Over €5bn in compensations are not disclosed on major European airlines’ financial reports. Every year, with the end of the financial year approaching, airlines, just like all business, are consolidating their financial reports. They are very eager to report their operational profits. However, those numbers aren’t always exactly completely telling the truth.

It seems that if the airlines can get away with leaving compensations out of sight, they will do it. We have become aware that auditors do not take these considerations into account when signing off on the financial reports. Therefore, we at Skycop strongly encourage the auditors to act – they should be the utmost authority in control and make sure that airlines disclose and reveal those omitted compensations on their balance sheets.

When it comes to reporting, outstanding claims should be added to the liability side of the balance sheet and assigned as reserves. However, financial reports do not show that. These claims can have a great impact on net profits if such reserves are not created. That way, investors are put at serious risk: this ambiguous financial information does not paint the whole picture, and thus it makes it harder to make an accurate judgement of the company’s financial situation.

“The aggregate of compensations has a significant meaning to financial reporting and must be revealed separately, as accruals. Unfortunately, that will have a significant impact on net profit results, but it might help to identify and mitigate risks, plan cash flows and assist in actionable decisions to prevent the catastrophic collapses such as Monarch and Alitalia in 2017 or Primera, Cobalt and Small Planet Airlines in 2018. ” – commented Jurgis Petrosius, co-founder of Skycop.

The time has come for airlines to start paying attention to disrupted flight claims, as well as for auditors to improve financial reporting standards and requirements for airlines’ accounts. They cannot keep hiding the skeleton in the closet – investors and shareholders must be provided with transparent financial information.

For more information please check here: https://www.slideshare.net/JurgisPetrosius/skycop-5bn-compensation-not-disclosed-on-accounts