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In connection with the sale of its products the Group will, on some occasions, provide financing support for its customers. The Group's contingent liabilities relating to financing arrangements are spread over many years and relate to a number of customers and a broad product portfolio.

Under UK GAAP, contingent liabilities were reported: (a) at the full potential exposure regardless of the time at which such exposures may arise; and (b) in sterling taking account of forward exchange contracts held. Following the adoption of IFRS, the Group has reviewed this policy and has concluded that it is more appropriate to disclose contingent liabilities on a discounted basis. As directors consider the likelihood of these contingent liabilities crystallising to be remote, this amount does not represent a present value. However, the amounts will be discounted at the Group's borrowing rate to reflect better the time span over which these exposures could arise. In addition, following the decision to cease hedge accounting from January 1, 2005, it is no longer appropriate to take account of forward exchange contracts. As the contingent liabilities are denominated in US dollars, this amount will be reported, together with the sterling equivalent at the reporting date spot rate.

Applying this revised policy, the discounted value of the total gross contingent liabilities relating to financing arrangements on all delivered aircraft less insurance arrangements and relevant provisions, at December 31, 2005 amounted to $1,097m (£638m, 2004 $1,143m, £595m, previously reported £999m). Taking into account the net realisable value of the relevant security including unrestricted cash collateral of $108m (£63m, 2004 $104m, £54m), the discounted value of the net contingent liabilities in respect of financing arrangements on all delivered aircraft amounted to $259m (£150m, 2004 $294m, £153m, previously reported £189m). Sensitivity calculations are complex, but for example, if the value of the relevant security was reduced by 20 per cent, a net contingent liability with a discounted value of approximately $363m (£211m, 2004 $403m, £210m, previously reported £277m) would result. There are also net contingent liabilities in respect of undelivered aircraft, but it is not considered practicable to estimate these as deliveries can be many years in the future, and the relevant financing will only be put in place at the appropriate time.

Contingent liabilities exist in respect of guarantees provided by the Group in the ordinary course of business for product delivery, performance and reliability. The Company and some of its subsidiary undertakings have, in the normal course of business, entered into arrangements in respect of export finance, performance bonds, countertrade obligations and minor miscellaneous items. Various Group undertakings are parties to legal actions and claims which arise in the ordinary course of business, some of which are for substantial amounts. As a consequence of the insolvency of an insurer as previously reported, the Group is no longer fully insured against known and potential claims from employees who worked for certain of the Group's UK based businesses for a period prior to the acquisition of those businesses by the Group. While the outcome of some of these matters cannot precisely be foreseen, the directors do not expect any of these arrangements, legal actions or claims, after allowing for provisions already made, to result in significant loss to the Group or Company.