Viva Aerobus seeks to reduce its exposure to certain financial risks, mainly volatility in jet fuel price, exchange rate and interest rate through a risk management program that includes the use of derivative financial instruments. The Company carries out derivative transactions with the sole purpose of hedging the financial risks related to our operations.
Viva Aerobus’ hedging policies are stablished by the Audit Committee. Our hedging policy provides the following general parameters regarding the coverage transactions:
To manage the risk of jet fuel prices, we use the consumption of jet fuel and hedging policies with a predominantly operative component and minimum financial component. The minimum financial component is designed to cover the committed risks associated with the tickets already sold and consists of using standard call options to mitigate the risk in cash flows attributable to fluctuations in jet fuel prices.
To mitigate foreign exchange risk, we mainly depend on our operational flexibility to adjust flight schedules, capacity and fares as appropriate. Additionally, we convert surplus cash from our operations into US dollars. We do not expect to execute FX derivative transactions in the future and there are no material liquidity risks associated to our hedging process.
Historically, we have had adequate levels of liquidity to comply with our obligations, cover the overall cost of debt servicing and carry our capital expenditures (CAPEX) and acquisitions. We do not believe that there is any material liquidity risk associated with our hedging process.
We monitor the fair value of our portfolio of derivative financial instruments on a regular basis. The fair value represents the price at which one of the parties would assume the rights and obligations of the other and is calculated for derivative financial instruments through models commonly used in international financial markets, based on inputs obtained from the main information systems of the market and quote providers.
We measure the fair value of derivative instruments based on quoted market prices or valuation models that use market inputs.
Viva Aerobus have internal control policies and procedures designed to provide reasonable assurance on the execution of our transactions and other aspects related to our operations, as well as their recording and disclosure in compliance with the guidelines established by our management based on IFRS; applied in accordance with the interpretive guidance available. Additionally, our operating processes are subject to periodic internal audits that are reviewed by our Audit Committee.