Financial Review

2013 Annual Report and Accounts - Highlights

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The financial year ended 31 March 2013 continued to be a challenging environment for the CAA from a financial perspective, with the suppressed global economic climate continuing to put pressure on income, which is heavily reliant on levels of activity in the aviation sector. The primary income driver in respect of variable charges to industry, is available seat kilometres; these fell by 3.1% in the year to 31 December 2012. Despite these pressures, the CAA achieved a rate of return of 5.5% for the Regulatory Sector which was marginally below the 6% target rate of return set by the Secretary of State for Transport.

This result was achieved by the CAA continuing to implement cost saving measures and generating income from its commercial subsidiary, CAA International Limited (CAAi).

Cost saving measures were focused on employment costs which represent approximately 60% of our total costs. During 2012/13, we moved to a performance-based total reward approach for our staff that will enable us to recognise and reward high performance. A benchmarking exercise informed our approach by enabling us to test our relative market position on pay and benefits. In addition, a number of proposals have been adopted to limit our liability to increasing pension costs, these included closing the Defined Benefit Pension Scheme to new entrants and limiting further increases in pensionable earnings to movements in price inflation. The effects of these changes combined with an overall zero based budget approach to the CAA financial plan has meant that for 2013/14 charges in the majority of cases were held or reduced as compared to 2012/13.

The CAA is directed by the DfT to prepare the financial statements in accordance with the accounting and disclosure requirements of companies’ legislation currently in force and international generally accepted accounting practice. However, the financial results of the Group are assessed by reference to financial targets agreed with the Secretary of State for Transport. The Group Regulatory Sector target requires the CAA to set its unit charges at levels sufficient to achieve a return of 6% before interest on the average level of capital employed, expressed in current cost terms. Although the CAA is required to comply with International Accounting Standard (IAS) 19 ‘Employee Benefits’ in accounting for pension costs in its financial statements the regulatory target is based upon the level of employer cash contributions paid to the CAA Pension Scheme during the financial year, rather than pension costs evaluated under IAS 19.

The CAA section of the Civil Aviation Authority Pension Scheme is currently awaiting the outcome of the formal valuation undertaken at 31 December 2012, the results of which are expected later in the year. The latest formal valuation of the CAA Section of the Civil Aviation Authority Pension Scheme at 31 December 2009 was approved by the Scheme’s Trustees on 31 March 2011. The valuation revealed an ongoing surplus of £99.7m on the technical provisions agreed with the Scheme Actuary, whereas under IAS 19 the accounts show a pension asset of £554.0m (note 18). The methodology underlying the actuarial valuation complies with pensions law and the requirements of the Pensions Regulator, and differs from that used for IAS 19 disclosures, particularly in relation to the financial assumptions used. Whilst the discount rate used for IAS 19 disclosures should be based on the yield of at least AA-rated corporate bonds, irrespective of the risk profile and funding strategy actually adopted, the discount rates used for the 2009 formal valuation were largely based on Government bond (gilt) yields (which, as at 31 December 2009, were about 1.2% pa lower than corporate bond yields). This reflects the investment strategy of the Scheme where the majority of the assets (about 84% as at 31 December 2009 and, currently, about 82%) are invested in gilts as part of a strategy to match, so far as possible, the Scheme’s pension liabilities by the cash flows from a portfolio of index-linked gilts. In addition, the formal valuation has a more prudent basis than IAS 19 disclosures and this is allowed for by means of further adjustments to the discount rate and the inclusion of reserves for contingent events, including further improvements in longevity.

The wholly owned subsidiary company, CAA International Limited, delivered an expanded programme of global advisory services and training, supporting industry and the Government both in the UK and overseas. The company had another successful year, achieving a turnover of £17.1m (2012: £15.4m), an annual increase of 11.0%, despite the difficult trading conditions created by the global economy. The company’s operating result saw an increased profit after tax of £2.3m (2012: £1.3m) which principally reflects the increase in income and continued downward drive on operating costs during the year. The company employed an average of 41 staff during the financial year with a further 39 being supplied from other areas within the Group.

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The CAA Annual Report and Accounts for 2013 can be downloaded using the links shown below.

Introductions

Chair's Report  
CEO's Report

Themes

Enhancing Aviation Safety 
Choice and Value for Consumers
Improving Environmental Performance
Being a Better Regulator 
Being a more Efficient Organisation 

Financial Reports

Financial Statements 

Full Report and Accounts

Download the CAA Annual Report and Accounts for 2013