statement of comprehensive income. Investment grants, revenues from the

commercial business and reimbursements which are relevant to the calculation of air navigation charges (SESAR) are

recorded under other proceeds. The value accruals item shows the cash flows whose clear allocation to items previously

used in the cash flow statement would have involved considerable expense.

115

Cash flows from operating activities using the direct method

2013 2012

€'000 €'000

Terminal charges received 236,951 225,828

En-route charges received 786,836 753,289

Reimbursement OAT/Maastricht/VFR flights 80,696 74,710

Reimbursements paid -7,927 -7,845

Staff costs -819,923 -813,829

Non-staff and project costs -155,428 -152,792

Other payments 50,875 42,323

Netting of tax refunds (+) / overpayment (-)(Income taxes, VAT, withholding taxes) 13,905 14,936Value accruals -1,560 1,368

184,425 137,988

Cash outflows for investing and financing activities are presented using the direct method.

Notes 2013

116

32. Financial instruments

Financial assets by categoryCarrying At fair value Held-to- Loans and Available- Fair value Levelamount through maturity receiva- for-sale

profit or loss bles31 Dec 2013 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 27,172 27,172 3

Loans to affiliated companies 29,500 29,500 29,500 3

Investments 2,354 2,354 4,464 3

Trade receivables 146,497 146,497 146,497 3

Future receivables from construction contracts 2,770 2,770 2,770 3

Under-recovery 87,984 87,984 87,984 3

QTE transaction 53,767 53,767 53,767 2

Interest receivables 1,933 1,933 1,933 2

Receivables from affiliated companies 4 4 4 3

Other financial assets – Level 2 4,867 4,867 4,867 2

Other financial assets – Level 3 800 800 800 3

Liquid funds 258,081 258,081 258,081 2

615,729 0 53,767 532,436 29,526 617,839

31 Dec 2012 €'000 €'000 €'000 €'000 €'000 €'000

Shares in affiliated companies 27,172 27,172 27,172 3

Loans to affiliated companies 11,000 11,000 11,000 3

Investments 2,354 2,354 4,422 3

Securities 7,018 7,018 7,018 2

Trade receivables 142,067 142,067 142,067 3

Future receivables from construction contracts 1,415 1,415 1,415 3

Under-recovery 72,481 72,481 72,481 3

QTE transaction 58,945 58,945 58,945 2

Derivative financial instruments 6,908 6,908 6,908 2

Interest receivables 3,444 3,444 3,444 2

Receivables from investments 33 33 33 3

Remaining financial assets 1,194 1,194 1,194 3

Liquid funds 105,534 105,534 105,534 2

439,565 6,908 58,945 337,168 36,544 441,633

117

Valuation technique

Cost approach: For shares in affiliated companies, loans to affiliated companies and

investments, DFS assumes they can be sold for at least their carrying amounts in the short

term and sets the fair value at the same level. There is a grey capital market for the shares

DFS holds in limited liability companies (GmbH-Anteile). The fair value of the shares can be

calculated reliably and backed up by financial calculations. The stake in FCS corresponds to

the nominal remaining amount. DFS therefore determines the fair value from the share in the

accounting equity of FCS. For other receivables and assets in the category "Loans and

receivables", DFS assumes they can be sold for at least their carrying amounts in the short

term and sets the fair value at the same level.

Market approach: The fair values of securities and derivatives with positive fair values are

determined completely or partially using recognised valuation models or the external valuations

of third parties based on the market conditions prevailing at the balance sheet date (interest

and exchange rates) using external sources or market prices. In determining the fair value of

derivatives, compensating effects from the primary transaction (pending business or

anticipated transactions) are excluded.

Present value method: The fair value of the QTE transaction is determined based on

discounting future expected cash flows.

Unobservable inputs

Discount rate, nominal value of shares and investments as well as other receivables and assets

Observable inputs

Security prices, market interest rates




- the nominal values were higher;

- the security prices were higher;

- the market interest rates values were higher.

Reconciliation of the fair values of level 2 and 3

Level 2 Level 3

31 Dec 2013 31 Dec 2013

€'000 €'000

As at 1 Jan 2013 181,849 259,784

Ongoing gains and losses 6,918 -6,762

Gains (+) and losses (-) recognised in other comprehensive income -25 0

Additions (+) and disposals (-) 129,906 46,169

Transfers in and out of levels 0 0

As at 31 Dec 2013 318,648 299,191

Notes 2013

118

Financial liabilities by category with disclosures on fair valueCarrying At fair value Amortised Fair value Levelamount through profit cost

or loss31 Dec 2013 €'000 €'000 €'000 €'000

Bonds 45,730 45,730 50,418 1

Debenture loans 285,000 285,000 300,884 2

QTE transaction 55,488 55,488 55,488 2

Finance leases 136 136 136 3

Trade payables 36,630 36,630 36,630 3

Staff costs 35,104 35,104 35,104 3

Amounts owed to Shareholder 3,132 3,132 3,132 3

Amounts owed to affiliated companies 27,455 27,455 27,455 3

Liabilities to investments 2,769 2,769 2,769 3

Outstanding invoices 14,754 14,754 14,754 3

Interest payable 6,484 6,484 6,484 2


Share of charges: German Meteorological Service 1,642 1,642 1,642 3

Remaining financial liabilities 291 291 291 3

517,690 3,075 514,615 538,262

31 Dec 2012 €'000 €'000 €'000 €'000

Bonds 51,406 51,406 58,016 1

Debenture loans 175,000 175,000 194,162 2

QTE transaction 61,595 61,595 61,595 2

Finance leases 170 170 170 3

Trade payables 52,552 52,552 52,552 3

Staff costs 37,701 37,701 37,701 3

Amounts owed to Shareholder 3,325 3,325 3,325 3

Amounts owed to affiliated companies 24,086 24,086 24,086 3

Outstanding invoices 12,808 12,808 12,808 3

Interest payable 5,690 5,690 5,690 2


Share of charges: German Meteorological Service 1,660 1,660 1,660 3

Remaining financial liabilities 787 787 787 3

431,452 4,672 426,780 457,224

119

Valuation technique

Cost approach: DFS assumes that the fair value is at least equal to the settlement value from

the current obligation for other liabilities and liabilities under the category "Amortised cost".

Market approach: The fair values of debenture loans and derivatives with negative fair values are

determined completely or partially using recognised valuation models or the external valuations

of third parties based on the market conditions prevailing at the balance sheet date (interest

and exchange rates) using external sources or market prices. In determining the fair value of

derivatives, compensating effects from the primary transaction (pending business or anticipated

transactions) are excluded. The fair value of the bonds is determined using market listing on

public markets.

Present value method: The fair value of finance leases and the QTE transaction is determined

by discounting future expected cash flows using prevailing market interest rates.

Unobservable inputs

Discount rate, settlement value of other liabilities and liabilities

Observable inputs

Exchange prices, exchange rates, market interest rates




- the settlement values were higher;

- the exchange prices were higher;

- the exchange rates were higher;

- the market interest rates values were higher.

Notes 2013

120

Reconciliation of the fair values of level 2 and 3

Level 2 Level 3

31 Dec 2013 31 Dec 2013

€'000 €'000

As at 1 Jan 2013 266,119 133,089

Ongoing gains and losses -1,597 0

Gains and losses recognised in other comprehensive income 0 0

Additions and disposals 101,409 -11,176

Transfers in and out of levels 0 0

As at 31 Dec 2013 365,931 121,913

Assets (+) and liabilities (-) at fair valueAs at Change in value Cumulative change As at1 Jan 2013 in value 31 Dec

31 Dec 2013 €'000 €'000 €'000 €'000

Interest rate swap 647659 90 -90 0 0

Interest rate swap 918388L 6,818 -6,818 0 0

6,908 -6,908 0 0

Interest rate swap 653604L -29 29 0 0

Interest rate swap 918135L -4,272 1,828 -2,444 -2,444

Interest rate swap 918388L 0 -631 -631 -631

Interest rate swap LEES2089U0 -371 371 0 0

-4,672 1,597 -3,075 -3,075

31 Dec 2012 €'000 €'000 €'000 €'000

Interest rate swap 647659 909 -819 90 90

Interest rate swap 918388L 9,903 -3,085 6,818 6,818

10,812 -3,904 6,908 6,908

Interest rate swap 653604L -247 218 -29 -29

Interest rate swap 918135L -3,298 -974 -4,272 -4,272

Interest rate swap LEES2089U0 -742 371 -371 -371

-4,287 -385 -4,672 -4,672

121

Net results of financial instruments by measurement category

Assets LiabilitiesAt fair value Held-to- Loans and Available-for- Amortised cost

through profit maturity receivables saleor loss

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

Result component 250

Currency effect 5,686

Changes in market value -5,311

Impairment losses -7,645 -12

Interest result -754 6,617 1,430 40 -15,143

Other operating expenses -903 -230

-6,065 6,617 -7,118 278 -9,687Recognised directly in othercomprehensive income 0 0 0 -25 0

31 Dec 2012 €'000 €'000 €'000 €'000 €'000

Result component 921

Currency effect 3,539

Changes in market value -4,289

Impairment losses -2,797

Interest result -830 1,734 912 392 -10,459

Other operating expenses -622 -190

-5,119 1,734 -2,507 1,313 -7,110Recognised directly in othercomprehensive income 0 0 0 -101 0

The net results by measurement category were determined for financial instruments that were recognised and measured

at the balance sheet date. In the business year, financial receivables and liabilities were recognised from the changes to

the QTE transaction. The relevant interest income and expenses were considered in the categories "Held-to-maturity" and

"Amortised cost". The net result of financial assets is made up of profit transfers of affiliated companies, changes in market

value of derivatives, write-downs and write-offs of receivables, interest income and expenses as well as incidental costs

of monetary transactions. The net result of financial liabilities encompasses expenses from foreign currency translation,

interest income and expenses as well as incidental costs of monetary transactions. All other expenses and income were

disclosed under the financial result except for the impairment losses and the incidental costs of monetary transactions.

Notes 2013

122

33. Derivative financial instrumentsDFS is exposed to market risks in the form of interest and currency fluctuations (see section 6.2.2 in the group manage-

ment report and in Note 34). DFS uses derivative financial instruments to manage these risks.

In addition, DFS is exposed to default risk. To minimise this risk, DFS concludes derivative transactions exclusively with its

principal bankers, who have good credit ratings.

Speculative transactions with derivative instruments where there is no underlying transaction are forbidden.

Derivative financial instruments

Remaining term Nominal volume Fair value Nominal volume Fair value

31 Dec 2013 31 Dec 2013 31 Dec 2012 31 Dec 2012

€'000 €'000 €'000 €'000

Positive fair value

Receiver interest rate swaps 0 0 25,000 90

Receiver cross-currency swaps 0 0 22,200 6,818

Negative fair value

Payer interest rate swaps 0 0 32,000 -400

Payer interest rate swaps 1 to 5 years 22,200 -2,444 22,200 -4,272

Receiver cross-currency swaps 1 to 5 years 22,200 -631 0 0

44,400 -3,075 101,400 2,236

The clean price of the financial instruments is reported as the fair value. The change in fair value is primarily due to the

development of interest rates. As of 31 December 2013, the fixed interest rates were 1.8200 percent and 5.1675 per-

cent. The variable interest rates were 0.392 EURIBOR (previous year: between 0.196 and 0.698 EURIBOR).

34. Financial risks Financial risks arise in the form of liquidity risks, default risks and market price risks. DFS provides disclosures in the

group management report under section 6.2.2 on the required qualitative information under IFRS 7 about the type and

means by which risks from financial instruments arise as well as the procedures for the management of these risks.

123

34.1 Liquidity risks

Liquidity risk describes the risk that DFS may not be in the position to settle its financial liabilities as contractually required

through the delivery of cash or other financial assets. through the delivery of cash or other financial assets.

Aged-list of the undiscounted principal and interest payments of financial liabilitiesTotal Up to Due in Due in Due in

3 months 4 to 12 2 to 5 years more thanmonths 5 years

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

Non-derivative financial liabilities

Bonds 47,200 0 0 22,200 25,000

Debenture loans 285,000 0 0 87,500 197,500

Interest 60,042 3,749 5,279 33,058 17,956

QTE transaction 55,488 4,387 0 20,704 30,397

Finance lease liabilities 136 12 24 100 0

Trade payables 36,630 35,203 333 1,094 0

Other liabilities 91,631 84,553 7,078 0 0

Derivative financial liabilities

Derivatives 2,229 0 743 1.486 0

578,356 127,904 13,457 166,142 270,853

31 Dec 2012 €'000 €'000 €'000 €'000 €'000

Non-derivative financial liabilities

Bonds 47,200 0 0 22,200 25,000

Debenture loans 175,000 0 0 87,500 87,500

Interest 41,142 1,210 5,279 25,550 9,103

QTE transaction 61,595 3,593 0 19,959 38,043

Finance lease liabilities 170 11 23 136 0

Trade payables 52,552 51,587 167 798 0

Other liabilities 86,057 79,368 6,689 0 0

Derivative financial liabilities

Derivatives 3,151 178 743 2,230 0

466,867 135,947 12,901 158,373 159,646

Notes 2013

124

34.2 Default risks

DFS is exposed to default risks from financial receivables that result from the possible default on the obligations of a party

to a contract. The maximum value equals the positive fair value or market value of the financial instrument.

Default risk by category

31 Dec 2013 31 Dec 2012

€'000 €'000

At fair value through profit or loss 0 6,908

Held-to-maturity 53,767 58,945

Loans and receivables 532,436 337,168

Available-for-sale 29,526 36,544

615,729 439,565

With the exception of trade receivables, there were no financial assets that were overdue or impaired. Trade receivables

were written down to the amount that could be recovered as soon as information on the insolvency of customers was

available. DFS demands security deposits from customers with relevant sales volumes when defined warning thresholds

are exceeded. In addition, there are no indications that the debtors whose receivables are overdue will not be able to

fulfil their obligations.

As regards financial investing, DFS only enters into transactions with counterparties who either have a long-term rating

of at least AA- (Standard & Poor's) or Aa3 (Moody's), short-term A-1 (Standard & Poor's) or P-1 (Moody's), a correspond-

ingly high creditworthiness or other form of collateral.

Business dealings with a selected group of principal bankers are conducted using uniform standards and existing recip-

rocal cash flows are continuously improved.

34.3 Market risks

Market risk is defined as the risk that the fair value or future cash flows of a primary or derivative financial instrument fluc-

tuate due to fluctuations in market prices (interest rate risk and currency risk). Interest rate risk arises primarily when refi-

nancing with variable rates. Currency risks result from exchange rate fluctuations for transactions in foreign currencies.

Interest rate risk for financial assets and liabilities31 Dec 2013 31 Dec 2012

Nominal value Nominal value€'000 €'000

Financial assets

Fixed rate securities 0 7,000

Financial liabilities

Fixed rate bonds 47,200 47,200

Fixed rate debenture loans 285,000 175,000

332,200 229,200

125

Net risk by currency

31 Dec 2013 31 Dec 2012

Nominal value Rate Nominal value Rate

JPY '000 JPY '000

Primary transactions -3,000,000 144.72 -3,000,000 113.61

Derivative financial instruments 3,000,000 144.72 3,000,000 113.61

Planned hedges 0 0

0 0

USD ‚000 USD ‚000

Primary transactions 3,779 1.37910 4,173 1.31940

Derivative financial instruments 0 0

Planned hedges 0 0

3,779 1.37910 4,173 1.31940

The value-at-risk analysis conducted determines the currency and interest risk, which is based on a sensitivity model used

for internal planning and control. The value-at-risk shows the decline which will not be exceeded with a probability of

95.00 percent when the holding period is 10 days.

Value-at-risk

31 Dec 2013 31 Dec 2013 31 Dec 2012 31 Dec 2012

Foreign Interest rate Foreign Interest rateexchange risk risk exchange risk risk

By currency €'000 €'000 €'000 €'000

USD 59 143

EUR 3,078 1,624

By line item €'000 €'000 €'000 €'000

Money market 0 7 0 6

Capital market 570 3,032 1,078 1,739

Hedge 815 70 955 68

Overall risk At year-end High Low Average

€'000 €'000 €'000 €'000

2013 3,064 4,434 1,840 3,382

2012 1,675 3,043 1,675 2,291

Foreign exchange risks that impact the balance sheet arise due to monetary items that are not in the functional currency.

As the primary monetary financial instruments are held mainly in the functional currency or converted into the functional

currency by means of derivatives, changes in exchange rates therefore have no material impact on the result or equity.

Notes 2013

126

Interest rate risk results mainly from the sensitivity of financial instruments. Liquidity is ensured by means of money market

and capital market programmes with long maturities that have fixed and variable interest rates. The use of derivative finan-

cial instruments, such as interest rate swaps and cross currency swaps, secures fixed interest rates and thus limits inter-

est rate risk. The changes in interest rates therefore have no material impact on the result or equity.

The obligation and plan assets for occupational pensions are exposed to interest rate risk. The discount rate for pensions

and similar obligations is based on the market yields for high quality fixed-rate corporate bonds. The continued decline in

the level of interest rates would lead to a further increase in the obligation. The low returns that can currently be earned

on the market mean that the pension plan assets cannot yield substantial income, which reduces the speed at which the

assets for occupational pensions may grow.

35. Capital managementAs regards commercial considerations, capital is managed from a charges-related perspective (for further disclosures see

section 2.5.3.1 in the group management report). The charges-related perspective takes additional elements into account

when contrasted with the accounting principles under IAS/IFRS.

35.1 Consideration of the catch-up effects from conversion to IAS/IFRS not included in the financial statements

The financial statements were converted from the German Commercial Code (HGB) to IFRS in 2007 (see Note 2). This

led to measurement changes, in particular as regards occupational pensions, which were recognised directly in retained

earnings. This resulted in a negative equity situation. DFS is authorised to include these negative consequences in the

cost-base for determining and levying charges. These off-balance sheet catch-up effects may be charged to airspace users

over a 15-year period. This will have a positive influence on the equity and liquidity of DFS over the remaining period of nine

years.

35.2 Inclusion of the model to finance occupational pensions approved by the regulatory authority

Since 2012, DFS has been authorised to distribute the following components of charges over the average remaining time

to work of the staff (15 years) in a rolling fashion and include them in the following reference periods, resulting in a liquidity

effect (see section 2.3 in the group management report):

■ service cost and

■ the distribution of the deficit, including interest on the outstanding instalments to close the deficit. The deficit at the

beginning of a reference period is the difference between the obligation and the assets less the present value of the

cash flows (including interest) that were already approved in prior periods to close the deficit. The determination of the

present value of cash flows is based on the respective current interest rate for charges.

127

35.3 Law on the Implementation of the Mutual Assistance Directive as well as on the Change to Tax Regulations

(AmtshilfeRLUmsG)

Section 29 of this law contains the change to Article 31b paragraph 3 of the German Aviation Act (LuftVG). Consequently,

the positive or negative difference between the profit from air navigation charges under income tax law and the result

under the regulations governing charges will not be considered when determining income and thus is not subject to tax.

35.4 Integration of DFS Energy

The assets and liabilities of DFS Energy were included as part of the operating assets in the cost-base for determining

charges.

Reconciliation and indicators on capital management

31 Dec 2013 31 Dec 2012*

€'000 €'000

Reconciliation to charges-related equity

Equity recognised on the balance sheet* -705,014 -1,297,272

Catch-up effects not yet accounted for 498,510 552,298

Deferred taxes on this amount -758 -27,292

Occupational pensions from a charges-related perspective* 939,861 1,381,373

Change in equity relevant for charges (closing deficit) -53,912 14,294

Charges-related inclusion of DFS Energy 588 -253

Charges-related equity 679,275 623,148

Indicators

Equity ratio 24.40% 19.92%

Return on equity 5.27% 14.10%

Net income 35,766 87,886

EBIT 89,581 153,813

Borrowings 2,104,980 2,504,773

Debt ratio 75.60% 80.08%

Return on total assets 1.28% 2.81%

Leverage ratio 4.61% 5.84%

Liquid funds 258,081 105,534

Non-current financial liabilities 381,931 284,544

of which QTE transaction 51,101 58,002

Current financial liabilities 4,423 3,627

of which QTE transaction 4,388 3,593

Net financial indebtedness 128,273 182,637


Notes 2013

128

This perspective includes the future flow of charges approved by the supervisory authorities and delivers a clear picture of

the capital structure, debts and cash flows. Assets and liabilities that are subject in full or in part to economic regulation

are transferred to a regulatory asset base, i.e. an accounting of the results and financial position from the perspective of

economic regulation.

The view of DFS is supported by the supplement to Article 31b paragraph 3 of the German Aviation Act (LuftVG). This regu-

lation obliges DFS to determine its taxes based on the charges-related result.

The assessment of the financial risks of DFS is given by the rating awarded by the rating agencies.

Ratings

Long-term Short-term Outlook

Standard & Poor´s AAA A-1+ Stable

Moody´s Aa3 P-1 Negative

36. Contingent liabilities and other financial commitments36.1 Contingent liabilities

Due date of contingent liabilities


€'000 €'000 €'000 €'000

Sureties 2013 1,320 0 0 1,320

2012 1,270 0 0 1,270

No provisions were recognised for the commitments shown because the risk of use was deemed to have a low probability.

There exist no uncertainties as regards the amount or maturity of the contingent liabilities.

Sureties relate to guarantees for advance payments, warranties, contract fulfilment and tender guarantees for simulation,

radar data and air traffic control systems. At the end of the business year, there were no obligations for the issuance or

endorsement of guarantees covering bills of exchange and cheques.

129

36.2 Other financial commitments

Due dates of other financial obligations


31 Dec 2013 €'000 €'000 €'000 €'000

Loans commitments 0 0 50,000 50,000

- of which taken up 0 0 29,500 29,500

Intercompany credit lines with affiliated companies 14,900 0 0 14,900 - of which taken up 0 0 0 0

Capital expenditure commitments for the acquisition of

- intangible assets 23,128 13,565 0 36,693

- property, plant and equipment 38,400 14,937 2,140 55,477

- other 61,591 44,320 523 106,434

138,019 72,822 52,663 263,504

31 Dec 2012 €'000 €'000 €'000 €'000

Loans commitments 0 0 50,000 50,000

- of which taken up 0 0 11,000 11,000

Intercompany credit lines with affiliated companies 14,900 0 0 14,900 - of which taken up 0 0 0 0

Capital expenditure commitments for the acquisition of

- intangible assets 18,195 15,628 0 33,823

- property, plant and equipment 67,481 24,659 969 93,109

- other 51,142 16,455 27 67,624

151,718 56,742 50,996 259,456

No provisions were recognised for the commitments shown because the risk of use was deemed to have a low probabil-

ity. There exist no uncertainties as regards the amount or maturity of the other financial obligations.

To cover their liquidity needs, affiliated companies were granted an inter-company credit line as part of daily cash pooling.

By doing so, the group optimises its conditions for cash investments and loans and exploits the advantages of a central,

systematic financial planning.

Capital expenditure commitments relate to the contractual obligations for the purchase of intangible assets as well as

property, plant and equipment.

The new Board of the benevolent fund (U-Kasse) was released from its liability by the Board of Managing Directors of DFS.

Notes 2013

130

37. Contingent assets

There are two separate abstract acknowledgements of debt (abstrakte Schuldanerkenntnisse – a standardGerman law acknowledgement of a borrower's indebtedness) between DFS and FCS:Effective from 26 April 2006 29 September 2008 and 6 October 2008,

respectively

Collateral Registration of a charge Registration of a chargeLegal basis Article 1 LuftfzgG (Law on Rights Regarding Article 1 LuftfzgG (Law on Rights Regarding

Aircraft – Gesetze über Rechte an Flugzeugen) Aircraft – Gesetze über Rechte an Flugzeugen)

Beneficiary DFS DFS

Object Hawker Beechcraft Super King Air 350 Hawker Beechcraft Super King Air 350

Serial number FL-473 D-CFMD FL-626 D-CFME

Local court Braunschweig Braunschweig

Registration 22 August 2006 16 September 2009

Basis Loan agreement dated March 2006 Loan agreement dated September 2008and October 2008, respectively

Parties to the contract DFS IBS and FCS DFS IBS and FCS

Loan 1 Aircraft FL-473 D-CFMD Aircraft FL-626 D-CFMETerm until 31 December 2022 Term until 31 December 2025€5,500 thousand €4,300 thousand

Loan 2 Flight inspection system (type Aerodata AeroFIS) Flight inspection system (type Aerodata AeroFIS)Term until 31 December 2016 Term until 30 September 2019€3,000 thousand €1,700 thousand

Miscellaneous The loan is collateralised over its entire The loan is collateralised over its entire maturity by an abstract acknowledgement of maturity by an abstract acknowledgement of debt in favour of DFS by means of a liability of debt in favour of DFS by means of a liability of €8,500 thousand. €6,000 thousand.€7,100 thousand of the volume of the loan €5,200 thousand of the volume of the loan have been taken up. have been taken up.

38. Post-balance sheet eventsOn 3 December 2013, DFS spun off TTC as of 1 January 2014 by means of a spin-off and take-over contract formalised by

notarial recording. Under this contract, DFS transfers its only share in TTC with a nominal value of €25,000.00 (100 per-

cent of the paid-in capital) to DFS IBS. The spin-off was made by means of a universal transfer of assets and liabilities in

return for 100 new shares with a total nominal value of €100.00. The profit and loss transfer agreement between DFS and

TTC was dissolved by mutual consent as of 31 December 2013, 24:00 hrs. Now, a profit and loss transfer agreement and

a cash pool agreement apply between DFS IBS and TTC effective from 1 January 2014.

131

39. Auditors' fees

Total fees of the auditor under Article 314 paragraph 1 no. 9 of the German Commercial Code (HGB)

2013 2012

€'000 €'000

Audit services 163 164

Other assurance services 13 0

Tax advice 2 17

Other services 277 59

455 240

40. Service concession arrangementsUnder Article 27c of the German Aviation Act (LuftVG), DFS is obliged to perform its sovereign tasks (see section 1.1 in the

group management report). The details of these tasks are regulated by an indefinite framework agreement with the Federal

Republic of Germany.

The law and the framework agreement authorise DFS as the current entrusted air navigation service provider to require the

airports under Article 27d of the German Aviation Act (LuftVG) to:

■ establish and maintain the necessary facilities and take the necessary structural measures in these facilities; make the

necessary facilities available and allow cables to be laid, connected and maintained on the premises,

■ enable the air navigation services personnel to use the infrastructure at aerodromes,

■ ensure that the buildings and rooms made available by the aerodrome operator are provided with power, thermal energy,

water, heating and air-conditioning; perform other utility services and ensure that waste disposal services are rendered.

In return, DFS reimburses the airports for these costs. If another air navigation service provider is entrusted with these

duties, the legal and contractual rights and obligations transfer to this air traffic service provider.

Charges levied are the main source of revenue at DFS and they should cover the costs incurred (for changes to the unit

rate see section 2.4.1 in the group management report).

Notes 2013

132

40.1 En-route services

Since 2012, the performance scheme for air navigation services has aimed to improve the overall efficiency across the

performance areas safety, environment, capacity and cost-efficiency in the en-route area. The European Commission has

laid down the performance targets and alert thresholds for the whole European Union for one reference period. Each refer-

ence period comprises five years. To gather experience in the introductory phase, the first reference period was limited to

three years (2012–2014).

The national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF), draws up a perfor-

mance plan on the national or functional airspace block level that is aligned with the performance targets of the European

Union. Upon proposal of the national supervisory authorities, Member States adopt their performance plans and com-

municate them to the Commission. The Commission evaluates the performance plans and suggests or takes corrective

measures.

For the first reference period from 2012 to 2014, the Federal Supervisory Authority for Air Navigation Services (BAF) has

laid down the unit rates for en-route services for DFS. Previously, the business risk DFS was exposed to under the system

of full-cost recovery was limited. However, the business risk has risen since the start of this economic regulation.

The cost risks that arise within a reference period impact the profits of DFS. However, the traffic risk is spread between

DFS and the airspace users. Variances from the forecasts within the first 2.00 percent (up or down) are borne by DFS. For

variances of more than 2.00 percent to 10.00 percent, 70.00 percent of any additional revenues are given back to the

airspace users. In the case of a negative variance, 70.00 percent is retroactively charged two years later. For variances in

the traffic forecast of more than 10.00 percent, additional revenues are returned to airspace users and any shortfall can

be charged in full (see section 2.4.5 in the group management report).

The variances are determined by the Federal Supervisory Authority for Air Navigation Services (BAF) and reported to

the European Commission and EUROCONTROL. EUROCONTROL checks the differences and submits the adjustments to

the representatives of the Member States in the Enlarged Committee for Route Charges. This Committee prepares the

adjusted unit rates for en-route services after consultation with the airspace users. These are submitted to the enlarged

Commission for final approval.

The Federal Ministry of Transport and Digital Infrastructure (BMVI) publishes the unit rate for en-route services in the Fed-

eral Law Gazette on the basis of the German Ordinance on Terminal Charges of the Air Navigation Services (FSStrKV) and

taking into consideration the EU Regulations on a common charging scheme for air navigation services.

133

40.2 Terminal services

For terminal services, the Federal Ministry of Transport and Digital Infrastructure (BMVI) lays down a unit rate each year on

the basis of the German Ordinance on Terminal Charges of the Air Navigation Services (FSAAKV) and taking into considera-

tion the EU Regulations on a common charging scheme for air navigation services.

To this end, DFS sends the national supervisory authority, the Federal Supervisory Authority for Air Navigation Services

(BAF), a preliminary cost estimate for the coming year. The cost estimate is based on the costs of the last business year

and the estimates of the cost development in the current and following business year. The unit rate is calculated from the

quotients between the planned costs and the planned traffic volume. If the assumptions fail to materialise, the resulting

over-recovery or under-recovery is carried over into the costs of the next years.

As the EU regulations currently do not contain precise provisions on the allocation of under- or over-recoveries, DFS

assumes that a comparable regulation to the one in the en-route area will apply.

41. Related party disclosures41.1 Related parties – entities

In the normal course of business, services are rendered to related parties (entities). Group companies also render ser-

vices to DFS. These extensive delivery and service relationships are conducted at arm's length and are no different from

the business relationships with other companies.

The existing group allocation contract between DFS and DFS Energy will be revised after an initial adjustment for the

years 2012 and 2013. The view of the relevant tax authority will be incorporated.

DFS maintains business relations with the sole controlling Shareholder, the Federal Republic of Germany, and with other

companies controlled by it as part of the entrusted sovereign functions for air navigation services. These transactions

are conducted at arm's length and are no different from the delivery and service relationships with other companies. DFS

avails of the exemption in IAS 24.25 and does not disclose information on outstanding balances and transactions with

government-related entities.

Since June 2009, DFS has been an active member of the SESAR Joint Undertaking (SJU), along with other leading organi-

sations. Funds have been made available from the European research framework programmes for this project.

Notes 2013

134

Company Registered office Shareholding Equity Net incomein % €'000 €'000


DFS International Business Services GmbH Langen, Germany 100.00 26,113 69

Formerly known as:

DFS European Satellite Services Provider Beteiligungsgesellschaft mbH

DFS Unterstützungskasse GmbH Langen, Germany 100.00 21 -5

The Tower Company GmbH Langen, Germany 100.00 223 0

DFS Energy GmbH Langen, Germany 100.00 5,132 0

Investments

FCS Flight Calibration Services GmbH* Braunschweig, Germany 55.00 3,836 76

GroupEAD Europe S.L.* Madrid, Spain 36.00 1,662 555

BILSODA GmbH & Co. KG* Pullach, Germany 24.90 3,479 -85

Investments through affiliated companies

Shares and investments of DFS International Business Services GmbH:

R. Eisenschmidt GmbH Egelsbach, Germany 100.00 168 -96

European Satellite Services Provider Toulouse, France 16.67 5,781 1,525

Société par Actions Simplifiée*

Investment of The Tower Company GmbH:

Tower Air Traffic Services S.L.* Madrid, Spain 50.00 1,000 0

* Equity and net income as at 31 December 2012

Outstanding balancesShareholder Affiliated Investments

companies2013 €'000 €'000 €'000

Financial assets 56,672 2,354

Other assets 3,798 891 51

Other liabilities 6,930 28,342 2,820

2012 €'000 €'000 €'000

Financial assets 38,172 2,354

Other assets 2,853 1,577 42

Other liabilities 6,278 25,663 10

135

Income (+) and expenses (-)Shareholder Affiliated Investments

companies2013 €'000 €'000 €'000

Revenues 70,506 299 279

Other operating income 281 214

Purchased services -38 -3,149

Employee expenses -24,982 -1

Other operating expenses -5,619 -3,400

Interest income 843

Interest expense

Profit transfers 776

Loss adjustment -526

2012 €'000 €'000 €'000

Revenues 70,511 335 408

Other operating income 85 1,442 265

Purchased services -160 -3,192

Employee expenses -25,884 -17

Other operating expenses -5,213 -3,516

Interest income 44

Interest expense -5 -1

Profit transfers 1,333 339

Loss adjustment -751

41.2 Related parties – persons

In accordance with IAS 24, DFS also reports on business relationships between the company and related parties (persons)

or members of those persons' families. Related parties (persons) were identified as the Board of Managing Directors, Level

1 executives, the Supervisory Board and their family members (for remuneration see Note 42). There were no material or, in

their form or character, atypical reportable transactions between DFS and people in key positions of management and their

close family.

Notes 2013

136

42. Organs of the company42.1 Board of Managing Directors

Prof Klaus-Dieter Scheurle, Frankfurt am Main,

Chairman and Chief Executive Officer

Robert Schickling, Bad Homburg vor der Höhe,

Managing Director Operations

Dr Michael Hann, Bad Dürkheim,

Managing Director Human Resources

See section 1.3 in the group management report for the distribution of responsibilities of the Board of Managing Directors.

Payments due in the short term for members of the Board of Managing DirectorsFixed components Performance- Total emoluments

(including benefits in relatedkind) components

2013 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman) 347 0 347

Robert Schickling 259 26 285

Dr Michael Hann 272 43 315

Former Managing Directors 0 343 343

878 412 1,290

2012* €'000 €'000 €'000

Dieter Kaden (Chairman) 330 126 456

Ralph Riedle 257 107 364

Jens Bergmann 268 104 372


946 337 1,283

* Includes the managing directors who departed the company as of 31 December 2012

DFS did not grant any advance payments, loans or benefits to members of the Board of Managing Directors or former

Managing Directors on their termination. In addition, DFS paid no remuneration for consultancy or service contracts.

137

Post-employment benefitsPension Pension Expenses forbenefits payments pension benefits

earned in the current year**

2013 €'000 €'000 €'000

Prof Klaus-Dieter Scheurle (Chairman) 218 0 0

Robert Schickling 1,548 0 0


Former Managing Directors 12,647 709 402

14,667 709 618

2012* €'000 €'000 €'000

Dieter Kaden (Chairman) 3,671 0 277

Ralph Riedle 2,493 0 95

Jens Bergmann 2,787 0 98


Former Managing Directors 5,263 293 189

14,311 293 659

* Includes the managing directors who departed the company as of 31 December 2012** Service cost and interest cost

There were no other long-term benefits due or share-based compensation.

Notes 2013

138

42.2 Supervisory Board

Shareholder representatives

Michael Odenwald Dr Angelika KreppeinChairman RegierungsdirektorinState Secretary Federal Ministry of Finance

Federal Ministry of Transport and Digital

Infrastructure Dr Edeltraud Leibrock

Member of the Board of Managing

Carmen von Bornstaedt-Radbruch Directors KfW Bankengruppe

Ministerialrätin Member from 26 April 2013

Federal Ministry of Defence

Member from 26 April 2013 Ralf Raddatz

Colonel General Staff

Dr Martina Hinricher Federal Ministry of Defence

MinisterialdirektorinFederal Ministry of Transport and Digital Martin Walber

Infrastructure RegierungsdirektorFederal Ministry of Defence

Dr Norbert Kloppenburg Member until 26 April 2013

Member of the Board of Managing

Directors KfW Bankengruppe

Member until 26 April 2013

Staff representatives

Michael Schäfer Holger Müller

Deputy Chairman Air traffic controller

Flight data watch supervisor Member until 26 April 2013

Member until 26 April 2013

Petra Reinecke

Markus Siebers Air traffic controller

Deputy Chairman Member until 26 April 2013

Air traffic controller

Member from 26 April 2013 Peter Schaaf


Otto Fischer Chairman Central Staff Council

Director Corporate Development

Member until 26 April 2013 Andrea Wächter

Tower manager

Catja Gräber Member from 26 April 2013

Senior expert customer service

Member from 26 April 2013 Dirk Wendland

Systems engineer

Volker Möller


Member from 26 April 2013

139

In the business year, there were four scheduled ordinary meetings and two extraordinary meetings of the Supervisory Board.

Remuneration of the Supervisory Board

2013 2012

€'000 €'000

Otto Fischer 0.2 1.0

Catja Gräber 0.6 0.0

Dr Martina Hinricher 0.9 0.1

Dr Norbert Kloppenburg 0.3 1.0

Dr Angelika Kreppein 0.7 1.2

Dr Edeltraud Leibrock 0.3 0.0

Volker Möller 0.6 0.0

Holger Müller 0.2 0.6

Rainer Münz 0.0 0.8

Michael Odenwald 1.0 0.3

Hans-Dieter Poth 0.0 0.1

Ralf Raddatz 0.9 0.4

Petra Reinecke 0.3 1.3

Peter Schaaf 0.8 0.9

Michael Schäfer 0.4 1.4

Prof Klaus-Dieter Scheurle 0.0 0.7

Markus Siebers 1.4 0.0

Carmen von Bornstaedt-Radbruch 0.6 0.0

Martin Walber 0.1 1.1

Andrea Wächter 0.7 0.0

Dirk Wendland 0.6 0.9

10.6 11.8

The Articles of Association determine the level of remuneration of the Supervisory Board. The emoluments of the Supervi-

sory Board are comprised of fixed and variable components. The fee for meeting attendance is €80.00 and the daily allow-

ance amounts to €26.00 per meeting.

The members of the Supervisory Board received no advances, loans or remuneration from consultancy or service con-

tracts.

Notes 2013

140

43. Disclosures on the public corporate governance codeDFS is subject to the Public Corporate Governance Code of the Federation (PCGK). The Board of Managing Directors and

the Supervisory Board jointly issue a compliance statement each year and publish the corporate governance report on the

internet page of the company.

Responsibility statement

The Board of Managing Directors of DFS Deutsche Flugsicherung GmbH issues the following statement, pursuant to Article

37y No 1 of the Securities Trading Act (WpHG) in conjunction with Articles 297 paragraph 2 sentence 4, 315 paragraph 1

sentence 6 and 315a paragraph 1 of the German Commercial Code (HGB):

To the best of our knowledge, and in accordance with the applicable reporting principles, the group financial statements

give a true and fair view of the results and financial position of the group, and the group management report includes a

fair review of the development and performance of the business and the position of the group, together with a description

of the principal opportunities and risks associated with the expected development of the group.

Langen, 12 March 2014

Prof Klaus-Dieter Scheurle Robert Schickling Dr Michael Hann

Chairman and Managing Director Managing DirectorChief Executive Officer Operations Human Resources

We have audited the group financial statements of DFS Deutsche Flugsicherung GmbH (DFS) – consisting of the balance

sheet, statement of comprehensive income, statement of changes in equity, cash flow statement and notes to the group

financial statements – together with the group management report for the business year from 1 January to 31 December

2013. The preparation of the group financial statements and the group management report in accordance with the IFRS to

be applied within the EU and provisions to be additionally applied according to Art. 315a para. 1 of the German Commercial

Code (HGB) are the responsibility of the Company's management. Our responsibility is to express an opinion on the group

financial statements and on the group management report based on our audit.

We conducted our audit of the group financial statements in accordance with § 317 of the German Commercial Code (HGB)

and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaft-

sprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that

misstatements materially affecting the presentation of the net assets, financial position and results of operations in the group

financial statements in accordance with the applicable financial reporting framework and in the group management report

are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of

the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures.

The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the

group financial statements and the group management report are examined primarily on a test basis within the framework

of the audit. The audit includes assessing the annual financial statements of those entities included in the consolidation, the

determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant

estimates made by the Company's Board of Management, as well as evaluating the overall presentation of the group finan-

cial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the group financial statements comply with IFRS as adopted by the EU, the

additional requirements of German commercial law pursuant to section 315a paragraph 1 of the German Commercial Code

(HGB) and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance

with these requirements. The group management report is consistent with the group financial statements and as a whole

provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.

Cologne, 12 March 2014 RBS RoeverBroennerSusat GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Rudolph Susanne Schorse Auditor Auditor

Auditor's report

142

DFS Deutsche Flugsicherung GmbHDFS Deutsche Flugsicherung GmbH

Acronyms and abbreviations

AfA Official German Schedule for Deductions for Depreciation – Absetzung für AbnutzungAG Public Limited Company – AktiengesellschaftAIM Aeronautical Information ManagementAktG German Stock Corporation Law – AktiengesetzAS Aeronautical SolutionsATC Air Traffic ControlATCAS Air Traffic Control Automation SystemATFM Air Traffic Flow ManagementATM Air Traffic ManagementATS Air Traffic ServiceAUSTRO CONTROL Austro Control Österreichische Gesellschaft für Zivilluftfahrt mbH, Vienna, AustriaBAF Federal Supervisory Authority for Air Navigation Services – Bundesaufsichtsamt für FlugsicherungBDL German Aviation Association – Bundesverband der Deutschen LuftverkehrswirtschaftBFS Federal Administration of Air Navigation Services – Bundesanstalt für FlugsicherungBilReG German Accounting Law Reform Act – BilanzrechtsreformgesetzBILSODA BILSODA GmbH & Co. KGBMF Federal Ministry of Finance – Bundesministerium der FinanzenBMVBS Federal Ministry of Transport, Building and Urban Development – Bundesministerium für Verkehr, Bau und Stadtentwicklung (now BMVI)BMVg Federal Ministry of Defence – Bundesministerium der VerteidigungBMVI Federal Ministry of Transport and Digital Infrastructure – Bundesministerium für Verkehr und digitale InfrastrukturBMWi Federal Ministry for Economic Affairs and Energy – Bundesministerium für Wirtschaft und EnergieCMS Compliance Management SystemCOM CommunicationDLH Deutsche LufthansaDWD German Meteorological Service – Deutscher Wetterdienste.V. Registered Association – eingetragener VereinEANPG European Air Navigation Planning GroupEBIT Earnings before Interest and TaxesEBT Earnings before TaxesEoD Engineer on DutyESSP European Satellite Services ProviderETV Collective Agreement on the Grading System at DFS – EingruppierungstarifvertragEURIBOR Euro Interbank Offered RateEUROCONTROL European Organisation for the Safety of Air NavigationFABEC Functional Airspace Block Europe CentralFCS Flight Calibration Services GmbHFDP Flight Data ProcessingFDPS Flight Data Processing SystemFSAAKV German Ordinance on Terminal Charges of the Air Navigation Services – Flugsicherungs-An- und Abflug-KostenverordnungFSStrKV German Ordinance on Route Charges – Flugsicherungs-StreckenkostenverordnungG.S. General StaffGmbH Limited Liability Company – Gesellschaft mit beschränkter HaftungGoB German Principles of Proper Accounting – Grundsätze ordnungsmäßiger BuchführungGroupEAD GroupEAD Europe S.L., Madrid, SpainHGB German Commercial Code – HandelsgesetzbuchHGrG German Budgetary Principles Act – HaushaltsgrundsätzegesetzHRB German Commercial Register B – Handelsregister Abteilung BIAS International Accounting StandardsIASB International Accounting Standards BoardIATA International Air Transport AssociationIBS DFS International Business Services GmbH, Langen, GermanyICAO International Civil Aviation OrganisationiCAS iTEC Centre Automation System

143

ICS Internal Control SystemIFR Instrument Flight RulesIFRIC International Financial Reporting Interpretations CommitteeIFRS International Financial Reporting StandardsILV Internal Cost Allocation – Interne LeistungsverrechnungISIS-XM Improved Speech Integrated SystemISO International Organisation for StandardisationKARLDAP Karlsruhe Automatic Data Processing and Display SystemKfW Reconstruction Loan Corporation – Kreditanstalt für WiederaufbauKG Partnership – KommanditgesellschaftKTV Collective Agreement on Health and Long-Term Care Insurance at DFS – Kranken- und PflegeversicherungstarifvertragLASER Langen Replacement of the Voice Switching System – Langen Sprachvermittlung ErneuerungLBA Federal Aviation Office – Luftfahrt-BundesamtLuftfzgG German Law on Rights Regarding Aircraft – Gesetz über Rechte an FlugzeugenLuftVG German Aviation Act – LuftverkehrsgesetzLuftVStG German Air Transport Tax – LuftverkehrssteuergesetzMET MeteorologicalMode S Mode SelectMONIQUE Multiplexer Operated Network Interconnection for High Quality ExchangeMoT Ministry of Transport (in Germany: BMVI)MUAC Maastricht Upper Area Control CentreNATS National Air Traffic Services (UK)Nord/LB Norddeutsche LandesbankOAT Operational Air TrafficOCI Other Comprehensive IncomeP1/P2 Project 1/Project 2PCGK German Public Corporate Governance Code – Public-Corporate-Governance-KodexPSS Paperless Strip SystemQTE Qualified Technological EquipmentRADNET Radar Data NetworkRASUM Radio Site Upgrade and ModernisationRMC Risk Management CommitteeRMCDE Radar Message Conversion and Distribution EquipmentRMS Risk Management SystemRTC Remote Tower ControlS.A. Société AnonymeS.L. Sociedad LimitadaSAS Société par Actions SimplifiéeSDDS-NG Surveillance Data Distribution System – Next GenerationSES Single European SkySESAR Single European Sky ATM ResearchSJU SESAR Joint UndertakingSKYNAV S.A. SKYNAV Société Anonyme, Awans, Belgium TATS Tower Air Traffic Services S.L.TTC The Tower Company GmbHTVöD Collective Agreement for the Public Service – Tarifvertrag für den öffentlichen DienstÜVersTV Collective Agreement on Pensions and Transitional Payments at DFS – ÜbergangsversorgungstarifvertragVAFORIT Very Advanced Flight Data Processing Operational Requirements ImplementationVAG German Insurance Supervision Act – VersicherungsaufsichtsgesetzVaR Value at RiskVersTV Collective Agreement on Pensions at DFS – VersorgungstarifvertragVFR Visual Flight RulesVHF Very High FrequencyVOR VHF Omnidirectional Radio RangeWpHG German Securities Trading Act – Wertpapierhandelsgesetz

Acronyms and abbreviations


DFS Deut sche Flug si che rung GmbH

Corporate Communications

Am DFS-Cam pus 10

63225 Lan gen

Germany

Telephone +49 (0)6103 707-4111

Facsimile +49 (0)6103 707-4196

E-mail [email protected]

Inter net www.dfs.de

ISSN 1865-6420

Picture credits

Source: BMVI

60-2

290-

217

Documents

Annual Report 2013 - dfs.de · In the 2013 business year, the Supervisory Board ... the Supervisory Board from 26 April 2013, Dr Martina Hinricher, Dr Angelika Kreppein, Michael Odenwald