1. Turkish Airlines Risk Management 100962Serhat ÇEVRİM

2. Intoroduction and History  Turkish Airlines started in 1933, it has faced many problems. It began as a part of the Ministry of National Defense with only five aircrafts to its name. For a few years, it ran several domestic routes, never really intending to expand beyond that  It was nearly fourteen years later, in 1947, that Turkish Airways ran its first international route from Ankara to Istanbul to Athens flight. Those initial years were steady but unremarkable. It was in the 80s that trouble started for Turkish Airlines. Complains about customer service, delays in flights and several accidents severely besmirched the airline’s reputation.

3.  Beginning in 2009, THY has continuously been ranked as the best airline in Europe through 2011. It has also been designated the best airline in Southern Europe over the same three-year period. Additionally Turkish Airlines repeatedly appears in the top 10 group in other categories; cabin and seat quality as well as catering. By every measure, Turkish Airlines’ passengers continue to recognize it as one of the world’s best airlines.

4. Turkish Airlines Today  Turkish Airlines now has one of the largest fleets and also one of the youngest fleets in Europe. It actively operates 243 aircrafts and is expected to add eleven more to the number soon. The average fleet age is around 6.7 years, which is stunning for a fleet of this size. It is committed to maintaining that level of quality after having learned hard lessons in the past.

5. Turkish Airlines in Number  The carrier has a wide-spread network and flies to about 261 destinations in 108 different countries. 199 of these destinations are international and 42 domestic. This is considered to be one of the largest networks in the world with stunningly high frequency rates. The heavy investment and the decision to take loss and still continue to spend money paid off in a major way for Turkish Airlines.

6. Employee Number task Employee Number Flight Personnel 11203 Overseas Personnel 2759 Other personnel (domestic)5379 Total Personnel19341 GENDER Employee Number Female 9086 Male10255

7. Policies  Safety Policy  Quality Policy  Security Policy

8. Policies  Occupational Health and Safety Policy  Enviromental Policy  Customer Satiffaction Policy

9. Risk Management in Turkish Airlines  Airlines are doing everything to reduce costs.  Some of the risks stem from complex industry structure.  Necessary to reduce the risk.  Much of this risk, however, could be identified and managed.  Effective strategies, adopted by other sectors.  In general, the financial markets do not trust airlines.

10. Risk Management  The primary risk facing the industry four categories: 1.Hazard Risk 2.Strategic Risk 3.Operational Risk and 4.Financial Risk

11.  Hazard Risks are event safety, liability, war, cargo loses, political risk, terrorism, weather and workers compensation at the least.  Strategic and Financial Risks are much more prevalent.

12.  Strategic and Financial Risks are defined by business design choices  Challenges from a new form of competiton shifts in customer preferences and industry consolidation These challenges may be mitigated through traditional responses: creating a culture focused on the customer developing a rigorus strategic planning process or maintanining an independent board of directors.

13.  Operationals Risks arise from the more tactical aspects: crew scheduling accounting and information system e-commerce activities. Operationals Risks can be mitigated through organizational solutions: process redesign organizational structural changes improved communication performance measurement and reward system capital allocation and pricing

14.  Important Financial Risks of the THY are; Currency Risk Interest Rate Risk and Liquidity Risk  Financial risks related to the changes in the exchange rate and interest rate due to its operations

15.  Foreign Currency Risk Management: THY’s income is diversified among the major currencies. Due to its currency basket THY is very flexible on position. USD income is lower than USD expenses. THY is able to cover its USD expenses from EURO income. Same concept on USD/EURO is applicable to cover Turkish Lira expenses.

16.  Credit Risk Management THY’s credit risk is basically related to its receivables. THY’s credit risk is dispersed and there is not important credit risk concentration. THY manages the risk through obtaining quarentees for its receviables.  Liquidity Risk Management THY manages liquidity risk by maintaning adequate reserves, banking facilities and reserve borrowing facilities.  Capital Risk Management The top management of the THY assesses the cost of capital and the risks associated with each class of capital. The group provides the optimization of the capital diversification through obtaining new debts, repayment of the existing debts and/or capital increase.

17. Interest Rate Risk Management  THY’s liabilities are on fixed and variable interest rates.  When the existing debts are being considered it is seen that the variable interests compose the majority.  THY’s debts with variable interest rate are dependent to Libor and Euribor, dependency to local risks is low.  THY signed interest swap contracts in order to change its financial leasing debts from fixed interest rate to floating interest rate.  THY signed exchange contracts in order to change financial leasing debts from Euro to US dollar.

18. Risk Management  Risk management is an ongoing process, not a one-time event.  If economy is a chain and every sector is its ring, every sector has to keep its ring strong.  Over the long-term, the only alternative to risk management is crisis management.

19.  Counterparty Risk Management Counterparty risk: The potential for losses if a domestic or foreign financial institution or its counterparties default on deposit, derivative, or other transactions. Reduced through financial institutions, swaps. Credit Ratings: The credit rating is a financial indicator to potential investors of debt securities such as bonds

20.  Credit Rating Turkish Airlines Corporate Credit Ratings With these ratings, Turkish Airlines achieved the second highest rating among the global network carriers in the industry that have been rated by both Moody's and S&P.

21. Counterparty Risk Management  No dealings with companies below credit rating limit  Limits on companies above limit according to risk level  Credit Default Swap Spread (higher premium for riskier securities)  ISDA (International Swaps and Derivatives Association)  ISDA is an association created by the private negotiated derivatives market that represents participating parties. This association helps to improve the private negotiated derivatives market by identifying and reducing risks in the market.  ISDA works in three key areas – reducing counterparty credit risk, increasing transparency, and improving the industry’s operational infrastructure

22. International Swaps and Derivatives Association  ISDA created a standardized contract (the ISDA Master Agreement) to enter into derivatives transactions  The ISDA Master Agreement is a document that outlines the terms applied to a derivatives transaction between two parties. Once the two parties agree to the standard terms, they do not have to renegotiate each time a new transaction is entered into.

23. International Swaps and Derivatives Association  It provides both parties with clear definitions of all contract terms, and because it can take a long period of time to negotiate, both parties are likely to be very familiar with its material. Using a master agreement keeps the two parties from having to enter into new rounds of negotiations for future transactions, which saves time and legal fees. The ISDA Master Agreement also makes close-out and netting easier, as it bridges the gap between various standards used in different jurisdictions.

24. International Swaps and Derivatives Association  The Master Agreement permits the netting of payments due under the same transaction so that only a single amount is exchanged between the parties, rather than numerous payments involving the same transactions. Most counterparties also agree to net all amounts due on a single day regardless of whether amounts are due under a single or multiple transactions.

25. International Swaps and Derivatives Association  Close-out netting: In the counterparty bankruptcy or any other relevant event of default specified in the relevant agreement, all transactions or all of a given type are netted (i.e. set off against each other) at market value or, if otherwise specified in the contract or if it is not possible to obtain a market value, at an amount equal to the loss suffered by the non-defaulting party in replacing the relevant contract. The alternative would allow the liquidator to choose which contracts to enforce and which not to (and thus potentially "cherry pick"). There are international jurisdictions where the enforceability of netting in bankruptcy has not been legally tested.

26. Credit Support Annex  A credit support annex provides credit protection by setting forth the rules governing the mutual posting of collateral. CSAs are used in documenting collateral arrangements between two parties that trade privately negotiated derivative securities. The trade is documented under a standard contract called a master agreement, developed by the ISDA. The two parties must sign the ISDA master agreement and execute a credit support annex before they trade derivatives with each other.

27. Credit Support Annex  Party which is 'out-of-the-money' to posts collateral (usually cash, government securities or highly rated bonds) corresponding to the amount which would be payable by that party were all the outstanding Transactions under the relevant ISDA Master Agreement terminated. Collateral other than cash is usually discounted for risk

28. Subsidiaries  SunExpress  Founded in 1989, SunExpress is a joint venture of Turkish Airlines and Lufthansa, in which each holds a 50% stake. It is the market leader in charter flights between Germany and Turkey with 1,695 employees.  THY Turkish Technic  Turkish Technic offers maintenance, repair and technical support to Turkish Airlines, as well as to more than 100 domestic and international airlines. Established in 2006, the company is a wholly-owned subsidiary of Turkish Airlines.  Over 2,000 employees

29. Subsidiaries  Goodrich Turkish Airlines Technical Service Center  Turkish Cabin Interior Systems Industries Inc.  Aircraft Seat Manufacturing Industry & Trade Inc.  HABOM Aviation Maintenance, Repair and Modification Center  TURKBINE Technical Gas Turbines Maintenance & Repair Inc.  THY Aydın Çıldır Airport Management Inc.