1SAP Best Practice Workshop Barcelona 5.2.2010

The world was flooded with Money from the german war payments all financed by US Loans without any real substance behind. The same time the USA consumers built their lives on credit. Experts wrote books explaining why recession was made impossible by modern financial science.

Winston Churchill Minister of Exchequer 1925 – 27 about the cause of the great Depression

A Crisis and a Cause

SAP CFO Moskau 5/2012

2SAP Best Practice Workshop Barcelona 5.2.2010

Extreme Amounts of Liquidity due to huge credits. This credits became possible due to mathematical constructs which made risk disappear.The very foundations of these constructs where wrong and everybody involved knew that.These constructs show chaotic behavior under certain (actual) circumstances. Thus it became impossible to calculate their real value.The Reason for the crisis is a Riskmanagement which tried to eliminate risk

A different Krisis and a Cause

SAP CFO Moskau 5/2012

3SAP Best Practice Workshop Barcelona 5.2.2010

Eine andere Krise und ihre Ursache

Normal Distribution was used zu describe riskprofiles that were not caused by stochastik events.(neglecting the Thick Tails)

Coupling between the Risks was neglected

Mathematicmanageable

SAP CFO Moskau 5/2012

4SAP Best Practice Workshop Barcelona 5.2.2010

CEEVienna

Middle East

• 2 Billion Turnover• 6000 MA• 100% Lufthansa Daughter

• Connects East EU, CEE and Middle East with West EU and Long Range

• High Frequencies• Very short Connecting times

In Short:• Uses geopolitical Advantages of Vienna

SAP CFO Moskau 5/2012

5SAP Best Practice Workshop Barcelona 5.2.2010

CEEVienna

Middle East

Austrian Airlines Risk ManagementTil 2006 Riskomanagement Classic

Documentation of risks and how to avoid them Since 11/2006 Riskmanagement New

Quantification of Opportunities and the Risks attached

Since 08 - 10 Department Risk and Opportunities ManagementBetter decision making (1 year range)

Since 2010 Risk Quantification used as a standard method of Controlling ( 1 year range)

From 2012 Broadband Planning (5 year range)

SAP CFO Moskau 5/2012

6SAP Best Practice Workshop Barcelona 5.2.2010

• Classic methods to obtain and bolster strategical und tatical plans reduce the world to the most assured case.

• ROI• Long Term Plan• Budget• Projectbudget

• The most assured case is always at risk.• Result: Gut feeling makes the decision.

What is Riskmanagement?

Riskmanagement makes gut -feeling transparent

SAP CFO Moskau 5/2012

7SAP Best Practice Workshop Barcelona 5.2.2010

Opportunity and Risk Management Key Words

• Managing risks enhances AUSTRIAN´s opportunities

• We moderate risk evaluation and quantification

• We make gut feeling transparent and comparable

• There is no such thing as a non-quantitative Chance (albeit you may need a lot of work)

SAP CFO Moskau 5/2012

8SAP Best Practice Workshop Barcelona 5.2.2010

Direct quantification of thick tails defeats gut-feelings

SAP CFO Moskau 5/2012

9SAP Best Practice Workshop Barcelona 5.2.2010

Add the Thick Tails with Monte Carlo

Customer loss worlwide 15%EW 5% once in 20 years

Customer loss worldwide 5%EW 20% once in 5 years

SAP CFO Moskau 5/2012

10SAP Best Practice Workshop Barcelona 5.2.2010

50% Percentile vs Financial Forcast

Controlling Forcast end of Q1: -8mio€

Risk 50% Percentile -16mio€

SAP CFO Moskau 5/2012

11SAP Best Practice Workshop Barcelona 5.2.2010

Shift of the most likely case Thick tails are not the only consequence

50% shift

SAP CFO Moskau 5/2012

12SAP Best Practice Workshop Barcelona 5.2.2010

Decouple first – then compare

Risk 50% Percentile -9mio€Risk 50% Percentile -16mio€

Controlling Forcast end of Q1: -8mio€

SAP CFO Moskau 5/2012

13SAP Best Practice Workshop Barcelona 5.2.2010

Risikcoupling Price of crude with economy

Many risk minimising strategies have a big inherent downside Risk

SAP CFO Moskau 5/2012

14SAP Best Practice Workshop Barcelona 5.2.2010

AF Crude Hedging with Collar

2007 2008

Brent USD

AF acts as insurer. They sell Put Options for 400mio€, thus financing the call option

AF is covered against rise of crude with a call option worth 400mio€

SAP CFO Moskau 5/2012

15SAP Best Practice Workshop Barcelona 5.2.2010

Coupling 9/11 or 1973 with price for crude

SAP CFO Moskau 5/2012

16SAP Best Practice Workshop Barcelona 5.2.2010

Insuring the results of a company is a paradox

• No positiv results due to extrem costs for insurance, or in exchange a new and possible letal risk.

• Only live insurance makes sense.

• The actual survival of a company does not depend on revenue - it depends on liquidity.

SAP CFO Moskau 5/2012