Note .2Modification in the conversion method for provisions in foreign currencie

Question

Note .2Modification in the conversion method for provisions in foreign currencies The Group records provisions for maintenance and restitution of aircraft under operating leases. A significant portion of these provisions is made to cover the purchase of spare parts that will be paid for in US dollars whatever the functional currency of the entity. To facilitate analysis of the impacts linked to the dollar variation, the Group decided, as from January 1, 2015, to isolate the foreign currency effects on provisions in "Other financial income and expenses" whereas these effects had previously been recorded in "Amortization, depreciation and provisions". Furthermore, the closing rate will be used to convert provisions at the closing date. Previously, the Group used the average rate of the US dollar to convert the maintenance provisions. The consolidated financial statements as of December 31, 2014 have been restated to facilitate comparison.

The impacts of this restatement on the income statement are the following: (in € millions) December 31, 2014

Other financial income and expenses (41)

Income before tax (41)

Income taxes 14

Net income for the period (27)

1 Refer to AF's disclosure nore, in particular note 2: Restatement of accounts. For the 3 changes on acconting principle reported in the note, does AF account for the changes prospectevely or retrospectively? Is this the same approach AF would follow it using U.S GAAP?

Explanation / Answer

The change in accounting principle is being implemented retrospectively. The date of change in policy is Jan 1, 2015, however the financials for the year ending Dec 31, 2014 have been restated as well.

Under US GAAP - all assets and liabilities are stated at closing rate. Any provision made for purchase of spare parts will be reported at the closing rate. Any gains / losses arising from the transactions are recognized in income. So the new policies framed by AF are applicable under US GAAP as well.

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