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Home Governance Report of the Supervisory Board A. Supervision

A. Supervision

The Supervisory Board can look back on a dynamic and exciting 2013, a year in which Schiphol's socio-economic function once again took centre stage. It was a year of investment: investment in relationships and in the Mainport. In this report, the Supervisory Board explains how it exercised its supervision and supported the Management Board in an advisory role. The report also examines the major issues that attracted the Board’s involvement this year.

Strategy and environs

Amsterdam Airport Schiphol operates in a challenging environment, while the strategic context remains of utmost importance to the airport. First and foremost, the continuing economic crisis has been a new reality for the aviation sector since 2008, with one of the visible effects at Schiphol being low consumer confidence. On top of this, airlines are facing difficult conditions. Several of them were forced to make large-scale cutbacks.

At the same time, the aviation sector is a growth market. It is therefore essential for Schiphol Group to make long-term investments. While this may appear at times to be at odds with short-term circumstances, such as the economic crisis, Schiphol Group takes a long-term view of its responsibility. For this reason, 2013 saw a lot of hard work on the development of non-Schengen Central Security. This project was dictated in part by the increasingly strict European regulations in relation to security. The Supervisory Board also discussed the progress of the Master Plan, including the development of the area of Pier A. Part of the reason behind these investments was to ensure sufficient investment in quality improvements for passengers and to increase capacity with a view to facilitating the growth in passenger numbers and larger aircraft. The investments were based on the expected growth in aviation, on changes in legislation and on the current infrastructural constraints. By adopting an anticipatory investment strategy, Schiphol Group aims to be and remain Europe’s Preferred Airport for its passengers, both now and in the future.

A third important factor for Schiphol is its relationship with airlines. Naturally the financial interests of the airlines are an important factor in the planning process. One of Schiphol Group's key goals is to develop a competitive market place, for both the airport and the Schiphol region. Rising competition from airports in the Middle East and Turkey was also a concern in 2013, and poses a growing threat to Schiphol's future success. The changing world is visible across the sector, with new airlines altering the playing field. Not only is competition from low-cost airlines increasing, but airlines from the Middle East are increasingly expanding their operations in Europe and with larger and larger aircraft. In 2013, Schiphol drew up a document titled 'Essential Elements of the Mainport', the aim of which was to clearly set out the airport's view of network quality and the importance of its Mainport status.

Finally, the creation of sustainability is a key strategic factor. On the one hand, this means conducting business with respect for people, the community and the environment. Schiphol does this by creating sustainable value for its customers and stakeholders, always with a careful balance between people, planet and profit. Another aspect of achieving long-term sustainability centres on Schiphol Group's international strategy. Schiphol focused on foreign investment in several areas in 2013. In this year the collaboration with Aéroports de Paris was reviewed as successul, and Schiphol worked with Aéroports de Paris and two Brazilian partners to submit a bid for an interest in Galeão International Airport in Rio de Janeiro. The Supervisory Board was closely involved in the preparation of the bid, and regrets that the consortium was not successful. A participating interest in an airport in a growing economy with a rapidly growing middle class would be an excellent way to strengthen the long-term position of the Mainport.

The Supervisory Board concludes that Schiphol's current strategy in this arena is being fully implemented. The Supervisory Board supports the Management Board in the forward-looking positioning of Amsterdam Airport Schiphol. The Supervisory Board will explain the specific developments in 2013 in further detail below.

Principal developments in 2013

In 2012 and 2013, the Shared Vision Commission, chaired by Mr Alders, conducted research into, and produced reports on, various subjects that affect the mainport. These subjects were selectivity policy, the fees that Schiphol charges the airlines, the evaluation of the Aviation Act, as well as competition and Schiphol's plans to expand. Commission members included representatives of the government, KLM and Schiphol. Mr Hazewinkel, Supervisory Board member at Schiphol, represented Schiphol in the commission. The Shared Vision Commission presented its final report to the three commissioning ministries (the ministry of Infrastructure and the Environment, the ministry of Finance and the ministry of Economic Affairs) in May 2013. The Supervisory Board has spoken during various meetings about the developments concerning the Shared Vision Commission and is of the opinion that this commission has ensured a constructive dialogue between the government, KLM and other stakeholders. The Supervisory Board is also pleased that the discussions have led to the basic principles underlying the new Aviation Act. The ministry of Infrastructure and the Environment and the ministry of Economic Affairs reported their findings in this area to the Lower House in a letter of 5 June 2013. As part of the discussions with the Shared Vision Committee about the public role that Schiphol fulfils, a sentence was added to the objects clause in Schiphol's Articles of Association in 2013 confirming that part of the company's object is to ‘contribute to and facilitate the continuity, quality and network development of Amsterdam Airport Schiphol as a key component of the Dutch economy’.

The subject of the Shared Vision Commission's activities is closely related to competition legislation. In July the Dutch Authority for Consumers and Markets (ACM) started an investigation related to the Shared Vision Committee and the relationship with KLM.

In addition to the evaluation of the Aviation Act, the Supervisory Board devoted a great deal of attention to cost control and to the efficient construction and management of Schiphol's infrastructure, as well as to total cost of ownership in 2013. The Supervisory Board believes that these issues play an essential role in maintaining the airport's competitive position. The Supervisory Board is pleased that the Management Board will also place a strong focus on these areas in 2014, also in view of the large number of prospective investments. Schiphol achieved excellent operational results in 2013, together with KLM, other airlines and industry partners. In their role as service assistants, Schiphol office staff once again supported the employees working in the airport terminal. The Supervisory Board is proud of these employees and of the employees who, alongside their usual responsibilities, kept the landing runways free from snow and ice in the cold winter months at the start of 2013.

Other subjects
  • The Supervisory Board discussed and approved the five-year Investment Finance Plan 2014-2018, in August 2013. The three-year Tactical Plan 2014-2016, which includes the 2014 budget and the corresponding Funding Plan, was discussed and approved in December. Amongst other things, the budget contained a sensitivity analysis for a number of uncertainties such as passenger numbers and property development.
  • Strategic days were held in April and October, during which the Supervisory Board and the Management Board discussed Schiphol Group in a broader context as well as the group’s long-term developments. Amongst other things there was a discussion of external market developments in the aviation sector, the Supervisory Board sought advice on developments in European legislation regarding Liquids, Aerosols & Gels, and Schiphol's cargo strategy was addressed. Both meetings also looked at Schiphol's international strategy, particularly with regard to a potential investment in Brazil.
  • The minister of Finance published a new Participations Policy memorandum in October 2013. This memorandum was discussed by the Supervisory Board, particularly in relation to governance.
  • The Supervisory Board also discussed, through its Audit Committee, Schiphol Group’s internal and external risk management systems as well as the major risks that face Schiphol Group. The Supervisory Board endorses and supports the internal risk management system (as described in the Risk Management section of this report). The Supervisory Board also focused on risk management in October. The risk appetite in relation to issues such as foreign activities was discussed, and the potential concurrence and accumulation of various risks was examined along with Schiphol's ability to cope with risks should they materialise. The Management Board and Supervisory Board concluded that the risks posed by rising competition from the Middle East and Turkey have increased. It is the general view of the Supervisory Board that the residual risks remaining after management measures have increased in the last few years. The Supervisory Board concludes that the Management Board has operated within Schiphol's risk appetite.
  • Corporate Responsibility is a core aspect of Schiphol’s strategy. It therefore follows that Corporate Responsibility was a key point on the Supervisory Board's agenda in 2013. The Supervisory Board is highly positive about the progress that Schiphol is making in relation to CR, both in terms of strategic issues and awareness within the organisation. With regard to noise and the local community, the Supervisory Board has sought advice on the New Standards and Enforcement System.
  • The Supervisory Board had several meetings with the Management Board regarding the relationship with the various Schiphol Group shareholders. Topics addressed included matters relating to the Shared Vision Commission, the evaluation of the Aviation Act, required returns, policy on airport charges, remuneration policy and the appointment of new, and re-appointment of current, members of the Management Board.
  • The external auditor's Management Letter was discussed with the Audit Committee and the Supervisory Board in December 2013. The quality of the internal control system with respect to financial reporting was deemed to be adequate. Specific financial and non-financial (e.g. in the field of Corporate Responsibility) recommendations were made on certain subjects, which Schiphol Group has followed up (or will follow up).
  • The Supervisory Board nominated a new external auditor in December 2013 as required by new legislation concerning the compulsory rotation of audit firms. The General Meeting of Shareholders ratified the appointment of this new auditor in early 2014.
  • In addition to the presentations made by the Management Board, the Supervisory Board also received advice from third parties, for instance with regard to a potential investment in Brazil. The Supervisory Board also held discussions on a variety of subjects with key figures outside of the official meetings.

Financial reporting

Each month, the Supervisory Board received reports from the Management Board that compared actual results with the 2013 budget, estimates for 2013 and the figures for 2012. These reports were also discussed during joint meetings of both Boards. Subjects discussed included the development of the company’s operating and commercial results and costs, the development of the traffic and transport figures and its impact on the budget, the development of profitability, and the funding and liquidity position.

In view of the challenging economic conditions, the Supervisory Board has looked closely at the effect that the developments in the results, the balance sheet ratios and the financial position have had on the company’s creditworthiness. The Supervisory Board is pleased to note that in 2013 we were again able to retain the credit rating awarded by Moody’s, and that Standard & Poor’s rating was increased to A+. In 2013, the Funding Plan formed the basis for formulating measures to guarantee the financing both now and in the future.

The decision-making process with regard to a bid for Galeão International Airport took into account the dual role of Mr De Romanet de Beaune, who was both a Supervisory Board member at Schiphol and president and CEO of Aéroports de Paris. There were no other transactions during the year involving conflicts of interest on the part of Management Board members, Supervisory Board members, shareholders and/or the external auditor that were of material significance to the company and/or the relevant Management Board members, Supervisory Board members, shareholders and/or external accountant.

Central Works Council (COR)

The topics discussed by the Supervisory Board, the Management Board and the Central Works Council (COR) in 2013 included issues relating to the Shared Vision Commission, the evaluation of the Aviation Act and the long-term investment plan. Members of the Supervisory Board attended two of the five consultative meetings between the management and the COR. Various discussions also took place between the COR and the Supervisory Board member/confidential advisor. The members of the Supervisory Board experienced all of these meetings as constructive and informative. Ms Maas-de Brouwer acted as Supervisory Board member/confidential advisor until standing down in December 2013. Mr Cremers took over this role, and conducted various discussions with the COR in this capacity in 2013.