Risk Management Framework

The SEA Group pays great attention to the proper management of risks associated with the performance of its business activities. For this purpose processes and procedures are in place to monitor and mitigate potential risks, ensure airport safety and the quality of offered services, protecting the property, plant and equipment and intangible assets in the interests of the stakeholders and ensure long-term creation of value.

The SEA Group stated an Enterprise Risk Management (ERM) programme in 2016 to provide more support and integrate existing systems. It is aimed at building a model to uniformly and thoroughly identify, classify, measure and assess the risks correlated with the performance of the company's business, as well as to continuously monitor the same, to back management's strategic choices and decisions and provide assurance for reference stakeholders. Thus a SEA risk model was established and an initial risk assessment conducted which involved management and which was completed with the identification and assessment of the main company risks and of the existing risk management systems.

The next phases of the project will involve definition of the ERM framework through representation of the company's Risk Appetite compared to the identified risks, definition of rules, instruments and procedures for risk measurement, control, monitoring and reporting. 

SEA Group risk factors

The risks the SEA Group is exposed to fall into four macro categories: external context risks, operating and business risks, financial risks, legal and compliance risks.


External context risks

The SEA Group conducts its airport management activities under a regulated regime; however, the Group’s financial results are largely influenced by socio-political, macroeconomic and competitive events occurring on a global scale. 

The main strategic risks that may have a significant impact on the performance of the SEA Group are illustrated below. 

Evolution of air traffic

The performance of the airport sector is highly influenced by the growth in overall air traffic, in turn linked to various factors including the economy. The trend in world, European and national GDP, oil price forecasts, any shocks arising from unforeseen events may significantly affect air traffic and thus the profitability of the Group.

Within this framework, the United Kingdom's departure from Europe (Brexit) is very relevant which, if structured in the so-called Hard Brexit model, will result in a redistribution of the routes between the Group's airports which could on the whole be damaging based on the reduction of UK traffic demand and limitations of English airlines on all EU routes and EC airlines on the UK-Milan route.

Moreover, in a regulated tariff context such as air traffic where the SEA Group works, any decreases in traffic may not be compensated by a change in tariffs. 

Airline strategies

As for the other airport operators, the future development of activities depends significantly on the strategic choices of airlines, which are dependent also on the global economic-financial performance. In recent years a significant shift has also taken place in demand, generated by the increased presence of low cost airlines with a consequent increase in terminal competition, allowing the development of decentralised and smaller airports.

The volume of passenger traffic and cargo in transit at the Linate and Malpensa airports represents a key factor in the results achieved by the Group. Any decrease or reduction of flights by one or more airlines, operating at the airports managed by the SEA Group, could result in a decrease in this traffic with consequent negative effect on the Group's business and economic results.

In this context, the announced restructuring plan of Alitalia could cause a reduction of flights at the airports where the Group works.

Nevertheless SEA believes that it is able to offset the risk of a reduction or interruption in flights, through the redistribution of passenger traffic between airlines operating on the market and the capacity to attract new airlines. Any redistribution of traffic may require a certain period of time, temporarily influencing the Group’s traffic performance.

Evolution of the regulatory and legal framework

SEA Group activities, as is the case for all Italian Airport Managers, are subject to a high level of regulation which impacts in particular the allocation of slots, the control of air traffic and the establishment of fees concerning the services provided (airport fees, security control fees, fees for the use of common use assets and centralised infrastructure for handling services). Any change in the regulatory framework could impact the Group's results.


The strategic choices of other operators which are an alternative to air transport, if not consistently coordinated within a broader vision of connectivity, may pose a threat to the development of domestic traffic at Milan airports.

Specifically, the technological development of high speed and alternative railway transport, has made it possible to reduce travel times from Milan to Rome and Naples and made it easier to reach even farther destinations. The increase in the frequency of high speed trains along these routes could result in a reduction of air traffic from Linate airport.

Operating and business risks

The operating risk factors are strictly related to the carrying out of airport activities and may impact the short and long-term performances. 

Safety & security

The occurrence of accidents would have consequent impacts on group activity and may also impact passengers, local residents and employees.

In order to monitor, mitigate and identify response plans in case of emergencies, the Safety Management System continued its activities, consolidating and improving the results obtained in previous years. The guideline principles of the SEA airport Safety policy have remained unaltered in their consistency and suitability:

  • guarantee design and construction conformity and maintenance of flight infrastructure and plant and equipment satisfying the highest sector standards;
  • ensure a review of operating processes to achieve the highest compliance possible with national and international regulations concerning Safety;
  • monitor the maintenance of safety standards for all operators and external parties of any type within the airport sites;
  • guarantee ongoing and appropriate training of personnel, with priority for operational staff, placing particular focus on the requirements and the consequent actions for an improved level of Safety;
  • guarantee education and communication, so that all events which may affect Safety are flagged through the filling out of a Ground Safety Report.

To mitigate impacts that such events could have if they occur, the SEA Group possesses adequate insurance coverage.

Ground Safety Report

As in previous years, in 2016 the safety events highlighted during the year were appraised and classified, based on the rules defined and communicated also with other operators at the periodic meetings of the Safety Committee.

A new reporting system has been consolidated, which provides that these reports are sent online, via a dedicated link. The new mode is in addition to the traditional printed reports mode, which continues to be valid. 

Emergency simulations

During the year, emergency air crash exercises were carried out both at Linate and Malpensa. The feedback received highlights an overall positive assessment in terms of the reaching of the prefixed objectives, both with regard to compliance with the procedures and in relation to the communication aspects. A group of emergency psychologists from the SIPEM association was set up for 2016 as in past years. In accordance with the ENAC GEN 05 circular letter, the establishment of contact teams intervening in the uninjured survivor and family area was tested during drills.

Airport Certification

  • Auditing activities: for the first six months auditing activities followed the plan required for the previous ENAC certification. The second half of the year was dedicated to testing and implementation of the indications of the new European regulation with deadline move up one year for EASA conversion, scheduled for December 2017.
  • EU “EASA” Regulation No. 139 – New airport certification (EASA): the Airport Certificate conversion activities were completed for both airports managed by SEA. Airport manuals were prepared according to ENAC instructions and they were approved by ENAC. In order to convert the Airport Certificates and to align the two airports to the indications of the new EASA regulation, 16 new risk analyses were performed for Malpensa airport and 18 for Linate airport.

General Aviation Linate

Reporting of events related to Airport Safety continued constantly for General Aviation as well.

Interruption of activities/services

Group activities may be interrupted through: strikes by personnel, by those of the airlines, of personnel dedicated to air traffic control services and of the public emergency service operators; the incorrect and non-punctual provision of services by third parties; adverse weather conditions (snow, fog etc.).

Natural events (e.g. lightening) and/or short circuits from overloads, may for example cause blackouts with consequent shut-down of IT systems (shut down of displays, departure delays).

Company procedures have been prepared in order to better manage the aforementioned events. In addition, risk transfer measures were put in place where possible, including through insurance plans.

Human resources

The reaching of Group objectives depends on internal resources and relations with employees. The non-ethical or inappropriate behaviour of employees may have legal and financial consequences on company activities. The implemented set of procedures, also in compliance with the 231 model adopted by the Group, the Code of Ethics now Code of Conduct, training and internal education on these issues, together with talent development plans and cooperation and continuous dialogue with trade unions promote a business environment that minimizes the risks associated with human resources management. 

Supplier reliability

The bankruptcy or operating difficulties of unique or hard to replace suppliers, could have an impact on the Group in operating and economic-financial terms.  

Financial Risks

The management of financial risks is carried out by the Parent Company which identifies, evaluates and implements actions to prevent and limit the consequences of the occurrence of the above-stated risk factors. For further information, reference should be made to paragraph 4 “Risk management” of the Explanatory Notes to the Consolidated Financial Statements. 

Commodity risks

The SEA Group is exposed to changes in prices, and the relative currencies, of the energy commodities handled, i.e. gas and minimally electricity. These risks, however contained due to the high level of self-consumption by the Group of energy produced by SEA Energia, are based on the acquisition of the above-stated energy commodities.

For further information, reference should be made to paragraph 4 “Risk management” of the Explanatory Notes to the Consolidated Financial Statements.  

Legal and compliance risks

The Group operates in a sector regulated at a national, EU and international level.

A significant part of SEA Group revenues derives from the activities carried out based on the agreement signed between Società per Azioni Esercizi Aeroportuali SEA and ENAC, with duration until May 4, 2041. The Agreement provides for a series of obligations relating to the management and development of the Milan airport system, in addition to advanced withdrawal in the case of serious self-fulfilment by SEA and dissolution conditions in the case of a delay for more than 12 months in the payment of the fee due by SEA, or in the case of a declaration of bankruptcy by SEA. The conformity of the processes and procedures to national and international standards leads to the consideration that the risk of non-compliance with the concession rules is remote. In addition, at the conclusion of the Agreement SEA must return state assets forming part of the Malpensa and Linate airports and freely provide to the State all plant, works and infrastructure created by SEA through these assets. The application of IFRIC 12 in the recognition of investments and for the refurbishment obligation enables consideration of the overall charge for depreciation and refurbishment each year in the income statement, in view of the obligations undertaken by SEA under the concession.

Risk related to the European Commission Decision of December 19, 2012 concerning presumed State Aid to SEA Handling and the Decision of July 9, 2014 for the set-up of a new procedure on the incorporation and capitalisation of Airport Handling

(a)  Proceeding related to the European Commission decision of December 19, 2012

With decision of December 19, 2012, the European Commission judged that the share capital increases carried out by SEA in favour of its subsidiary SEA Handling in the 2002-2010 period for approx. Euro 360 million, constituted State Aid incompatible with the internal market, and consequently imposed upon the Italian State the obligation to demand restitution of the presumed State Aid from SEA Handling.

As more extensively described in the 2015 Annual Report, for a formal 'alternative execution project' of the decision, undertook a series of actions including (i) liquidation of SEA Handling and its permanent departure from the market, (ii) establishment of Airport Handling in order to continue to offer ground assistance services in a context of complete competition conditions with the other handling companies and with complete economic discontinuation with SEA Handling, (iii) assignment of the entire investment in the share capital of Airport Handling in a trust called "Milan Airport Handling Trust", in order to exclude any form of SEA's control over Airport Handling and continuity between SEA Handling and the same Airport Handling, (iv) sale of 30% of the Airport Handling shares to a third party operator with the option, at certain conditions, of being able to purchase an additional 40% of the shares. 

In relation to the above-mentioned decision three independent appeals were made before the European Union Court, by the Italian State, by SEA Handling and by the Milan Municipality.

These appeals are in an advanced state of negotiation, as the written procedure phase has concluded some months ago; a ruling is expected from the Court in 2017.

In the meantime a discussion phase was started - through the Italian Authorities - with the European Commission, in order to represent the incapacity of SEA Handling to completely face this restitution charge and, consequently, the impossibility of the Italian State to completely enforce the decision in it specific form.

With a letter sent to the Italian Authorities on July 20, 2016 and acknowledging the arguments put forth by SEA Handling, the European Commission asked for confirmation on the sale of the business, the progress of the liquidation and the procedures put in place to comply, within the limits of the sums from the liquidation, with the restitution obligations of SEA Handling.

In light of the above, in line with the criteria adopted in the previous annual report and interim financial reports to not recognise any accrual in the provision for risks and charges in the financial statements of SEA Handling in liquidation and/or receivables from the company in the financial statements of SEA, with reference to the restitution obligations of SEA Handling to SEA of presumed State Aid and/or the recording of a receivable for the restitution of State Aid by SEA. Indeed, apart from any assessment regarding whether the sums are due or not (including in relation to the outcome of pending appeals), if and to their extent that funds become available from liquidation of the SEA Handling assets, the consideration from this surplus must be in favour of SEA, the sole shareholder of the company in liquidation.

(b)  Proceeding related to the in-depth investigation launched by the European Commission of July 9, 2014

On July 9, 2014 the European Commission decided to launch - within the framework of the powers granted it related to State aid - a formal investigation in order to better examine some aspects related to the economic discontinuation between SEA Handling and Airport Handling and the possible existence of (further) alleged State aid in SEA's capital injection in the new company.

With its decision of July 5, 2016, transmitted to SEA by the Ministry of Transportation on July 19, 2016, the European Commission completed the investigation it had started in relation to the establishment and capitalisation of the Airport Handling SpA company finding: i) the absence of economic continuity between SEA Handling S.p.A. and Airport Handling S.p.A, ii) the absence of transfer of the obligation to repay the incompatible State aid to Airport Handling S.p.A as well as iii) the lack of State aid in the establishment and capitalisation of the aforesaid company.

In the meantime the disposal process of control of Airport Handling by SEA was finalised:

  • in December 2014 SEA together with the Trustee of Milan Airport Handling Trust conferred the mandate to an independent financial advisor in order to identify potential investors for the acquisition of a shareholding in Airport Handling;
  • in September 2015, the Trustee and dnata, a leading international company of the Emirates Group in the airport handling sector, signed a binding agreement for the sale of 30% of the Airport Handling shares and the same percentage of FIP held by SEA in Airport Handling, with assignment to dnata at closing of the majority of the members of the board of directors and therefore the Governance of Airport Handling;
  • the agreement also includes an option for dnata to purchase, if certain conditions occur, an addition 40% of shares (call option) and a corresponding portion of FIPs. The positive decision of the European Commission related to the July 2014 investigation resulted in dnata not being able to exercise a put option included in the event of an unfavourable decision - the closing of the transaction occurred on March 23, 2016, after the decision of the Anti-trust Authority which did not consider the transaction in question, pursuant to article 6, paragraph 1, of Law no. 287/90, to establish or reinforce a dominant position on the market able to eliminate or substantially reduce the competition in the long-term. Following this the portion of other financial assets held by SEA and part of the future sale were reclassified as "current";
  • following dnata investment in Airport Handling, the latter company is valued at Euro 25 million, such amount being in line with the carrying amount of the assets recognized in the accounts. The transaction involved the payment of Euro 7.5 million by dnata for the purchase of the first 30%, which will be subject to lien for a predefined period as guarantee by dnata and entails the payment of Euro 10 million for the additional 40% interest (amounts to be divided proportionally between stocks and FIPs respectively held by the Trustee and SEA).

Based on the above, with reference to the sums transferred by SEA to the share capital of Airport Handling and to the subscription of the Financial Instruments of Participation by SEA, it is considered that these may be recovered through the disposal of Airport Handling or in the participation in future profits of the same (for the residual holding) and which are considered realisable. Consequently, no specific entry or correction is necessary or opportune.