TIDMIAG
RNS Number : 4714E
International Cons Airlines Group
28 February 2020
Full year results announcement
International Consolidated Airlines Group (IAG) today (February
28, 2020) presented Group consolidated results for the year to
December 31, 2019.
IAG period highlights on results (variances against 2018 pro
forma(1) , unless otherwise noted):
-- Fourth quarter operating profit EUR765 million before
exceptional items (2018 pro forma(1) : EUR715 million, 2018
statutory: EUR655 million)
-- Passenger unit revenue for the quarter up 2.2 per cent, down 0.4 per cent at constant currency
-- Airline non-fuel unit costs for the quarter down 1.7 per cent at constant currency
-- Fuel unit costs for the quarter up 5.6 per cent, up 2.4 per cent at constant currency
-- Operating profit before exceptional items for the year to
December 31, 2019 of EUR3,285 million (2018 pro forma(1) : EUR3,485
million, 2018 statutory: EUR3,230 million), down 5.7 per cent
-- Passenger unit revenue for the year up 1.0 per cent and down 0.5 per cent at constant currency
-- Airline non-fuel unit costs for the year down 0.9 per cent at constant currency
-- Fuel unit costs for the year up 9.6 per cent, up 5.7 per cent at constant currency
-- Net foreign exchange impact for the quarter favourable EUR79
million, and for the year favourable EUR67 million
-- Profit after tax before exceptional items EUR2,387 million
down 1.4 per cent (down 40.8 per cent on a statutory basis after
exceptional items)
-- Final proposed dividend of 17.0 EUR cents per share
Performance summary:
Year to December 31
====================================================
Statutory Pro forma Statutory
========= ========= ======== ====================
Higher
/ 2018
Highlights EUR million 2019 2018(1) (lower) 2019 restated(2)
======================================== ========= ========= ======== ====== ============
Passenger revenue 22,468 21,401 5.0 % 22,468 21,401
Total revenue 25,506 24,258 5.1 % 25,506 24,258
======================================== ========= ========= ======== ====== ============
Operating profit before exceptional
items 3,285 3,485 (5.7)% 3,285 3,230
Exceptional items (672) 448 nm (672) 448
======================================== ========= ========= ======== ====== ============
Operating profit after exceptional
items 2,613 3,933 (33.6)% 2,613 3,678
====== ============
Available seat kilometres (ASK million) 337,754 324,808 4.0 %
Passenger revenue per ASK (EUR cents) 6.65 6.59 1.0 %
Non-fuel costs per ASK (EUR cents) 4.80 4.77 0.6 %
======================================== ========= ========= ========
Higher/
Alternative performance measures 2019 2018(1) (lower)
======================================== ========= ========= ========
Profit after tax before exceptional
items (EUR million) 2,387 2,422 (1.4)%
Adjusted earnings per share (EUR cents) 116.8 114.9 1.7 %
======================================== ========= ========= ========
Net debt (EUR million) 7,571 6,430 17.7 %
Net debt to EBITDA 1.4 1.2 0.2x
======================================== ========= ========= ========
Higher/
Statutory results EUR million 2019 2018 (lower)
======================================== ========= ========= ========
Profit after tax and exceptional items 1,715 2,897 (40.8)%
Basic earnings per share (EUR cents) 86.4 142.7 (39.5)%
======================================== ========= ========= ========
Cash and interest-bearing deposits 6,683 6,274 6.5 %
Interest-bearing long-term borrowings 14,254 7,509 89.8 %
======================================== ========= ========= ========
For definitions refer to the Alternative performance measures
section.
1 Pro forma financial information is based on the Group's
restated statutory results with an adjustment to reflect the
estimated impact of IFRS 16 'Leases' from January 1, 2018. A
reconciliation of the pro forma financial information to the
Group's statutory results is included in the Alternative
performance measures section.
2 December 31, 2018 comparatives are the Group's restated
statutory results as reported. The 2018 results have been restated
to reclassify the costs the Group incurs in relation to
compensation for flight delays and cancellations as a deduction
from revenue as opposed to an operating expense. There is no change
in operating profit. The amount reclassified for the year to
December 31, 2018 was EUR148 million. Further information is given
in Note 2 of the Group financial statements.
Willie Walsh, IAG Chief Executive Officer, said:
"In 2019, we're reporting an operating profit of EUR3,285
million before exceptional items, down by EUR200 million compared
to last year.
"At constant currency, passenger unit revenue decreased by 0.5
per cent while airline non-fuel unit costs were down 0.9 per
cent.
"These are good results in a year affected by disruption and
higher fuel prices. We demonstrated our robust and flexible model
once again through additional cost control and by reducing capacity
growth to reflect market conditions.
"We've increased investment in new aircraft, customer products
and operational resilience and this has seen our airlines improve
their customer performance scores this year.
"Quarter 4 was strong with an operating profit of EUR765 million
before exceptional items.
"We're pleased to confirm that the Board is proposing a final
dividend of 17.0 euro cents per share. This brings the full year
dividend to 31.5 euro cents per share, subject to shareholder
approval at our AGM in June. In total, we will have returned more
than EUR4.4 billion to our shareholders since 2015."
Trading outlook
The earnings outlook is adversely affected by weaker demand as a
result of coronavirus (COVID-19). We are currently experiencing
demand weakness on Asian and European routes and a weakening of
business travel across our network resulting from the cancellation
of industry events and corporate travel restrictions.
In Asia, flights to Mainland China have been suspended. On
January 29, British Airways suspended its daily flight to both
Beijing and Shanghai and Iberia suspended its three times weekly
service to Shanghai on January 31. In addition, some services on
other Asian routes have been reduced. From February 13, British
Airways reduced its daily Hong Kong service from two to one. From
March 13, it will reduce its daily service to Seoul to 3-4 times
weekly.
Some of the freed-up longhaul capacity is being redeployed to
routes with stronger demand. British Airways has announced
additional flights to India, South Africa and the US, while Iberia
is increasing capacity on US and domestic routes.
Capacity on Italian routes for March has been significantly
reduced through a combination of cancellations and change of
aircraft gauge and further capacity reductions will be activated
over the coming days. We also expect to make some capacity
reductions across our wider shorthaul network. Shorthaul capacity
is not being redeployed at this stage.
The net impact of current flight cancellations and redeployed
capacity is to lower IAG's FY 2020 planned capacity by
approximately 1 per cent in terms of available seat kilometres to 2
per cent for the year. Our operating companies will continue to
take mitigating actions to better match supply to demand in line
with the evolving situation. Cost and revenue initiatives are being
implemented across the business.
IAG is resilient with a strong balance sheet and substantial
cash liquidity to withstand the current weakness. We have a
management team experienced in similar situations and have
demonstrated that we can respond quickly to changing market
conditions. We are strongly positioned for the expected recovery in
demand.
Given the ongoing uncertainty on the potential impact and
duration of COVID-19, it is not possible to give accurate profit
guidance for FY 2020 at this stage.
LEI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed
in accordance with the Company's obligations under the Market Abuse
Regulation (EU) No 596/2014.
Steve Gunning, Chief Financial Officer
Forward-looking statements:
Certain statements included in this announcement are
forward-looking. These statements can be identified by the fact
that they do not relate only to historical or current facts. By
their nature, they involve risk and uncertainties because they
relate to events and depend on circumstances that will occur in the
future. Actual results could differ materially from those expressed
or implied by such forward-looking statements.
Forward-looking statements can typically be identified by the
use of words such as "expects", "may", "will", "could", "should",
"intends", "plans", "predicts", "envisages" or "anticipates" or
other words of similar meaning. They include, without limitation,
any and all projections relating to the results of operations and
financial conditions of International Consolidated Airlines Group,
S.A. and its subsidiary undertakings from time to time (the
'Group'), as well as plans and objectives for future operations,
expected future revenues, financing plans, expected expenditure and
divestments relating to the Group and discussions of the Group's
business plan. All forward-looking statements in this announcement
are based upon information known to the Group on the date of this
announcement and speak as of the date of this announcement. Other
than in accordance with its legal or regulatory obligations, the
Group does not undertake to update or revise any forward-looking
statement to reflect any changes in events, conditions or
circumstances on which any such statement is based.
It is not reasonably possible to itemise all of the many factors
and specific events that could cause the forward-looking statements
in this announcement to be incorrect or could otherwise have a
material adverse effect on the future operations or results of an
airline operating in the global economy. Further information on the
primary risks of the business and the Group's risk management
process is set out in the Risk management and principal risk
factors section in the Annual Report and Accounts 2018; these
documents are available on www.iairgroup.com. All forward-looking
statements made on or after the date of this announcement and
attributable to IAG are expressly qualified in their entirety by
the primary risks set out in that section.
IAG Investor Relations Waterside (HAA2), PO Box 365,
Harmondsworth, Middlesex, UB7 0GB
Tel: +44 (0)208 564 2990 Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Year to December 31
====================================================================
Statutory Pro forma Statutory
================================ ==================================
Before Before
exceptional exceptional
items Exceptional Total items Exceptional Total Higher/ 2018
EUR million 2019 items 2019 2018(1) items 2018(1) (lower) 2019 restated(2)
================== =========== =========== ====== =========== =========== ======== ======= ======
5.0
Passenger revenue 22,468 22,468 21,401 21,401 % 22,468 21,401
Cargo revenue 1,117 1,117 1,173 1,173 (4.8)% 1,117 1,173
14.1
Other revenue 1,921 1,921 1,684 1,684 % 1,921 1,684
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
5.1
Total revenue 25,506 25,506 24,258 24,258 % 25,506 24,258
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
3.1
Employee costs 4,962 672 5,634 4,812 (460) 4,352 % 5,634 4,352
Fuel, oil costs
and emissions 14.0
charges 6,021 6,021 5,283 5,283 % 6,021 5,283
Handling, catering
and
other operating 8.7
costs 2,972 2,972 2,733 2,733 % 2,972 2,740
Landing fees and
en-route 1.7
charges 2,221 2,221 2,184 2,184 % 2,221 2,184
Engineering and
other 12.7
aircraft costs 2,092 2,092 1,857 1,857 % 2,092 1,828
Property, IT and
other 2.8
costs 811 811 789 12 801 % 811 930
Selling costs 1,038 1,038 1,046 1,046 (0.8)% 1,038 1,046
Depreciation,
amortisation 5.8
and impairment 2,111 2,111 1,996 1,996 % 2,111 1,254
Aircraft operating
lease
costs - - - - - - 890
Currency
differences (7) (7) 73 73 nm (7) 73
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
Total expenditure
on 7.0
operations 22,221 672 22,893 20,773 (448) 20,325 % 22,893 20,580
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
Operating profit 3,285 (672) 2,613 3,485 448 3,933 (5.7)% 2,613 3,678
8.9
Finance costs (611) (611) (561) (561) % (611) (231)
22.0
Finance income 50 50 41 41 % 50 41
Net financing
credit
relating to
pensions 26 26 27 27 (3.7)% 26 27
Net currency
retranslation
credits/(charges) 201 201 (19) (19) nm 201 (19)
Other
non-operating
charges (4) (4) (9) (9) (55.6)% (4) (9)
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
Total net
non-operating
costs (338) (338) (521) (521) (35.1)% (338) (191)
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
Profit before tax 2,947 (672) 2,275 2,964 448 3,412 (0.6)% 2,275 3,487
3.3
Tax (560) - (560) (542) (32) (574) % (560) (590)
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
Profit after tax
for
the year 2,387 (672) 1,715 2,422 416 2,838 (1.4)% 1,715 2,897
================== =========== =========== ====== =========== =========== ======== ======= ====== ===========
2018(1, Higher/
Operating figures 2019(3) 3) (lower)
============================== ========= ========= ========
Available seat kilometres 4.0
(ASK million) 337,754 324,808 %
Revenue passenger kilometres 5.6
(RPK million) 285,745 270,657 %
Seat factor (per cent) 84.6 83.3 1.3pts
4.7
Passenger numbers (thousands) 118,253 112,920 %
Cargo tonne kilometres
(CTK million) 5,577 5,713 (2.4)%
Sold cargo tonnes (thousands) 682 702 (2.8)%
2.8
Sectors 775,486 754,700 %
3.0
Block hours (hours) 2,272,904 2,207,374 %
============================== ========= ========= ========
2.0
Average manpower equivalent 66,034 64,734 %
4.4
Aircraft in service 598 573 %
============================== ========= ========= ========
Passenger revenue per
RPK (EUR cents) 7.86 7.91 (0.6)%
Passenger revenue per 1.0
ASK (EUR cents) 6.65 6.59 %
Cargo revenue per CTK
(EUR cents) 20.03 20.53 (2.5)%
Fuel cost per ASK (EUR 9.6
cents) 1.78 1.63 %
Non-fuel costs per ASK 0.6
(EUR cents) 4.80 4.77 %
Total cost per ASK (EUR 2.9
cents) 6.58 6.40 %
============================== ========= ========= ========
1 Pro forma financial information is based on the Group's
restated statutory results with an adjustment to reflect the
estimated impact of IFRS 16 'Leases' from January 1, 2018. A
reconciliation of the pro forma financial information to the
Group's statutory results is included in the Alternative
performance measures section.
2 The 2018 statutory results for the Group are the restated
consolidated results including the impact of the exceptional items.
The 2018 results have been restated to reclassify the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the year to December 31, 2018 was EUR148
million. Further information is given in Note 2 of the Group
financial statements.
3 Financial ratios are before exceptional items.
CONSOLIDATED INCOME STATEMENT
Three months to December 31
=================================================================== =======
Statutory Pro forma Statutory
=============================== ================================== =======
Before Before
exceptional exceptional
items Exceptional Total items Exceptional Total Higher/ 2018
EUR million 2019 items 2019 2018(1) items 2018(1) (lower) 2019 restated(2)
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
4.1
Passenger revenue 5,390 5,390 5,177 5,177 % 5,390 5,177
Cargo revenue 292 292 326 326 (10.4)% 292 326
4.1
Other revenue 532 532 511 511 % 532 511
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
3.3
Total revenue 6,214 6,214 6,014 6,014 % 6,214 6,014
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
2.1
Employee costs 1,249 672 1,921 1,223 134 1,357 % 1,921 1,357
Fuel, oil costs
and emissions 7.6
charges 1,452 1,452 1,349 1,349 % 1,452 1,349
Handling, catering
and
other operating 7.1
costs 736 736 687 687 % 736 688
Landing fees and
en-route 1.4
charges 522 522 515 515 % 522 515
Engineering and
other
aircraft costs 505 505 551 551 (8.3)% 505 543
Property, IT and
other 9.6
costs 229 229 209 2 211 % 229 242
Selling costs 225 225 240 240 (6.3)% 225 240
Depreciation,
amortisation 7.7
and impairment 557 557 517 517 % 557 326
Aircraft operating
lease
costs - - - - - - 227
Currency
differences (26) (26) 8 8 nm (26) 8
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
Total expenditure
on 2.8
operations 5,449 672 6,121 5,299 136 5,435 % 6,121 5,495
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
7.0
Operating profit 765 (672) 93 715 (136) 579 % 93 519
12.2
Finance costs (165) (165) (147) (147) % (165) (65)
54.5
Finance income 17 17 11 11 % 17 11
Net financing
credit
relating to
pensions 7 7 7 7 - 7 7
Net currency
retranslation
credits/(charges) 108 108 (13) (13) nm 108 (13)
Other
non-operating
charges (54) (54) (10) (10) nm (54) (10)
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
Total net
non-operating
costs (87) (87) (152) (152) (42.8)% (87) (70)
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
20.4
Profit before tax 678 (672) 6 563 (136) 427 % 6 449
47.9
Tax (105) - (105) (71) 8 (63) % (105) (66)
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
Profit after tax
for 16.5
the period 573 (672) (99) 492 (128) 364 % (99) 383
================== =========== =========== ===== =========== =========== ======== ======= ===== ===========
2018(1, Higher/
Operating figures 2019(3) 3) (lower)
============================== ======= ======= ========
Available seat kilometres 1.9
(ASK million) 82,005 80,465 %
Revenue passenger kilometres 5.4
(RPK million) 69,138 65,612 %
Seat factor (per cent) 84.3 81.5 2.8pts
4.2
Passenger numbers (thousands) 27,805 26,679 %
Cargo tonne kilometres
(CTK million) 1,427 1,523 (6.3)%
Sold cargo tonnes (thousands) 175 187 (6.6)%
0.6
Sectors 183,490 182,386 %
0.2
Block hours (hours) 541,874 540,988 %
============================== ======= ======= ========
1.6
Average manpower equivalent 65,293 64,296 %
============================== ======= ======= ========
Passenger revenue per
RPK (EUR cents) 7.80 7.89 (1.2)%
Passenger revenue per 2.2
ASK (EUR cents) 6.57 6.43 %
Cargo revenue per CTK
(EUR cents) 20.46 21.41 (4.4)%
Fuel cost per ASK (EUR 5.6
cents) 1.77 1.68 %
Non-fuel costs per ASK
(EUR cents) 4.87 4.91 (0.7)%
Total cost per ASK (EUR 0.9
cents) 6.64 6.59 %
============================== ======= ======= ========
1 Pro forma financial information is based on the Group's
restated statutory results with an adjustment to reflect the
estimated impact of IFRS 16 'Leases' from January 1, 2018. A
reconciliation of the pro forma financial information to the
Group's statutory results is included in the Alternative
performance measures section.
2 The 2018 statutory results for the Group are the restated
consolidated results including the impact of the exceptional items.
The 2018 results have been restated to reclassify the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the three months to December 31, 2018 was
EUR46 million. Further information is given in Note 2 of the Group
financial statements.
3 Financial ratios are before exceptional items.
FINANCIAL REVIEW
IATA market growths
The air traffic industry had a positive year; however,
performance was impacted by a softer global economic backdrop than
previous years, slightly affecting demand. Global capacity grew at
a slower pace than demand, which translated into a record load
factor of 82.6 per cent, 0.7 points higher than in 2018.
In 2019, airline capacity growth in Europe softened, in line
with slowing economic activity, declining business confidence
heightened by industrial strikes, Brexit uncertainty and the
collapse of several airlines. Capacity still grew 3.6 per cent over
the previous year and passenger load factor increased, reaching
85.2 points, the highest throughout all regions.
North America performed slightly better than other regions,
sustaining a solid upward trend throughout the year. Despite that,
growth eased slightly from softer US economic activity and weaker
business confidence. Capacity increased 2.8 per cent, less than the
previous year, with passenger load factor up 0.8 points.
Latin America's airline capacity growth slowed versus last year
due to social unrest and economic difficulties. Capacity growth of
2.9 per cent was significantly below 2018 growth of 6.6 per cent
and passenger load factor in this region increased.
Africa benefited from a generally supportive economic landscape
in 2019 and capacity grew significantly more than in 2018 and the
highest of all regions at 4.7 per cent, with passenger load factor
moderately higher.
Although the Middle East's airline industry growth showed the
slowest growth of all the regions year on year, the last quarter of
the year saw a sharp increase in capacity, placing the region as
the highest in capacity increases globally for these months. Load
factor improved 1.4 points on the relatively flat capacity for the
year.
Airline capacity growth in the Asia Pacific region was slower
than in 2018, but remained relatively high, with an increase of 4.5
per cent, impacted by the economic landscape. Passenger load factor
improved 0.4 points.
IATA market growths
Capacity Passenger Higher/
Year to December 31, 2019 ASKs load factor (lower)
========================== ======== ============ ========
Europe 3.6% 85.2 0.4 pts
North America 2.8% 84.9 0.8 pts
Latin America 2.9% 82.6 1.0 pts
Africa 4.7% 71.7 0.3 pts
Middle East 0.1% 76.2 1.4 pts
Asia Pacific 4.5% 81.9 0.4 pts
========================== ======== ============ ========
Total market 3.4% 82.6 0.7 pts
========================== ======== ============ ========
Source: IATA Air Passenger Market Analysis
IAG capacity
In 2019, all of IAG's airlines grew capacity, with total Group
capacity up 4.0 per cent.
The increase mainly reflects additional frequencies and
increased aircraft gauge on longhaul routes and the full-year
impact of network changes in 2018 by British Airways, Aer Lingus
and Iberia, as well as growth in LEVEL. New routes were added at
Aer Lingus, connecting Dublin with Minneapolis; at British Airways,
with new routes such as London Heathrow to Charleston, Pittsburgh,
Islamabad and Osaka; and Iberia, with a new service from Madrid to
Guayaquil. Vueling's capacity grew through additional domestic
frequencies, with expansion in the Balearic and Canary Islands.
IAG's shorthaul network also saw increases from the new LEVEL base
in Amsterdam.
IAG passenger load factor was higher, once again, than any prior
year since the creation of IAG, reaching 84.6 points, up 1.3 points
from 2018 and higher than the IATA average.
Market segments
IAG capacity
ASKs higher/ Passenger Higher/
Year to December 31, 2019 (lower) load factor (lower)
=================================== ============ ============ ========
Domestic 7.3% 87.2 2.2 pts
Europe 1.7% 83.6 0.4 pts
North America 1.4% 84.1 1.8 pts
Latin America and Caribbean 13.3% 86.4 1.7 pts
Africa, Middle East and South Asia 1.0% 83.0 0.6 pts
Asia Pacific 3.7% 85.8 1.1 pts
=================================== ============ ============ ========
Total network 4.0% 84.6 1.3 pts
=================================== ============ ============ ========
Europe
Eurozone GDP growth for the year was 1.2 per cent, lower than
expected by the IMF at the beginning of the year, and 0.7 points
lower than in 2018. As was the case for the UK, GDP growth
decelerated through the year, although to a lower extent than in
the UK. Like the UK, Eurozone consumer confidence and unemployment
remained at multi-year lows.
Together, IAG's European and Domestic markets continue to
represent the Group's largest region. Growth comes from both
capacity and frequency increases as well as new routes.
Capacity in IAG's Domestic markets was higher by 7.3 per cent,
mostly from increases in Vueling and Iberia. Vueling launched a
number of new routes, including connections between several cities
in mainland Spain with the Canary Islands. Capacity at Iberia was
increased through increases in frequencies as well as new routes
connecting Melilla with Seville, Granada and Almeria. Passenger
load factor in IAG's domestic markets increased by 2.2 points
despite the strong increase in capacity.
Passenger unit revenues (passenger revenue per ASK) at constant
currency ('ccy') in the Domestic markets were up at British
Airways, Iberia and Vueling.
The Group's capacity in Europe was increased 1.7 per cent year
on year. LEVEL's operations in Vienna started in July 2018 and
therefore 2019 included the full year impact of routes from its
base into London, Barcelona and Paris, among others. British
Airways launched new routes from London Gatwick to Milan, Bilbao
and Almeria as well as new services connecting London City with
Munich and London Heathrow with Valencia, among others. Iberia's
capacity grew mainly from frequency increases and Vueling launched
services from Paris to Mallorca, Copenhagen, Porto and Alicante,
among others. Load factor for the Group's European market was up
0.4 points.
The Group's passenger unit revenue performance at constant
currency in its European market was weaker driven by Vueling,
British Airways and Aer Lingus. Iberia's passenger unit revenue
performance was flat on a slight capacity increase.
North America
US GDP growth was 2.3 per cent, only slightly lower than
expected by the IMF at the beginning of the year and 0.6 points
lower than in 2018. Growth accelerated in Q1 2019, reflecting an
upturn in government spending, private inventory investment and in
exports, then slowed in Q2 2019 and Q3 2019. The unemployment rate
continued to decline, hitting 3.5 per cent in Q4 2019, the lowest
rate since 1970.
IAG's North American market accounts for almost 30 per cent of
the Group's Available seat kilometres ('ASKs'). Capacity was
increased in Iberia, Aer Lingus and LEVEL, with a slight decrease
at British Airways, mainly reflecting the pilot's strike. British
Airways launched new routes, connecting London Heathrow with
Pittsburgh and Charleston and Aer Lingus started operations from
Dublin to Minneapolis. Capacity was also increased in Aer Lingus
through higher frequencies on several routes, such as Dublin to San
Francisco, Seattle and Philadelphia. LEVEL launched a new route in
2019, connecting Barcelona with New York, and increased capacity on
its services from Barcelona to Boston and San Francisco. The
region's capacity increase also reflects the full year impact of
routes launched during 2018. Seat factor for the region was among
the best for the Group.
North America passenger unit revenues at ccy were up against
last year. Aer Lingus passenger unit revenues were up strongly on a
capacity increase of 6.1 per cent. British Airways passenger unit
revenues were slightly better, on slightly lower capacity. In 2019,
LEVEL's expansion again had a slightly dilutive impact on the
Group's passenger unit revenues. Iberia's passenger unit revenues
in North America decreased, with a 5.7 per cent capacity
increase.
Latin America and Caribbean
Latin America GDP was significantly lower than the IMF expected
at the beginning of year, particularly notable for Brazil and
Mexico compared to expectations. At a country level, there was a
slowdown in growth compared to 2018 in all countries, with Ecuador
slipping into recession and both Venezuela and Argentina remaining
in recession.
IAG's capacity in Latin America and Caribbean was increased by
13.3 per cent, with the impact of the first full year of Paris
operations at LEVEL. Iberia launched a new route, connecting Madrid
with Guayaquil, and increased frequencies on its routes from Madrid
to San Salvador, Guatemala City, Bogotá and Lima. British Airways
capacity was increased through additional capacity from
densification of its London Gatwick Boeing 777 fleet and from
additional frequencies added on its London Gatwick to Cancún route.
Passenger load factor in this region improved and continued to be
the highest for the Group, 3.8 points higher than the industry
average.
Latin America and Caribbean passenger unit revenues at ccy were
down significantly against 2018, partly due to capacity increases
and a difficult economic and political landscape.
Africa, Middle East and South Asia (AMESA)
AMESA capacity was increased 1.0 per cent in 2019 primarily from
new routes at British Airways. The increase in capacity was mainly
due to new routes launched by British Airways, including Dammam via
Bahrain and to Islamabad, and increased frequencies in routes from
London Heathrow to Mumbai and from London Heathrow and London
Gatwick to Marrakech. Iberia increased capacity through higher
frequencies on its routes from Madrid to Dakar, Casablanca and
Marrakech. Vueling increased capacity on its routes from Barcelona
to Algiers, Tangier, Marrakech, Tel Aviv, Beirut and Banjul.
Passenger load factor was higher than the previous year once again
and was also higher than the industry average.
Africa, Middle East and South Asia passenger unit revenue
performance at ccy was better in 2019, with improvements in British
Airways and Iberia and a lower performance at Vueling driven by a
capacity increase of 12.4 per cent.
Asia Pacific
In Asia Pacific, the Group's capacity was up against last year.
Iberia increased capacity significantly by 21.9 per cent, mainly
coming from added frequencies on its Madrid-Tokyo route. British
Airways increased capacity through a new route connecting London
Heathrow with Osaka. Passenger load factor was up 1.1 points on a
capacity increase of 3.7 per cent.
Asia Pacific passenger unit revenues at ccy were up against last
year. Industry capacity continued to grow over the year following
the increases in 2018, but did so at a slower pace, impacted by the
economic landscape and challenges coming from US-China trade
tensions.
Basis of preparation
The Group has adopted the new accounting standard IFRS 16
'Leases' from January 1, 2019 and has used the modified
retrospective transition approach and has not restated
comparatives. IFRS 16 eliminates the classification of leases as
either operating leases or finance leases and introduces a single
lessee accounting model. On the Balance sheet, obligations to make
future payments under leases, previously classified as operating
leases, are recognised as debt with the associated right of use
(ROU) assets. In the Income statement, the operating lease costs
are replaced with depreciation (within operating expenditure) and
lease interest expense (within non-operating expenditure). For
further information see note 33 of the Group financial
statements.
The following review is against a pro forma basis for 2018,
which provides a consistent basis for comparison with 2019 results,
except where otherwise indicated. Pro forma results for 2018 are
the Group's statutory results with an adjustment to reflect the
estimated impact of IFRS 16 from January 1, 2018, and have been
prepared using the same assumptions used for the IFRS 16 transition
adjustment at January 1, 2019 (set out in note 33 of the Group
financial statements) adjusted for any new aircraft leases entered
into during 2018 and using the incremental borrowing rates at
January 1, 2019. The IFRS 16 adjustments for aircraft lease
liabilities are based on US dollar exchange rates at the transition
date. For further information see the Alternative performance
measures section.
The current year and comparative figures in this report have
been prepared on a pre-exceptional and pro forma basis unless
otherwise stated.
Revenue
Higher/(lower)
================== ====== ===================
Year over
year at Per ASK
EUR million 2019 ccy at ccy
================== ====== ========= ========
Passenger revenue 22,468 3.5% (0.5)%
Cargo revenue 1,117 (7.2)%
Other revenue 1,921 11.3%
================== ====== ========= ========
Total revenue 25,506 3.5%
================== ====== ========= ========
Passenger revenue
Passenger revenue for the Group rose 5.0 per cent versus the
prior year, with 1.5 points of positive currency impact, while
capacity was increased by 4.0 per cent. At constant currency,
passenger unit revenue decreased 0.5 per cent from lower yields
(passenger revenue/revenue passenger kilometre), down 2.0 per cent,
but with an increase in passenger load factor of 1.3 points. At the
airline level, passenger unit revenue at ccy increased in British
Airways and Vueling, was flat in Aer Lingus and decreased in
Iberia.
The Group carried over 118 million passengers, an increase of
4.7 per cent from last year, with higher passenger load factor
across the Group. The Group's Net Promoter Score for 2019 was 25.8
per cent, an improvement of 9.5 points versus last year's figure.
This came from better regularity, as well as continued product and
service improvements. Vueling made improvements to disruption
handling and resilience, which made a significant difference for
customers in light of the significant Air Traffic Control ('ATC')
disruption again in 2019. Net Promoter Score improved at British
Airways, Iberia and Vueling, and was flat at Aer Lingus, in the
context of increased punctuality challenges at Dublin Airport.
Cargo revenue
2019 was a difficult year for global airfreight, with
industry-wide volumes down 3.3 per cent versus 2018. The reduction
in demand reflected US-China trade tensions and weaker
manufacturing in Europe, notably in Germany. IAG Cargo's
performance was better than the market overall, reflecting its
strategy to focus on premium products. IAG volumes were down 2.4
per cent, with yield down 4.9 per cent at constant currency,
leading to a decrease in Cargo revenue of 7.2 per cent at constant
currency. Premium products, including Constant Climate and
Critical, performed better than general freight, with a growth in
the Constant Fresh perishable movements, particularly out of Latin
America and Africa. Industry sectors such as automotive parts were
significantly down. IAG Cargo launched a new temperature-controlled
facility in Madrid, which gained Good Distribution Practice
certification in February. The new facility has been welcomed by
customers and has provided new revenue potential for the Spanish
hub.
Other revenue
Other revenue rose 14.1 per cent, 11.3 per cent at constant
currency. Revenues grew at Iberia's third party maintenance (MRO)
business, assisted by greater engine overhaul activity. BA Holidays
continued to grow, benefitting from marketing and a focus on IT
improvements, resulting in higher conversions into bookings. Other
revenue was also boosted by IAG Loyalty, which increased the sale
of Avios points to its partners.
Total revenue
Total revenue for the Group rose 5.1 per cent and was up 3.5 per
cent at ccy.
Non-fuel unit costs
At constant currency, total non-fuel unit costs decreased 0.1
per cent. Airline non-fuel unit costs (adjusted by the costs
associated with generating 'Other revenue', representing the costs
of handling and maintenance for other airlines, non-flight products
in BA Holidays and costs associated with other miscellaneous
non-flight revenue streams), was down 0.9 per cent. Airline
non-fuel unit costs improved at a Group level from cost-saving
initiatives and efficient growth, with Vueling's investment in
resilience and disruption handling reducing passenger assistance
costs linked to continuing Air Traffic Control issues in
Europe.
Expenditure before exceptional items
Employee costs
Employee costs increased 3.1 per cent before exceptional items
for the year. At constant currency, employee unit costs improved
1.4 per cent primarily linked to management initiatives,
productivity improvements, the impact of strikes at British Airways
on bonus payments and the final quarter of year-on-year benefit
from the NAPS pension closure at British Airways in March 2018.
This was partially offset by pay increases at all airlines,
generally linked to price inflation.
In 2018 British Airways closed its New Airways Pension Scheme
(NAPS) to future accrual and British Airways Retirement Plan (BARP)
to future contributions from March 31, 2018. The schemes have been
replaced by a flexible defined contribution scheme, the British
Airways Pension Plan (BAPP). The changes resulted in a reduction in
the NAPS IAS 19 defined benefit liability of EUR872 million,
transitional arrangement cash costs of EUR192 million (recognised
as an exceptional in the prior year) and a reduction in current
service cost.
Overall, the average number of employees rose by 2.0 per cent
for the Group bringing the average workforce to 66,034.
Productivity, measured as Available Seat Kilometre ('ASKs') per
manpower equivalent, increased 1.9 per cent with improvements at
British Airways, Iberia, Vueling and Aer Lingus.
Employee costs
Higher/(lower)
=============== ===== ===================
Year over
year at Per ASK
EUR million 2019 ccy at ccy
=============== ===== ========= ========
Employee costs 4,962 2.6% (1.4)%
=============== ===== ========= ========
Productivity
Higher/(lower)
============================ =================
Year over
2019 year
============================ ====== =========
Productivity 5,115 1.9%
Average manpower equivalent 66,034 2.0%
============================ ====== =========
Fuel, oil and emissions costs
Fuel, oil and emissions costs rose by 14.0 per cent in 2019,
primarily due to hedging profits in 2018 not repeated in 2019,
partially offset by a weaker US dollar and operational
efficiencies. The Group hedges its fuel purchases in advance,
typically gradually building its cover over three years. This
hedging programme smooths the effects of rising (or falling) prices
and 2018 benefitted particularly from prices locked in at lower
rates in previous years. The Group also gained fuel efficiencies
from new generation aircraft and fuel consumption was further
reduced by improved operational procedures implemented across the
airlines. At ccy and on a unit basis, fuel costs were 5.7 per cent
higher.
Fuel, oil and emissions costs
Higher/(lower)
====================================== ===== ===================
Year over
year at Per ASK
EUR million 2019 ccy at ccy
====================================== ===== ========= ========
Fuel, oil costs and emissions charges 6,021 10.0% 5.7%
====================================== ===== ========= ========
Supplier costs
Total supplier costs for the year increased 5.1 per cent with
0.9 points of adverse currency impact. At ccy and on a unit basis,
supplier costs rose 0.2 per cent.
Supplier costs
Higher/(lower)
=============================================== ===== =========================
Year over Year over
year at year at
ccy ccy
EUR million 2019 (proforma) (statutory)
=============================================== ===== =========== ============
Supplier costs per ASK at ccy 0.2%
Handling, catering and other operating costs 2,972 7.4% 7.1%
Landing fees and en-route charges 2,221 0.8% 0.8%
Engineering and other aircraft costs 2,092 8.5% 10.2%
Property, IT and other costs 811 1.9% (12.5)%
Selling costs 1,038 (2.8)% (2.8)%
Currency differences (7) nm nm
=============================================== ===== =========== ============
British Airways' supplier unit costs at ccy were up due to
investment in customer (catering and lounges), incremental BA
Holidays costs (impacting Handling, catering and other operating
costs) and inflation, partially offset by one-off compensation
received in relation to an IT failure in 2017, aircraft delivery
delays and engine issues and from cost saving initiatives. Iberia
supplier unit costs at ccy were up from increased Engineering and
other aircraft costs related to its third-party MRO business, with
a corresponding increase in other revenue, partially offset by
lower selling costs due to direct channel growth and continued cost
saving initiatives. Vueling supplier unit costs at ccy improved
significantly from lower disruption costs in line with improved
operational performance as well as the introduction of an action
plan identifying saving opportunities from the demand slowdown.
This was partially offset by investment in operational resilience
for the business, aimed at mitigating the impact of ATC disruption.
Aer Lingus supplier unit costs at ccy were up from increased
maintenance and handling costs, partially offset by continued cost
saving initiatives and efficient growth.
By supplier cost category:
Handling, catering and other operating costs rose 8.7 per cent,
excluding currency up 7.4 per cent. More than half of this increase
was linked to higher capacity, with 4.7 per cent additional
passengers carried in the year and higher activity at BA Holidays,
with the corresponding increase in Other revenue. Costs also rose
from the impact of disruption caused by the pilots strike at
British Airways and price increases in supplier contracts. The
Group continued its focus on improving the customer proposition by
investing in lounges, catering and service delivery.
Landing fees and en-route charges were higher by 1.7 per cent,
excluding currency up 0.8 per cent. Costs rose primarily from
higher activity, with flying hours up 3.0 per cent and sectors
flown up 2.8 per cent, offset by reductions of en-route charges at
Vueling and Aer Lingus, and London Gatwick rebates at British
Airways.
Engineering and other aircraft costs increased 12.7 per cent,
excluding currency up 8.5 per cent. Increases were driven by
increased flying hours, up 3.0 per cent, contractual price
escalation on maintenance contracts, additional component costs at
Aer Lingus and higher costs associated with Iberia's third-party
maintenance business. Cost increases were partly offset by
negotiated improvements in 'pay-as-you-go' contracts and
compensation received from manufacturers linked to aircraft
availability issues.
Property, IT and other costs were up 2.8 per cent, excluding
currency up 1.9 per cent. The increase is due to higher capacity,
with lower costs on a unit basis. The improvement reflects the
impact of one-off supplier compensation received from the impact of
the IT failure in 2017 at British Airways. This was partially
offset by investing in resilience and IT infrastructure and from
inflation increases on rent and rates.
Selling costs decreased 0.8 per cent, excluding currency down
2.8 per cent. Selling costs benefited from reduced commissions,
linked to growth of the new distribution model, together with
benefits from the mix of selling channels, with an increase in
direct sales. British Airways benefited from an initiative to
reduce credit card costs. Iberia achieved efficiencies from
targeted marketing spend, which was partially offset by British
Airways' investment in its centenary year and new uniform
development.
Ownership costs
The Group's ownership costs were up 5.8 per cent, excluding
currency up 5.4 per cent. The increase reflects additional
depreciation on new aircraft, as well as depreciation on
densification and connectivity investments and from the New York
JFK terminal project. The increase in ownership costs was partially
offset by a reduction in engine overhauls in line with retirement
of the Boeing 747 fleet at British Airways. New aircraft are
contributing to lower carbon emissions and reduced fuel costs.
Year over
year at Year over
ccy year at
EUR million 2019 (proforma) ccy (statutory)
================ ===== =========== ================
Per ASK at ccy 1.4%
Ownership costs 2,111 5.4% (1.9)%
================ ===== =========== ================
Higher/(lower)
================ ================
Year over
Number of fleet 2019 year
================ ===== =========
Shorthaul 394 3.7%
Longhaul 204 5.7%
================ ===== =========
598 4.4%
================ ===== =========
Aircraft deliveries 2019 2018
==================== ==== ====
Airbus A320 family 32 28
Airbus A330 3 6
Airbus A350 8 2
Boeing 787 - 5
Embraer E190 2 1
==================== ==== ====
Total 45 42
==================== ==== ====
Exchange impact before exceptional items
Exchange rate impacts are calculated by retranslating current
year results at prior year exchange rates. The reported revenues
and expenditures are impacted by the translation of currencies
other than euro to the Group's reporting currency of euro,
primarily British Airways and Avios. From a transaction
perspective, the Group performance is impacted by the fluctuation
of exchange rates, primarily exposure to the pound sterling, euro
and US dollar. The Group generates a surplus in most currencies in
which it does business, except the US dollar, as capital
expenditure, debt repayments and fuel purchases typically create a
deficit which is managed and partially hedged. Overall, in 2019 the
Group operating profit before exceptional items benefitted from
EUR67 million of positive foreign exchange impacts.
The Group hedges its economic exposure from transacting in
foreign currencies. The Group does not hedge the translation impact
of reporting in euro.
2019
================================================ ===================================
Total
EUR million Translation Transaction exchange
Favourable/(adverse) impact impact impact
================================================ =========== =========== =========
Total exchange impact on revenue 68 325 393
Total exchange impact on operating expenditures (58) (268) (326)
================================================ =========== =========== =========
Total exchange impact on operating profit 10 57 67
================================================ =========== =========== =========
The exchange rates for the Group were as follows:
Higher/
2019 2018 (lower)
=============================== ==== ==== ========
Translation - Balance sheet
EUR to GBP 1.18 1.11 6.3%
=============================== ==== ==== ========
Translation - Income statement
(weighted average)
EUR to GBP 1.13 1.13 -
=============================== ==== ==== ========
Transaction
(weighted average)
EUR to GBP 1.13 1.13 -
$ to EUR 1.12 1.18 (5.1)%
$ to GBP 1.27 1.33 (4.5)%
=============================== ==== ==== ========
Operating profit before exceptional items
In summary, the Group's operating profit before exceptional
items for the year was EUR3,285 million, a EUR200 million decrease
from last year (on a statutory basis after exceptional items a
decrease of EUR1,065 million mainly due to the exceptional pension
credit in 2018 and exceptional pension expense in 2019). The
Group's operating margin was lower by 1.5 points to 12.9 per cent.
These results reflect the industrial action at British Airways and
disruption at London Heathrow in the summer, which had an adverse
impact of approximately EUR170 million. In the second half of the
year, weakness and disruption faced by the Group's low-cost
segments had a further adverse impact of approximately EUR45
million.
Operating profit and loss performance of operating companies
British Airways Aer Lingus Iberia Vueling
GBP million EUR million EUR million EUR million
============ ============================= ============================ =========================== ===========================
Higher/ Higher/ Higher/ Higher/
Higher/ (lower) Higher/ (lower) Higher/ (lower) Higher/ (lower)
2019 (lower)(1) (2) 2019 (lower)(1) (2) 2019 (lower)(1) (2) 2019 (lower)(1) (2)
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
ASKs 186,170 0.9% 0.9% 30,255 4.2% 4.2% 73,354 7.6% 7.6% 38,432 2.7% 2.7%
Seat factor
(per cent) 83.6 1.1pts 1.1pts 81.8 0.8pts 0.8pts 87.2 1.7pts 1.7pts 86.9 1.5pts 1.5pts
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Passenger
revenue 11,899 2.9% 2.9% 2,060 6.1% 6.1% 4,053 7.3% 7.3% 2,437 5.2% 5.2%
Cargo
revenue 711 (7.6)% (7.6)% 54 0.6% 0.6% 291 5.8% 5.8% - -
Other
revenue 680 7.6% 7.6% 11 (16.8)% (16.8)% 1,301 16.2% 16.2% 18 (14.8)% (14.8)%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Total
revenue 13,290 2.5% 2.5% 2,125 5.8% 5.8% 5,645 9.2% 9.2% 2,455 5.0% 5.0%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Fuel, oil
costs
and
emissions
charges 3,237 10.6% 10.6% 460 20.6% 20.6% 1,202 17.6% 17.6% 548 12.1% 12.1%
Employee
costs 2,529 (0.2)% (0.2)% 405 8.8% 8.8% 1,164 6.7% 6.7% 301 8.2% 8.2%
Supplier
costs 4,497 2.0% (0.7)% 854 5.9% 11.9% 2,392 10.5% 10.6% 1,116 3.3% 1.5%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
EBITDA 3,027 (2.1)% 1.8% 406 (9.6)% (17.3)% 887 (0.5)% (0.9)% 490 0.0% 4.0%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Ownership
costs 1,106 3.7% 8.5% 130 (5.5)% (30.1)% 390 8.8% (14.8)% 250 10.6% (7.7)%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Operating
profit
before
exceptional
items 1,921 (5.1)% (1.6)% 276 (11.4)% (9.5)% 497 (6.7)% 13.8% 240 (9.3)% 19.7%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Operating
margin 14.5% (1.1)pts (0.6)pts 13.0% (2.5)pts (2.2)pts 8.8% (1.5)pts 0.4pts 9.8% (1.5)pts 1.4pts
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Pence/EUR
cents
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Passenger
yield
per RPK 7.65 0.6% 0.6% 8.32 0.8% 0.8% 6.33 (2.3)% (2.3)% 7.30 0.7% 0.7%
Passenger
revenue
per ASK 6.39 2.0% 2.0% 6.81 1.8% 1.8% 5.52 (0.3)% (0.3)% 6.34 2.4% 2.4%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Total
revenue
per ASK 7.14 1.6% 1.6% 7.02 1.5% 1.5% 7.69 1.5% 1.5% 6.39 2.3% 2.3%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Fuel cost
per
ASK 1.74 9.6% 9.6% 1.52 15.6% 15.6% 1.64 9.3% 9.3% 1.43 9.2% 9.2%
Non-fuel
costs
per ASK 4.37 0.6% (0.3)% 4.59 1.2% 0.8% 5.38 1.4% (1.2)% 4.34 2.5% (1.5)%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
Total cost
per
ASK 6.11 3.0% 2.3% 6.11 4.5% 4.2% 7.02 3.2% 1.1% 5.76 4.1% 0.9%
============ ======= ========== ======== ====== ========== ======== ====== ========== ======= ====== ========== =======
1 Proforma
2 Statutory
British Airways' operating profit was GBP1,921 million,
excluding exceptional items, down GBP104 million over the prior
year on a capacity increase of 0.9 per cent.
Passenger unit revenues were up for the year, with higher
yields, from strong performance in the North American premium
sector, and an increase in load factor.
Non-fuel unit costs were up for the year, due to the growth of
BA Holidays. Excluding the impact of BA Holidays, non-fuel unit
costs decreased, driven by management initiatives and supplier
compensation partly offset by customer investment and contractual
price increases.
Overall, British Airways' operating margin declined 1.1 points
to 14.5 per cent.
Aer Lingus' operating profit was EUR276 million, a decrease of
EUR35 million over last year. Capacity increased 4.2 per cent from
the addition of a new route connecting Dublin and Minneapolis and
increases in capacity to San Francisco, Seattle and
Philadelphia.
Aer Lingus' operating margin was 2.5 points lower at 13.0 per
cent. Passenger unit revenues were up, with strong longhaul
performance and positive retail performance, despite challenging
European market conditions.
Aer Lingus non-fuel unit costs were up, primarily driven by
increased maintenance and handling costs as well as pay inflation
increases, partially offset by continued cost saving initiatives
and efficient growth. Fuel unit costs were up versus last year,
reflecting higher market fuel prices, with favourable hedge
positions having unwound during the year.
Iberia's operating profit before exceptional items was EUR497
million, down by EUR36 million versus last year, achieving an
operating margin of 8.8 per cent. Capacity for the year was up 7.6
per cent, with a slight reduction in passenger unit revenue from
lower yields partially offset by higher passenger load factor.
Iberia's total unit cost performance was up but improved at
constant currency. Higher costs were mainly from CPI related price
increases and higher maintenance works performed by Iberia's
third-party MRO business, as well as higher fuel costs. This was
partially offset by decreases in selling costs from direct channel
growth and other marketing cost saving initiatives. Employee unit
costs continued to improve, with strong increases in productivity
through efficiency initiatives.
In 2019, Iberia's Other revenue also increased by 16.2 per cent,
primarily from its MRO business.
Vueling's operating profit was EUR240 million, a decrease of
EUR24 million. Its operating margin of 9.8 per cent was 1.5 points
down versus last year.
Vueling adjusted its capacity to offset demand slowdown, however
the impact of incidents in Barcelona and strikes impacted revenues.
A new disruption protection plan was put in place, contributing to
higher costs but offset by Vueling's action plan to identify saving
opportunities to cope with demand slowdown. Further cost increases
came from a higher fuel bill and inflation-linked price increases
in supplier costs.
Vueling invested in an ATC protection plan to safeguard its
operations from the impact of future disruption in line with its
NEXT strategy and in order to reduce possible future disruption
related costs, such as compensation, and impact to revenues.
Exceptional items
For a full list of exceptional items, refer to note 4 of the
Financial statements. Below is a summary of the significant
exceptional items recorded.
Following British Airways reaching a settlement agreement with
the Trustee Directors of its APS pension scheme, the Group
recognised an exceptional non-cash net operating charge of EUR672
million, reflecting the associated increased IAS 19 defined benefit
liability of APS. The settlement, approved by the High Court in
November 2019, puts an end to a legal dispute over pension
increases, which started in 2013.
In 2018 British Airways closed its NAPS pension scheme to future
accrual and its BARP pension scheme to future contributions,
replacing them with a new defined contribution scheme. The changes
led to an exceptional net credit of EUR678 million. British Airways
also reflected the cost of equalising the effects of Guaranteed
Minimum Pensions, leading to EUR94 million charge to employee costs
and had restructuring costs of EUR136 million.
Non-operating costs
Net non-operating costs after exceptional items were EUR338
million, down from EUR521 million last year. The translation of
non-hedged balance sheet items and movement on US dollar
denominated aircraft debt and hedging resulted in a net credit.
This was partially offset by higher finance costs due to
accelerated bond redemption and interest accrued on bonds issued in
2019.
Taxation
The substantial majority of the Group's activities are taxed
where the main operations are based, UK, Spain and Ireland, with
corporation tax rates during 2019 of 19 per cent, 25 per cent and
12.5 per cent respectively. The Group's effective tax rate for the
year before exceptional items was 19 per cent (2018: 18 per cent)
and the income statement tax charge was EUR560 million (2018:
EUR542 million).
There is no associated Income statement tax credit linked to the
2019 exceptional item, as the value of the accounting surplus is
net of 35 per cent tax at source.
Profit after tax and Earnings per share (EPS)
Profit after tax before exceptional items was EUR2,387 million,
down 1.4 per cent. The decrease reflects a lower operating profit
from the effect of the pilot strike at British Airways and from
significantly higher fuel costs, partially offset by continued cost
saving initiatives and capacity adjustments in the face of slower
demand. Adjusted earnings per share before exceptional items is a
key performance indicator and increased by 1.7 per cent in the
year, reflecting the lower operating profit, offset by a lower
share base, following the share buyback programme in 2018 and
convertible bond redemption in 2019.
Profit after tax and exceptional items was EUR1,715 million
(2018 pro forma: EUR2,838 million, 2018 statutory: EUR2,897
million), down 39.6 per cent, due to the exceptional pension charge
in 2019 versus an exceptional net gain in 2018.
Dividends
The Board is proposing a final dividend to shareholders of 17.0
euro cents per share, which brings the full year dividend to 31.5
euro cents per share. Subject to shareholder approval at the Annual
General Meeting, the final dividend will be paid on July 6, 2020 to
shareholders on the register on July 3, 2020.
Dividend policy statement
In determining the level of dividend in any year, the Board
considers several factors, including:
-- Earnings of the Group;
-- Ongoing cash requirements and prospects of the Group and its operating companies;
-- Levels of distributable reserves by operating company and efficiency of upstreaming options;
-- Dividend coverage; and
-- Its intention to distribute regular returns to its shareholders in the medium and long-term.
The Company received distributions from each of the four main
airlines in 2019. Distributions from British Airways may trigger
additional pension contributions if higher than pre-agreed
thresholds and in 2019 an increased threshold of 50 per cent of
after-tax profit was agreed until September 2022; see note 30 of
the Financial statements.
The Company's distributable reserves position was strong, with
EUR5.2 billion available at December 31, 2019 (2018: EUR5.7
billion).
Liquidity and capital risk management
IAG's objectives when managing capital are to safeguard the
Group's ability to continue as a going concern, to maintain an
optimal capital structure to reduce the cost of capital and to
provide sustainable returns to shareholders. In November 2018, S+P
and Moody's assigned IAG with a long--term investment grade credit
rating with stable outlook.
The Group monitors capital using net debt to EBITDA and
liquidity. In 2019, the Group's net debt to EBITDA ratio increased
to 1.4 from 1.2 times, well within the Group's target ceiling of
1.8 times. EBITDA was slightly lower, with the reduction in
operating profit partially offset by lower non-operating
expenditure. Net debt increased by EUR1.1 billion, mainly due to
higher capital expenditure as the Group continues to invest in the
customer experience and in new, fuel-efficient aircraft.
In 2019 the Group financed 41 of the new aircraft delivered
during the year, using a range of aircraft-specific financing
instruments, including an EETC bond issue by British Airways of
$806 million, which were combined with Japanese Operating Leases
with Call Options ("JOLCO") as in previous years, bringing the
total financing raised to $1,120 million. The Group redeemed
outstanding convertible bonds of EUR500 million and in July issued
its first unsecured bonds for an aggregate principal amount of EUR1
billion, split into two tranches of EUR500 million due in 2023 and
2027.
Pensions and restructuring reflect payments made to the British
Airways APS and NAPS pension plan schemes and restructuring
payments for British Airways' and Iberia's transformation plans.
Deficit payments to the APS plan ceased effective from January 1,
2019, following an out-of-court settlement which put an end to
litigation regarding pension increases that had started in 2013.
The full triennial valuation for the NAPS plan, based on the
position at March 31, 2018, was agreed during the year, with
deficit payments set at EUR532 million per annum (equivalent to the
EUR354 million plus a cash sweep of up to EUR177 million under the
previous plan), an overfunding protection mechanism and an
increased dividend mitigation threshold, whereby, up to September
2022, if British Airways pays dividends in excess of 50 per cent of
after-tax profits (previously 35 per cent) additional pension
contributions will be made, or a guarantee provided.
Tax cash flows were EUR224 million lower than in 2018
principally reflecting the early receipt in Spain of a refund for a
previous tax deposit, and the receipt in the UK of a one-off
repayment following the reassessment of Avios' deferred revenue
upon adoption of IFRS 15 'Revenue recognition'.
Shareholder returns reflect cash payments for dividends, buyback
programmes and special dividends. In 2018 a buyback programme of
EUR500 million was completed. In 2019 the Group paid a special
dividend of EUR695 million, in addition to normal dividends
equivalent to 25 per cent of pre-exceptional profit after tax.
Cash flow
2018
EUR million 2019 (statutory) Movement
============================================================ ======= ============= ========
Operating profit before exceptional items 3,285 3,230 55
Depreciation, amortisation and impairment 2,111 1,254 857
Pensions (865) (843) (22)
Payments related to restructuring (180) (220) 40
Movement in working capital (70) (64) (6)
Other operating movements 279 334 (55)
Interest received 42 37 5
Interest paid (481) (149) (332)
Tax paid (119) (343) 224
============================================================ ======= ============= ========
Cash flow from operating activities 4,002 3,236 766
============================================================ ======= ============= ========
Acquisition of PPE and intangible assets (3,465) (2,802) (663)
Sale of PPE and intangible assets 911 574 337
Other investing movements (1) (251) 250
============================================================ ======= ============= ========
Cash flow from investing activities (2,555) (2,479) (76)
Proceeds from long-term borrowings 2,286 1,078 1,208
Repayments of borrowings and lease liabilities (2,237) (1,099) (1,138)
============================================================ ======= ============= ========
Net cash flows from financing activities before shareholder
returns 49 (21) 70
============================================================ ======= ============= ========
Levered free cash flow for the year 1,496 736 760
============================================================ ======= ============= ========
Shareholder returns (1,308) (1,077) (231)
============================================================ ======= ============= ========
Cash inflow/(outflow) for the year 188 (341) 529
============================================================ ======= ============= ========
Opening cash and interest-bearing deposits 6,274 6,676 (402)
============================================================ ======= ============= ========
Net foreign exchange differences 221 (61) 282
============================================================ ======= ============= ========
Closing cash and interest-bearing deposits 6,683 6,274 409
============================================================ ======= ============= ========
Taking these factors into consideration, the Group's cash inflow
for the year was EUR188 million and after net foreign exchange
differences, the increase in cash net of exchange was EUR409
million. Each operating company holds adequate levels of cash with
balances approximately 20 per cent of revenues or higher,
sufficient to meet obligations as they fall due.
Higher/
EUR million 2019 2018 (lower)
============================== ===== ===== ========
British Airways 3,055 2,780 275
Iberia 1,121 1,191 (70)
Aer Lingus 580 891 (311)
Vueling 820 564 256
IAG and other Group companies 1,107 848 259
============================== ===== ===== ========
Cash and deposits 6,683 6,274 409
============================== ===== ===== ========
The implementation of IFRS 16, whilst not changing cash, altered
where certain items appear on the cash flow statement, notably
resulting in higher depreciation, higher interest paid and higher
repayment of borrowings. On a like-for-like basis, depreciation was
up approximately EUR115 million, interest paid unchanged and
repayment of borrowings up EUR471 million, mainly linked to the
repayment of the IAG 2020 convertible bond.
Net debt (and Adjusted net debt for 2018)
2018
Higher
EUR million 2019 (statutory) / (lower)
======================================================== ======= ============ ==========
Debt 7,509 7,331 178
Cash and cash equivalents and interest-bearing deposits (6,274) (6,676) 402
======================================================== ======= ============ ==========
Net debt at January 1 1,235 655 580
Adoption of IFRS 16 January 1, 2019 5,195 - 5,195
======================================================== ======= ============ ==========
Net debt at January 1 after adoption of IFRS 16 6,430 655 5,775
(Increase)/decrease in cash net of exchange (409) 402 (811)
Net cash outflow from repayments of borrowings and
lease liabilities (2,237) (1,099) (1,138)
Net cash inflow from new borrowings 2,286 1,078 1,208
New leases 1,199 - 1,199
======================================================== ======= ============ ==========
(Increase)/decrease in net debt from regular financing 1,248 (21) 1,269
Exchange and other non-cash movements 302 199 103
======================================================== ======= ============ ==========
Net debt at December 31 7,571 1,235 6,336
Capitalised aircraft lease costs - 7,120 (7,120)
======================================================== ======= ============ ==========
Adjusted net debt at December 31 7,571 8,355 (784)
======================================================== ======= ============ ==========
The Group's net debt position after the adoption of IFRS 16
increased by EUR1.1 billion over the year from EUR6,430 million at
January 1, 2019 to EUR7,571 million at the end of the year, mainly
due to increased capital expenditure as the Group invested in new
fuel-efficient fleet.
Capital commitments
Capital expenditure authorised and contracted for amounted to
EUR12,830 million (2018: EUR10,831 million) for the Group. Most of
this is in US dollars and includes commitments until 2025 for 79
aircraft from the Airbus A320 family, 12 Boeing 787s, 22 Boeing
777s, 33 Airbus A350s, and one Airbus A330.
Overall, the Group maintains flexibility in its fleet plans with
the ability to defer, to exercise options and to negotiate
different renewal terms. IAG does not have any other off-balance
sheet financing arrangements.
Strategic framework
IAG's mission is to be the leading international airline group.
This means we will:
-- Win the customer through service and value across our global network;
-- Deliver higher returns to our shareholders through leveraging
cost and revenue opportunities across the Group;
-- Attract and develop the best people in the industry;
-- Provide a platform for quality international airlines,
leaders in their markets, to participate in consolidation; and
-- Retain the distinct cultures and brands of the individual airlines.
-- Lead the industry in environmental sustainability.
By accomplishing our mission, IAG will help to shape the future
of the industry, set new standards of excellence and provide
sustainability, security and growth.
IAG's strategic priorities are as follows:
-- Strengthening a portfolio of world-class brands and operations
-- Growing global leadership positions
-- Enhancing the common integrated platform
Principal risks and uncertainties
During the year IAG and its operating companies have continued
to further embed the risk framework, which includes processes to
identify, assess and manage risks, including emerging risks. The
principal risks and uncertainties affecting IAG, detailed on pages
30 to 36 of the Annual Report and Accounts 2018, remain relevant.
In general, the Group's strategic risk was stable during the year.
As the Group moves into 2020, there is continued political
uncertainty, fuel price volatility and the ongoing risk of impact
to our operations and reputation from events outside of the Group's
control.
International Consolidated Airlines Group S.A.
Unaudited full year Consolidated Financial Statements
January 1, 2019 - December 31, 2019
CONSOLIDATED INCOME STATEMENT
Year to December 31
=========================================================================
Before
Before exceptional
exceptional items Total
items Exceptional Total 2018 Exceptional 2018
EUR million Note 2019 items 2019 (Restated) items (Restated)
================================ ==== ============ =========== ====== ============ =========== ===========
Passenger revenue 22,468 22,468 21,401 21,401
Cargo revenue 1,117 1,117 1,173 1,173
Other revenue 1,921 1,921 1,684 1,684
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Total revenue 3 25,506 25,506 24,258 24,258
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
4,
Employee costs 7 4,962 672 5,634 4,812 (460) 4,352
Fuel, oil costs and emissions
charges 6,021 6,021 5,283 5,283
Handling, catering and other
operating costs 2,972 2,972 2,740 2,740
Landing fees and en-route
charges 2,221 2,221 2,184 2,184
Engineering and other aircraft
costs 2,092 2,092 1,828 1,828
Property, IT and other costs 811 811 918 12 930
Selling costs 1,038 1,038 1,046 1,046
Depreciation, amortisation
and impairment 5 2,111 2,111 1,254 1,254
Aircraft operating lease
costs - - 890 890
Currency differences (7) (7) 73 73
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Total expenditure on operations 22,221 672 22,893 21,028 (448) 20,580
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Operating profit 3,285 (672) 2,613 3,230 448 3,678
Finance costs 8 (611) (611) (231) (231)
Finance income 8 50 50 41 41
Net financing credit relating
to pensions 8 26 26 27 27
Net currency retranslation
credits/(charges) 201 201 (19) (19)
Other non-operating charges 8 (4) (4) (9) (9)
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Total net non-operating
costs (338) (338) (191) (191)
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Profit before tax 2,947 (672) 2,275 3,039 448 3,487
Tax 9 (560) - (560) (558) (32) (590)
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Profit after tax for the
year 2,387 (672) 1,715 2,481 416 2,897
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Attributable to:
Equity holders of the parent 2,387 1,715 2,469 2,885
Non-controlling interest - - 12 12
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
2,387 1,715 2,481 2,897
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Basic earnings per share
(EUR cents) 10 120.3 86.4 122.1 142.7
-------------------------------- ---- ------------ ----------- ------ ------------ ----------- -----------
Diluted earnings per share
(EUR cents) 10 116.8 84.3 117.7 137.4
================================ ==== ============ =========== ====== ============ =========== ===========
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Year to December
31
==================
EUR million Note 2019 2018
====================================================== ==== ======= =========
Items that may be reclassified subsequently to net
profit
Cash flow hedges:
Fair value movements in equity 610 (517)
Reclassified and reported in net profit 141 (480)
Fair value movements on cost of hedging 36 13
Cost of hedging reclassified and reported in net
profit 29 (10) -
Currency translation differences 29 296 (80)
Items that will not be reclassified to net profit
Fair value movements on other equity investments 29 (8) (5)
Fair value movements on cash flow hedges (70) 26
Fair value movements on cost of hedging 32 -
Remeasurements of post-employment benefit obligations 29 (788) (696)
------------------------------------------------------ ---- ------- ---------
Total other comprehensive income/(loss) for the year,
net of tax 239 (1,739)
------------------------------------------------------ ---- ------- ---------
Profit after tax for the year 1,715 2,897
Total comprehensive income for the year 1,954 1,158
------------------------------------------------------ ---- ------- ---------
Total comprehensive income is attributable to:
Equity holders of the parent 1,954 1,146
Non-controlling interest 29 - 12
------------------------------------------------------ ---- ------- ---------
1,954 1,158
------------------------------------------------------ ---- ------- ---------
Items in the consolidated Statement of other comprehensive
income above are disclosed net of tax.
CONSOLIDATED BALANCE SHEET
December December
31, 31,
EUR million Note 2019 2018
================================================== ==== ======== ========
Non-current assets
Property, plant and equipment 12 19,168 12,437
Intangible assets 15 3,442 3,198
Investments accounted for using the equity method 16 31 31
Other equity investments 17 82 80
Employee benefit assets 30 524 1,129
Derivative financial instruments 26 268 221
Deferred tax assets 9 546 536
Other non-current assets 18 273 309
-------------------------------------------------- ---- -------- --------
24,334 17,941
-------------------------------------------------- ---- -------- --------
Current assets
Inventories 565 509
Trade receivables 18 2,255 1,597
Other current assets 18 1,314 1,175
Current tax receivable 9 186 383
Derivative financial instruments 26 324 155
Other current interest-bearing deposits 19 2,621 2,437
Cash and cash equivalents 19 4,062 3,837
-------------------------------------------------- ---- -------- --------
11,327 10,093
-------------------------------------------------- ---- -------- --------
Total assets 35,661 28,034
-------------------------------------------------- ---- -------- --------
Shareholders' equity
Issued share capital 27 996 996
Share premium 27 5,327 6,022
Treasury shares (60) (68)
Other reserves 29 560 (236)
-------------------------------------------------- ---- -------- --------
Total shareholders' equity 6,823 6,714
-------------------------------------------------- ---- -------- --------
Non-controlling interest 29 6 6
-------------------------------------------------- ---- -------- --------
Total equity 6,829 6,720
-------------------------------------------------- ---- -------- --------
Non-current liabilities
Interest-bearing long-term borrowings 23 12,411 6,633
Employee benefit obligations 30 328 289
Deferred tax liability 9 572 453
Provisions 24 2,416 2,268
Derivative financial instruments 26 286 423
Other long-term liabilities 22 71 198
-------------------------------------------------- ---- -------- --------
16,084 10,264
-------------------------------------------------- ---- -------- --------
Current liabilities
Current portion of long-term borrowings 23 1,843 876
Trade and other payables 20 4,344 3,959
Deferred revenue on ticket sales 21 5,486 4,835
Derivative financial instruments 26 252 656
Current tax payable 9 192 165
Provisions 24 631 559
-------------------------------------------------- ---- -------- --------
12,748 11,050
-------------------------------------------------- ---- -------- --------
Total liabilities 28,832 21,314
-------------------------------------------------- ---- -------- --------
Total equity and liabilities 35,661 28,034
================================================== ==== ======== ========
CONSOLIDATED CASH FLOW STATEMENT
Year to December
31
==================
EUR million Note 2019 2018
========================================================== ==== ======== ========
Cash flows from operating activities
Operating profit after exceptional items 2,613 3,678
Depreciation, amortisation and impairment 5 2,111 1,254
Movement in working capital (70) (64)
Increase in trade receivables, prepayments, inventories
and other current assets (935) (650)
Increase in trade and other payables, deferred
revenue on ticket sales and current liabilities 865 586
Payments related to restructuring 24 (180) (220)
Employer contributions to pension schemes (870) (898)
Pension scheme service costs 30 5 55
Provision and other non-cash movements 951 (114)
Interest paid (481) (149)
Interest received 42 37
Tax paid (119) (343)
---------------------------------------------------------- ---- -------- --------
Net cash flows from operating activities 4,002 3,236
---------------------------------------------------------- ---- -------- --------
Cash flows from investing activities
Acquisition of property, plant and equipment and
intangible assets (3,465) (2,802)
Sale of property, plant and equipment and intangible
assets 911 574
(Increase)/decrease in other current interest-bearing
deposits (103) 924
Other investing movements (1) 61
---------------------------------------------------------- ---- -------- --------
Net cash flows from investing activities (2,658) (1,243)
---------------------------------------------------------- ---- -------- --------
Cash flows from financing activities
Proceeds from long-term borrowings 2,286 1,078
Repayment of borrowings (730) (275)
Repayment of lease liabilities (2018: repayment of
finance leases) (1,507) (824)
Acquisition of treasury shares - (500)
Distributions made to holders of perpetual securities - (312)
Dividend paid (1,308) (577)
---------------------------------------------------------- ---- -------- --------
Net cash flows from financing activities (1,259) (1,410)
---------------------------------------------------------- ---- -------- --------
Net increase in cash and cash equivalents 85 583
Net foreign exchange differences 140 (38)
Cash and cash equivalents at 1 January 3,837 3,292
---------------------------------------------------------- ---- -------- --------
Cash and cash equivalents at year end 19 4,062 3,837
---------------------------------------------------------- ---- -------- --------
Interest-bearing deposits maturing after more than
three months 19 2,621 2,437
---------------------------------------------------------- ---- -------- --------
Cash, cash equivalents and other interest-bearing
deposits 19 6,683 6,274
---------------------------------------------------------- ---- -------- --------
For details on restricted cash balances refer to note 19 ' Cash,
cash equivalents and other current interest-bearing deposits '.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2019
Issued
share Share Treasury Other Retained Non-controlling
capital premium shares reserves earnings Total interest
(note (note (note (note (note shareholders' (note Total
EUR million 27) 27) 27) 29) 29) equity 29) equity
======================== ======== ======== ======== ========= ========= ============== =============== =======
January 1, 2019 as
reported 996 6,022 (68) (3,560) 3,324 6,714 6 6,720
Adoption of IFRS 16 - - - 4 (554) (550) - (550)
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
January 1, 2019 996 6,022 (68) (3,556) 2,770 6,164 6 6,170
Profit for the year - - - - 1,715 1,715 - 1,715
Other comprehensive
income
for the year
Cash flow hedges
reclassified
and reported in net
profit:
Passenger revenue - - - 55 - 55 - 55
Fuel and oil costs - - - 106 - 106 - 106
Currency differences - - - (26) - (26) - (26)
Finance costs - - - 6 - 6 - 6
Net change in fair value
of cash flow hedges - - - 540 - 540 - 540
Net change in fair value
of equity investments - - - (8) - (8) - (8)
Net change in fair value
of cost of hedging - - - 68 - 68 - 68
Cost of hedging
reclassified
and reported in net
profit - - - (10) - (10) - (10)
Currency translation
differences - - - 296 - 296 - 296
Remeasurements of
post-employment
benefit obligations - - - - (788) (788) - (788)
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
Total comprehensive
income
for the year - - - 1,027 927 1,954 - 1,954
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
Hedges reclassified and
reported in property,
plant and equipment - - - (11) - (11) - (11)
Cost of share-based
payments - - - - 33 33 - 33
Vesting of share-based
payment schemes - - 8 - (14) (6) - (6)
Dividend - (695) - - (615) (1,310) - (1,310)
Redemption of
convertible
bond - - - (39) 38 (1) - (1)
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
December 31, 2019 996 5,327 (60) (2,579) 3,139 6,823 6 6,829
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2018
Issued
share Share Treasury Other Retained Non-controlling
capital premium shares reserves earnings Total interest
(note (note (note (note (note shareholders' (note Total
EUR million 27) 27) 27) 29) 29) equity 29) equity
======================== ======== ======== ======== ========= ========= ============== =============== =======
January 1, 2018 1,029 6,022 (77) (2,626) 2,278 6,626 307 6,933
Profit for the year - - - - 2,885 2,885 12 2,897
Other comprehensive
income
for the year
Cash flow hedges
reclassified
and reported in net
profit:
Passenger revenue - - - 77 - 77 - 77
Fuel and oil costs - - - (565) - (565) - (565)
Currency differences - - - 4 - 4 - 4
Finance costs - - - 4 - 4 - 4
Net change in fair value
of cash flow hedges - - - (491) - (491) - (491)
Net change in fair value
of equity investments - - - (5) - (5) - (5)
Net change in fair value
of cost of hedging - - - 13 - 13 - 13
Currency translation
differences - - - (80) - (80) - (80)
Remeasurements of
post-employment
benefit obligations - - - - (696) (696) - (696)
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
Total comprehensive
income
for
the year - - - (1,043) 2,189 1,146 12 1,158
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
Hedges reclassified and
reported in property,
plant and equipment - - - (1) - (1) - (1)
Cost of share-based
payments - - - - 31 31 - 31
Vesting of share-based
payment schemes - - 9 - (15) (6) - (6)
Acquisition of treasury
shares - - (500) - - (500) - (500)
Dividend - - - - (582) (582) - (582)
Cancellation of share
capital (33) - 500 33 (500) - - -
Dividend of a subsidiary - - - - - - (1) (1)
Transfer between
reserves - - - 77 (77) - - -
Distributions made to
holders of perpetual
securities - - - - - - (312) (312)
------------------------ -------- -------- -------- --------- --------- -------------- --------------- -------
December 31, 2018 996 6,022 (68) (3,560) 3,324 6,714 6 6,720
======================== ======== ======== ======== ========= ========= ============== =============== =======
NOTES TO THE consolidated Financial statements
For the year to December 31, 2019
1 Background and general information
International Consolidated Airlines Group S.A. (hereinafter
'International Airlines Group', 'IAG' or the 'Group') is a leading
European airline group, formed to hold the interests of airline and
ancillary operations. IAG is a Spanish company registered in Madrid
and was incorporated on December 17, 2009. On January 21, 2011
British Airways Plc and Iberia Líneas Aéreas de España S.A.
Operadora (hereinafter 'British Airways' and 'Iberia' respectively)
completed a merger transaction becoming the first two airlines of
the Group. Vueling Airlines S.A. ('Vueling') was acquired on April
26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18,
2015. A list of the subsidiaries of the Group is included in the
Group investments section.
IAG shares are traded on the London Stock Exchange's main market
for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'),
through the Spanish Stock Exchanges Interconnection System (Mercado
Continuo Español).
2 Significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by
the EU). The consolidated financial statements herein are not the
Group's statutory accounts and are unaudited. The consolidated
financial statements are rounded to the nearest million unless
otherwise stated. These financial statements have been prepared on
a historical cost convention except for certain financial assets
and liabilities, including derivative financial instruments and
other equity investments that are measured at fair value. The
carrying value of recognised assets and liabilities that are
subject to fair value hedges are adjusted to record changes in the
fair values attributable to the risks that are being hedged. The
financial statements for the prior year include reclassifications
that were made to conform to the current year presentation. The
amendments have no material impact on the financial statements.
The Group's financial statements for the year to December 31,
2019 were authorised for issue, and approved by the Board of
Directors on February 27, 2020.
The Directors have considered the business activities, the
Group's principal risks and uncertainties, and the Group's
financial position, including cash flows, liquidity position and
available committed facilities. The Directors consider that the
Group has adequate resources to remain in operation for the
foreseeable future and have therefore continued to adopt the going
concern basis in preparing the financial statements.
Changes in accounting policies
The Group has applied IFRS 16 'Leases' and IFRIC 23 'Uncertainty
over tax treatments' for the first time for the year to December
31, 2019. There has been no impact arising from the application of
IFRIC 23. Further details on the impact of IFRS 16 on the Group
accounting policies, financial position and performance are
provided in note 33.
There are no other standards, amendments or interpretations in
issue but not yet adopted that the Directors anticipate will have a
material effect on the reported income or net assets of the
Group.
In September 2019, the IFRS Interpretations Committee ('IFRIC')
clarified that under IFRS 15 compensation payments for flight
delays and cancellations form compensation for passenger losses and
accordingly should be recognised as variable compensation and
deducted from revenue. This clarification had led the Group to
change its accounting policy, which previously classified this
compensation as an operating expense. Accordingly, the Group has
restated the comparative period for 2018 to reflect EUR148 million
of compensation costs as a deduction from Passenger revenue and a
corresponding reduction within Handling, catering and other
operating costs. The revenue component of segmental reporting has
accordingly been restated. Further details are given in note
33.
Consolidation
The Group financial statements include the financial statements
of the Company and its subsidiaries, each made up to December 31,
together with the attributable share of results and reserves of
associates and joint ventures, adjusted where appropriate to
conform to the Group's accounting policies.
Subsidiaries are consolidated from the date of their
acquisition, which is the date on which the Group obtains control
and continue to be consolidated until the date that such control
ceases. Control exists when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity.
The Group applies the acquisition method to account for business
combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity
interests issued by the Group. Identifiable assets acquired and
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Non-controlling interests represent the portion of profit or loss
and net assets in subsidiaries that are not held by the Group and
are presented separately within equity in the consolidated Balance
sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the
acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of
the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities
assumed.
All intra-group account balances, including intra-group profits,
are eliminated in preparing the consolidated financial
statements.
Segmental reporting
Operating segments are reported in a manner consistent with how
resource allocation decisions are made by the chief operating
decision-maker. The chief operating decision-maker, who is
responsible for resource allocation and assessing performance of
the operating segments, has been identified as the IAG Management
Committee.
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the functional currency, being
the currency of the primary economic environment in which the
entity operates. In particular, British Airways and Avios have a
functional currency of pound sterling. The Group's consolidated
financial statements are presented in euros, which is the Group's
presentation currency.
b Transactions and balances
Transactions in foreign currencies are initially recorded in the
functional currency using the rate of exchange prevailing on the
date of the transaction. Monetary foreign currency balances are
translated into the functional currency at the rates ruling at the
balance sheet date. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation
at balance sheet exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Income
statement, except where hedge accounting is applied. Foreign
exchange gains and losses arising on the retranslation of monetary
assets and liabilities classified as non-current on the Balance
sheet are recognised within Net currency retranslation
(charges)/credits in the Income statement. All other gains and
losses arising on the retranslation of monetary assets and
liabilities are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros
at the rate of exchange ruling at the balance sheet date. Profits
and losses of such operations are translated into euros at average
rates of exchange during the year. The resulting exchange
differences are taken directly to a separate component of equity
(Currency translation reserve) until all or part of the interest is
sold, when the relevant portion of the cumulative exchange
difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a
policy of not revaluing property, plant and equipment. Depreciation
is calculated to write off the cost less the estimated residual
value on a straight-line basis, over the economic life of the
asset. Residual values, where applicable, are reviewed annually
against prevailing market values for equivalently aged assets and
depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments made on account of
aircraft and other qualifying assets under construction are
capitalised and added to the cost of the asset concerned. All other
borrowing costs are recognised in the Income statement in the year
in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration
given after taking account of manufacturers' credits. Fleet assets
owned or right of use ('ROU') assets are disaggregated into
separate components and depreciated at rates calculated to write
down the cost of each component to the estimated residual value at
the end of their planned operational lives (which is the shorter of
their useful life or lease term) on a straight-line basis.
Depreciation rates are specific to aircraft type, based on the
Group's fleet plans, within overall parameters of 23 years and 5
per cent residual value for shorthaul aircraft and between 25 and
29 years (depending on aircraft) and 5 per cent residual value for
longhaul aircraft. Right of use assets are depreciated over the
shorter of the lease term and the aforementioned depreciation
rates.
Cabin interior modifications, including those required for brand
changes and relaunches, are depreciated over the lower of five
years and the remaining economic life of the aircraft.
Aircraft and engine spares acquired on the introduction or
expansion of a fleet, as well as rotable spares purchased
separately, are carried as property, plant and equipment and
generally depreciated in line with the fleet to which they
relate.
Major overhaul expenditure, including replacement spares and
labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares
and other costs relating to maintenance of fleet assets (including
maintenance provided under 'pay-as-you-go' contracts) are charged
to the Income statement on consumption or as incurred
respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant
and equipment. Property, with the exception of freehold land, is
depreciated over its expected useful life over periods not
exceeding 50 years, or in the case of leasehold properties, over
the duration of the lease if shorter, on a straight-line basis.
Equipment is depreciated over periods ranging from 4 to 20
years.
d Leases
The Group leases various aircraft, properties and equipment. The
lease terms of these assets are consistent with the determined
useful economic life of similar assets within property, plant and
equipment.
The Group has applied IFRS 16 using the modified retrospective
approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17 and IFRIC 4. The
details of accounting policies under IAS 17 and IFRIC 4 are
disclosed separately if they are different from those under IFRS 16
and the impact of changes is discussed in note 33.
Policy applicable from January 1, 2019
At inception of a contract, the Group assesses whether a
contract is, or contains a lease. A contract is or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
Leases are recognised as a ROU asset and a corresponding lease
liability at the date at which the leased asset is available for
use by the Group.
Right of use assets
At the lease commencement date a ROU asset is measured at cost
comprising the following: the amount of the initial measurement of
the lease liability; any lease payments made at or before the
commencement date less any lease incentives received; any initial
direct costs; and restoration costs to return the asset to its
original condition.
The ROU asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If
ownership of the ROU asset transfers to the Group at the end of the
lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the
asset.
Lease liabilities
Lease liabilities are initially measured at their present value,
which includes the following lease payments: fixed payments
(including in-substance fixed payments), less any lease incentives
receivable; variable lease payments that are based on an index or a
rate; amounts expected to be payable by the Group under residual
value guarantees; the exercise price of a purchase option if the
Group is reasonably certain to exercise that option; payments of
penalties for terminating the lease, if the lease term reflects the
Group exercising that option; and payments to be made under
reasonably certain extension options.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the Group
entity's incremental borrowing rate is used.
Each lease payment is allocated between the principal and
finance cost. The finance cost is charged to the Income statement
over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the lease liability for each
period. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made.
The Group has elected not to recognise ROU assets and lease
liabilities for short-term leases that have a lease term of 12
months or less and those leases of low-value assets. Payments
associated with short-term leases and leases of low-value assets
are recognised on a straight line basis as an expense in the Income
statement. Short-term leases are leases with a lease term of 12
months or less, that do not contain a purchase option. Low-value
assets comprise IT equipment and small items of office
furniture.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the ROU asset.
Extension options are included in a number of aircraft, property
and equipment leases across the Group and are reflected in the
lease payments where the Group is reasonably certain that it will
exercise the option.
The Group regularly uses sale and lease transactions to finance
the acquisition of aircraft. Each transaction is assessed as to
whether it meets the criteria within IFRS 15 'Revenue from
contracts with customers' for a sale to have occurred. If a sale
has occurred, then the associated asset is de-recognised and a ROU
asset and lease liability is recognised. The ROU asset recognised
is based on the proportion of the previous carrying amount of the
asset that is retained. Any gain or loss is restricted to the
amount that relates to the rights that have been transferred to the
counter-party to the transaction. Where a sale has not occurred,
the asset is retained on the balance sheet within Property, plant
and equipment and an asset financed liability recognised equal to
the financing proceeds.
Under the transitional requirements of IFRS 16 applying the
modified retrospective method, the assets and liabilities on all
finance leases prior to January 1, 2019 were transferred into ROU
assets and associated lease liabilities. From January 1, 2019
onwards, those new financing arrangements with the following
features that do not meet the recognition criteria as a sale under
IFRS 15 are therefore not eligible for recognition under IFRS 16:
the lessor has legal ownership retention as security against
repayment and interest obligations; the Group initially acquired
the aircraft or took a major share in the acquisition process from
the manufacturer; in view of the contractual conditions, it is
virtually certain that the aircraft will be purchased at the end of
the lease term. Where new financing arrangements do not meet these
recognition criteria due to the fact they are 'in substance
purchases' and not leases, the related liability is recognised as
an asset financed liability and the assets as an owned asset within
Property, plant and equipment.
Policy applicable before January 1, 2019
Where assets are financed through finance leases, under which
substantially all the risks and rewards of ownership are
transferred to the Group, the assets are treated as if they had
been purchased outright. The amount included in the cost of
property, plant and equipment represents the aggregate of the
capital elements payable during the lease term. The corresponding
obligation, reduced by the appropriate proportion of lease payments
made, is included in borrowings.
The amount included in the cost of Property, plant and equipment
is depreciated on the basis described in the preceding paragraphs
on fleet and the interest element of lease payments made is
included as an interest expense in the Income statement.
Total minimum payments, measured at inception, under all other
lease arrangements, known as operating leases, are charged to the
Income statement in equal annual amounts over the period of the
lease. In respect of aircraft, certain operating lease arrangements
allow the Group to terminate the leases after a limited initial
period, without further material financial obligations. In certain
cases, the Group is entitled to extend the initial lease period on
predetermined terms; such leases are described as extendable
operating leases.
In determining the appropriate lease classification, the
substance of the transaction rather than the form is considered.
Factors considered include but are not limited to the following:
whether the lease transfers ownership of the asset to the Group by
the end of the lease term; the Group has the option to purchase the
asset at the price that is sufficiently lower than the fair value
on exercise date; the lease term is for the major part of the
economic life of the asset; and the present value of the minimum
lease payments amounts to at least substantially all of the fair
value of the leased asset.
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates
and joint ventures and represents the excess of the consideration
paid over the net fair value of the identifiable assets and
liabilities of the acquiree. Where the net fair value of the
identifiable assets and liabilities of the acquiree is in excess of
the consideration paid, a gain on bargain purchase is recognised
immediately in the Income statement.
For the purpose of assessing impairment, goodwill is grouped at
the lowest levels for which there are separately identifiable cash
flows (cash generating units). Goodwill is tested for impairment
annually and whenever indicators exist that the carrying value may
not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially
recognised at fair value at the acquisition date. Long established
brands that are expected to be used indefinitely are not amortised
but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of
subsidiaries are initially recognised at fair value at the
acquisition date. A customer loyalty programme with an expected
useful life is amortised over the expected remaining useful life.
Established customer loyalty programmes that are expected to be
used indefinitely are not amortised but assessed annually for
impairment.
d Landing rights
Landing rights acquired in a business combination are recognised
at fair value at the acquisition date. Landing rights acquired from
other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on
a straight-line basis over a period not exceeding 20 years.
Capitalised landing rights based within the EU are not amortised,
as regulations provide that these landing rights are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination
are recognised initially at fair value at the acquisition date and
amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is
separable from an item of related hardware is capitalised
separately and amortised on a straight-line basis generally over a
period not exceeding five years, with certain specific software
developments amortised over a period of up to 10 years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions
allowances are not revalued or amortised but are tested for
impairment whenever indicators exist that the carrying value may
not be recoverable.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for
the value by which the asset's carrying value exceeds its
recoverable amount. The recoverable amount is the higher of an
asset's fair value less cost to sell and value-in-use.
Non-financial assets other than goodwill that were subject to an
impairment are reviewed for possible reversal of the impairment at
each reporting date.
a Property, plant and equipment
The carrying value is reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be
recoverable and the cumulative impairment losses are shown as a
reduction in the carrying value of property, plant and
equipment.
b Intangible assets
Intangible assets are held at cost and are either amortised on a
straight-line basis over their economic life, or they are deemed to
have an indefinite economic life and are not amortised. Indefinite
life intangible assets are tested annually for impairment or more
frequently if events or changes in circumstances indicate the
carrying value may not be recoverable.
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a
long-term equity interest and over which it has the power to
exercise significant influence. Where the Group cannot exercise
control over an entity in which it has a shareholding greater than
51 per cent, the equity interest is treated as an associated
undertaking.
A joint venture is a type of joint arrangement whereby the
parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the
contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control. The
considerations made in determining significant influence or joint
control are similar to those necessary to determine control over
subsidiaries.
Investments in associates and joint ventures are accounted for
using the equity method, and initially recognised at cost. The
Group's interest in the net assets of associates and joint ventures
is included in Investments accounted for using the equity method in
the Balance sheet and its interest in their results is included in
the Income statement, below operating result. The attributable
results of those companies acquired or disposed of during the year
are included for the periods of ownership.
Financial instruments
a Other equity investments
Other equity investments are non-derivative financial assets
including listed and unlisted investments, excluding interests in
associates and joint ventures. On initial recognition, these equity
investments are irrevocably designated as measured at fair value
through Other comprehensive income. They are subsequently measured
at fair value, with changes in fair value recognised in Other
comprehensive income with no recycling of these gains and losses to
the Income statement when the investment is sold. Dividends
received on other equity investments are recognised in the Income
statement.
The fair value of quoted investments is determined by reference
to bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques.
b Other interest-bearing deposits
Other interest-bearing deposits, principally comprising funds
held with banks and other financial institutions with contractual
cash flows that are solely payments of principal and interest, and
held in order to collect contractual cash flows, are carried at
amortised cost using the effective interest method.
c Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap
agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially
recognised at fair value on the date a derivative contract is
entered into and are subsequently remeasured at their fair value.
They are classified as financial instruments through the Income
statement. The method of recognising the resulting gain or loss
arising from remeasurement depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged (as detailed below under cash flow hedges). The
time value of options is excluded from the designated hedging
instrument and accounted for as a cost of hedging. Movements in the
time value of options are recognised in Other comprehensive income
until the underlying transaction affects the income statement.
Exchange gains and losses on monetary investments are taken to
the Income statement unless the item has been designated and is
assessed as an effective hedging instrument. Exchange gains and
losses on non-monetary investments are reflected in equity.
d Long-term borrowings
Long-term borrowings are recorded at amortised cost, including
lease liabilities which contain interest rate swaps that are
closely related to the underlying financing and as such are not
accounted for as an embedded derivative.
e Cash flow hedges
Changes in the fair value of derivative financial instruments
designated as a hedge of a highly probable expected future cash
flow and assessed as effective are recorded in equity. Gains and
losses on derivative instruments not designated as a cash flow
hedge are reported in the Income statement. Gains and losses
recorded in equity are reflected in the Income statement when
either the hedged cash flow impacts the Income statement or the
hedged item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars,
euros, Japanese yen and Chinese yuan are designated as cash flow
hedges of highly probable future foreign currency revenues.
Exchange differences arising from the translation of these loan
repayment instalments are recorded in equity and subsequently
reflected in the Income statement when either the future revenue
impacts income or its occurrence is no longer expected to
occur.
f Convertible debt
Convertible bonds are classified as compound instruments,
consisting of a liability and an equity component. At the date of
issue, the fair value of the liability component is estimated using
the prevailing market interest rate for similar non-convertible
debt, and is subsequently recorded at an amortised cost basis using
the effective interest method until extinguished on conversion or
maturity of the bonds, and is recognised within Interest-bearing
borrowings. The difference between the proceeds of issue of the
convertible bond and the fair value assigned to the liability
component, representing the embedded option to convert the
liability into equity of the Group, is included in Equity portion
of convertible bond in Other reserves and is not subsequently
remeasured.
Issue costs are apportioned between the liability and equity
components of the convertible bonds where appropriate based on
their relative carrying values at the date of issue. The portion
relating to the equity component is charged directly against
equity.
The interest expense on the liability component is calculated by
applying the effective interest rate for similar non-convertible
debt to the liability component of the instrument. The difference
between this value and the interest paid is added to the carrying
amount of the liability.
g Impairment of financial assets
At each balance sheet date, the Group recognises provisions for
expected credit losses on financial assets measured at amortised
cost, based on 12-month or lifetime losses depending on whether
there has been a significant increase in credit risk since initial
recognition. The simplified approach, based on the calculation and
recognition of lifetime expected credit losses, is applied to
contracts that have a maturity of one year or less, including trade
receivables.
Employee benefit plans
a Pension obligations
The Group has both defined benefit and defined contribution
plans. A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The
Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior years.
Typically defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and
compensation.
The Group's net obligation in respect of defined benefit pension
plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for
their service in the current and prior years. The benefit is
discounted to determine its present value, and the fair value of
any plan assets are deducted. The discount rate is the yield at the
balance sheet date on AA-rated corporate bonds of the appropriate
currency that have durations approximating those of the Group's
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. When the net obligation
calculation results in an asset for the Group, the recognition of
an asset is limited to the present value of any future refunds from
the plan or reductions in future contributions to the plan ('the
asset ceiling'). The fair value of the plan assets is based on
market price information and, in the case of quoted securities, is
the published bid price. The fair value of insurance policies which
exactly match the amount and timing of some or all benefits payable
under the scheme are deemed to be the present value of the related
obligations. Longevity swaps are measured at their fair value.
Current service costs are recognised within employee costs in
the year in which they arise. Past service costs are recognised in
the event of a plan amendment or curtailment, or when the Group
recognises related restructuring costs or severance obligations.
The net interest is calculated by applying the discount rate used
to measure the defined benefit obligation at the beginning of the
period to the net defined benefit liability or asset, taking into
account any changes in the net defined benefit liability or asset
during the period as a result of contributions and benefit
payments. Net interest and other expenses related to the defined
benefit plans are recognised in the Income statement.
Remeasurements, comprising actuarial gains and losses, the effect
of the asset ceiling (excluding interest) and the return on plan
assets (excluding interest), are recognised immediately in Other
comprehensive income. Remeasurements are not reclassified to the
Income statement in subsequent periods.
b Severance obligations
Severance obligations are recognised when employment is
terminated by the Group before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises a provision for severance
payments when it is demonstrably committed to either terminating
the employment of current employees according to a detailed formal
plan without realistic possibility of withdrawal, or providing
severance payments as a result of an offer made to encourage
voluntary redundancy.
Other employee benefits are recognised when there is deemed to
be a present obligation.
Taxation
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or
substantively enacted at the balance sheet date.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following
exceptions:
-- Where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- In respect of taxable temporary differences associated with
investments in subsidiaries or associates, where the timing of the
reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the
foreseeable future; and
-- Deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which the deductible temporary differences, carried forward tax
credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted or substantively enacted at the balance
sheet date.
Income tax is charged or credited directly to equity if it
relates to items that are credited or charged to equity. Otherwise
income tax is recognised in the Income statement.
Inventories
Inventories are valued at the lower of cost and net realisable
value. Such cost is determined by the weighted average cost method.
Inventories include mainly aircraft spare parts, repairable
aircraft engine parts and fuel.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits with
any qualifying financial institution repayable on demand or
maturing within three months of the date of acquisition and which
are subject to an insignificant risk of change in value.
Share-based payments
The Group operates a number of equity-settled, share-based
payment plans, under which the Group awards equity instruments of
the Group for services rendered by employees. The fair value of the
share-based payment plans is measured at the date of grant using a
valuation model provided by external specialists. The resulting
cost, as adjusted for the expected and actual level of vesting of
the plan, is charged to the Income statement over the period in
which the options vest. At each balance sheet date before vesting,
the cumulative expense is calculated, representing the extent to
which the vesting period has expired and management's best estimate
of the achievement or otherwise of non-market conditions, and
accordingly the number of equity instruments that will ultimately
vest. The movement in the cumulative expense since the previous
balance sheet date is recognised in the Income statement with a
corresponding entry in equity.
Provisions
Provisions are made when an obligation exists for a present
liability in respect of a past event and where the amount of the
obligation can be reliably estimated.
Employee leaving indemnities and other employee provisions are
recorded for flight crew who, meeting certain conditions, have the
option of being placed on reserve or of taking early retirement.
The Group is obligated to remunerate these employees until they
reach the statutory retirement age. The calculation is performed by
independent actuaries using the projected unit credit method.
Other employee related provisions are recognised for direct
expenditures of business reorganisation such as severance payments
(restructuring provisions) where plans are sufficiently detailed
and well advanced, and where appropriate communication to those
affected has been undertaken at the balance sheet date.
If the effect is material, expected future cash flows are
discounted using a rate that reflects, where appropriate, the risks
specific to the provision. Where discounting is used, the increase
in the provision due to unwinding the discount is recognised as a
finance cost.
Revenue recognition
The Group's revenue primarily derives from transportation
services for both passengers and cargo. Revenue is recognised when
the transportation service has been provided. Passenger tickets are
generally paid for in advance of transportation and are recognised,
net of discounts, as deferred revenue on ticket sales in current
liabilities until the customer has flown. Unused tickets are
recognised as revenue after the contracted date of departure using
estimates regarding the timing of recognition based on the terms
and conditions of the ticket and statistical analysis of historical
trends. Revenue is stated net of compensation for flight delays and
cancellations, taking into consideration the level of expected
claims.
The Group considers whether it is an agent or a principal in
relation to transportation services by considering whether it has a
performance obligation to provide services to the customer or
whether the obligation is to arrange for the services to be
provided by a third party. The Group acts as an agent where (i) it
collects various taxes and fees assessed on the sale of tickets to
passengers and remits these to the relevant taxing authorities; and
(ii) where it provides interline services to airline partners
outside of the Group.
Other revenue including maintenance; handling; hotel and holiday
and commissions is recognised as the related performance
obligations are satisfied (over time), being where the control of
the goods or services are transferred to the customer.
Customer loyalty programmes
The Group operates five loyalty programmes: Executive Club,
Iberia Plus, Avios, Vueling Club and Aer Club. The customer loyalty
programmes award travellers Avios points to redeem for various
rewards, primarily redemption travel, including flights, hotels and
car hire. Avios points are also sold to commercial partners to use
in loyalty activity.
The Group has identified several performance obligations
associated with the sale of Avios points. Revenue associated with
brand and marketing services and revenue associated with Avios
points has been determined based on the relative stand-alone
selling price of each of the performance obligations. Revenue
associated with brand and marketing services is recognised as the
points are issued. Revenue allocated to the Avios points is
deferred on the balance sheet as a current liability, and
recognised when the points are redeemed. When the points are
redeemed for products provided by suppliers outside the Group,
revenue is recognised in the Income statement net of related costs,
as the Group is considered to be an agent in these redemption
transactions.
The Group estimates the stand-alone selling price of the brand
and marketing performance obligations by reference to the amount
that a third party would be prepared to pay in an arm's length
transaction for access to comparable brands for the period over
which they have access. The stand-alone selling price of Avios
points is based on the value of the awards for which the points
could be redeemed. The Group also recognises revenue associated
with the proportion of award credits which are not expected to be
redeemed, based on the results of statistical modelling.
Exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or incidence. The
exceptional items recorded in the Income statement include items
such as significant settlement agreements with the Group's pension
schemes; significant restructuring; the impact of business
combination transactions that do not contribute to the ongoing
results of the Group; and the impact of the sale, disposal or
impairment of an investment in a business.
Business combination transactions include cash items such as the
costs incurred to effect the transaction and non-cash items such as
accounting gains or losses recognised through the Income statement,
such as bargain purchase gains and step acquisition losses.
Critical accounting estimates, assumptions and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. These judgements, estimates and
associated assumptions are based on historical experience and
various other factors believed to be reasonable under the
circumstances. Actual results in the future may differ from
judgements and estimates upon which financial information has been
prepared. These underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised
prospectively.
Estimates
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are as follows:
a Employee benefit obligations, employee leaving indemnities,
other employee related restructuring
At December 31, 2019 the Group recognised EUR524 million in
respect of employee benefit assets (2018: EUR1,129 million) and
EUR328 million in respect of employee benefit obligations (2018:
EUR289 million). Further information on employee benefit
obligations is disclosed in note 30.
The cost of employee benefit obligations, employee leaving
indemnities and other employee related provisions is determined
using actuarial valuations. Actuarial valuations involve making
assumptions about discount rates, expected rates of return on
assets, future salary increases, mortality rates and future pension
increases. Due to the long-term nature of these schemes, such
estimates are subject to significant uncertainty. The assumptions
relating to these schemes are disclosed in note 30. The Group
determines the assumptions to be adopted in discussion with
qualified actuaries. Any difference between these assumptions and
the actual outcome will impact future net assets and total
comprehensive income. The sensitivity to changes in pension
increase assumptions is disclosed in note 30.
Under the Group's Airways Pension Scheme ('APS') and New Airways
Pension Scheme ('NAPS') increases to pensions are based on the
annual Government Pension Increase (Review) Orders, which since
2011 have been based on the Consumer Prices Index (CPI).
Additionally, in APS there is provision for the Trustee to pay
increases up to the level of the Retail Prices Index (RPI), subject
to certain affordability tests. Historically market expectations
for RPI could be derived by comparing the prices of UK government
fixed-interest and index-linked gilts, with CPI assessed by
considering the Bank of England's inflation target and comparison
of the construction of the two inflation indices.
In February 2019, following the UK House of Lords Economic
Affairs Committee report on measuring inflation, the National
Statistician concluded that the existing methodology was
unsatisfactory and proposed a number of options to the UK
Statistics Authority (UKSA). In March 2019, the UKSA recommended to
the UK Chancellor of the Exchequer that the publication of the RPI
cease at a point to be determined in the future and in the
intervening period, the RPI be addressed by bringing in the methods
of the CPIH (a proposed variant to CPI). In September 2019, the UK
Chancellor of the Exchequer announced his intention to consult with
the Bank of England and the UKSA on whether to implement these
proposed changes to RPI in the period of 2025 to 2030. On January
13, 2020, it was confirmed that the period of consultation will
commence on March 11, 2020 for a period of six weeks.
Following the aforementioned announcement in September 2019,
market-implied break-even RPI inflation forward rates for periods
after 2030 have reduced in the investment market. Therefore, in
assessing RPI and CPI from investment market data, allowance has
been made for partial alignment between RPI and CPI from 2030
onwards.
On October 26, 2018 the High Court of Justice of England and
Wales issued a judgment in a claim between Lloyds Banking Group
Pension Trustees Limited as claimant and Lloyds Banking Group plc
and others as defendants (collectively referred to as the 'Lloyds
Bank case') regarding the rights of female members of certain
pension schemes to equality of treatment in relation to pension
benefits. The judgment in the Lloyd's Bank case confirmed that all
pension schemes were required to equalise, with immediate
application, for the effects of unequal Guaranteed Minimum Pension
('GMP') benefits accrued over the period since May 17, 1990 ('GMP
equalisation'). As at December 31, 2018, given the limited
timescale from the High Court judgment, the Group undertook a
simplified approach to estimating the impact of the GMP. The APS
and NAPS estimated DBO as at December 31, 2019 includes allowance
for the estimated effect of GMP equalisation based on the
assessments made by the respective APS and NAPS Scheme
Actuaries.
Restructuring provisions are estimates of future obligations.
The Group exercises judgement in determining the expected direct
expenditures of reorganisation based on plans which are
sufficiently detailed and advanced.
b Revenue recognition
At December 31, 2019 the Group recognised EUR5,486 million
(2018: EUR4,835 million) in respect of deferred revenue on ticket
sales of which EUR1,917 million (2018: EUR1,769 million) related to
customer loyalty programmes.
Passenger revenue is recognised when the transportation is
provided. At the time of transportation, revenue is also recognised
in respect of tickets that are not expected to be used ('unused
tickets'). Revenue associated with unused tickets is estimated
based on the terms and conditions of the tickets and historical
trends.
Revenue associated with the issuance of points under customer
loyalty programmes is based on the relative stand-alone selling
prices of the related performance obligations (brand, marketing and
points), determined using estimation techniques. The transaction
price of brand and marketing services is determined using specific
brand valuation methodologies. The transaction price of the points
is based on the value of the awards for which the points can be
redeemed and is reduced to take account of the proportion of the
award credits that are not expected to be redeemed by customers.
The Group estimates the number of points not expected to be
redeemed (using statistical modelling and historical trends) and
the mix and fair value of the award credits. A five percentage
point change in the assumption of points outstanding and not
expected to be redeemed will result in an adjustment to deferred
revenue of EUR100 million, with an offsetting adjustment to revenue
and operating profit recognised in the year.
The following three accounting estimates involve a higher degree
of judgement or complexity, or are areas where assumptions are
significant to the financial statements however these accounting
estimates are not major sources of estimation uncertainty that have
a significant risk of resulting in material adjustment to the
carrying amounts of assets and liabilities within the next
year.
c Income taxes
At December 31, 2019 the Group recognised EUR546 million in
respect of deferred tax assets (2018: EUR536 million). Further
information on current and deferred tax liabilities is disclosed in
note 9.
The Group is subject to income taxes in numerous jurisdictions.
Estimates are required in determining the worldwide provision for
income taxes. There are many transactions and calculations for
which the ultimate tax determination is uncertain because it may be
unclear how tax law applies to a particular transaction or
circumstance. Where the Group determines that it is more likely
than not that the tax authorities would accept the position taken
in the tax return, amounts are recognised in the financial
statements on that basis. Where the amount of tax payable or
recoverable is uncertain, the Group recognises a liability based on
either: the Group's judgment of the most likely outcome; or, when
there is a wide range of possible outcomes, uses a probability
weighted average approach.
The Group recognises deferred income tax assets only to the
extent that it is probable that the taxable profit will be
available against which the deductible temporary differences,
carried forward tax credits or tax losses can be utilised.
Management consider the operating performance in the current year
and the future projections of performance laid out in the approved
business plan in order to assess the probability of recoverability.
The Business plan relies on the use of assumptions, estimates and
judgements in respect of future performance and economics.
d Impairment of non-financial assets
At December 31, 2019 the Group recognised EUR2,460 million
(2018: EUR2,403 million) in respect of intangible assets with an
indefinite life, including goodwill. Further information on these
assets is included in note 15.
The Group assesses whether there are any indicators of
impairment for all non-financial assets at each reporting date.
Goodwill and intangible assets with indefinite economic lives are
tested for impairment annually and at other times when such
indicators exist. The recoverable amounts of cash-generating units
have been determined based on value-in-use calculations. These
calculations require the use of estimates and assumptions as
disclosed in note 15.
Other non-financial assets are tested for impairment when there
are indicators that the carrying amounts may not be
recoverable.
e Residual values and useful lives of assets
At December 31, 2019 the Group recognised EUR19,168 million
(2018: EUR12,437 million) in respect of property, plant and
equipment, including the ROU assets recognised in the year. Further
information on these assets is included in note 12.
The Group estimates useful lives and residual values of
property, plant and equipment, including fleet assets based on
network plans and recoverable values. Useful lives and residual
values are reassessed annually, taking into consideration the
latest fleet plans and other business plan information.
Judgement
a Engineering and other aircraft costs
At December 31, 2019, the Group recognised EUR1,675 million in
respect of maintenance, restoration and handback provisions (2018:
EUR1,359 million). Information on movements on the provision is
disclosed in note 24.
The Group has a number of contracts with service providers to
replace or repair engine parts and for other maintenance checks.
These agreements are complex and generally cover a number of years.
The Group exercises judgement in determining the assumptions used
to match the consumption of replacement spares and other costs
associated with fleet maintenance with the appropriate income
statement charge. Aircraft maintenance obligations are based on
aircraft utilisation, expected maintenance intervals, future
maintenance costs and the aircraft's condition.
b Determining the lease term of contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. The Group applies judgement
in evaluating whether it is reasonably certain whether or not to
exercise the option to renew or terminate the lease. Such judgement
includes consideration of fleet plans which underpin approved
business plans and historic experience regarding the extension of
leases. After the commencement date, the Group reassesses the lease
term if there is a significant event or change in circumstances and
affects the Groups ability to exercise or not to exercise the
option to renew or to terminate. Further information is given in
note 13.
New standards, amendments and interpretations not yet
effective
The IASB and IFRIC have issued the following standards,
amendments and interpretations with an effective date after the
year end of these financial statements which management believe
could impact the Group in future periods. Unless otherwise stated,
the Group plans to adopt the following standards, interpretations
and amendments on the date they become mandatory:
-- Amendments to references to conceptual framework in IFRS
standards, effective for periods beginning on or after January 1,
2020;
-- Definition of a business (amendments to IFRS 3), effective
for periods beginning on or after January 1, 2020;
-- Definition of material (amendments to IAS 1 and IAS 8),
effective for periods beginning on or after January 1, 2020;
and
-- IFRS 17 Insurance contracts, effective for periods beginning on or after January 1, 2021.
In September 2019, the IASB issued amendments to IFRS 9, IAS 39
and IFRS 7, effective January 1, 2020, which concludes phase one of
its work to respond to the effects of Interbank Offered Rates
(IBOR) reform on financial reporting. The EU adopted these
amendments in January 2020. The Group is currently assessing the
impact of these amendments.
3 Segment information
a Business segments
The chief operating decision-maker is responsible for allocating
resources and assessing performance of the operating segments, and
has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as
individual operating companies including airline and platform
functions. Each airline operates its network operations as a single
business unit and the IAG MC assesses performance based on measures
including operating profit, and makes resource allocation decisions
for the airlines based on network profitability, primarily by
reference to the passenger markets in which the companies operate.
The objective in making resource allocation decisions is to
optimise consolidated financial results.
The Group has determined its operating segments based on the way
that it treats its businesses and the manner in which resource
allocation decisions are made. British Airways, Iberia, Vueling and
Aer Lingus have been identified for financial reporting purposes as
reportable operating segments. Avios and LEVEL are also operating
segments but do not exceed the quantitative thresholds to be
reportable and management has concluded that there are currently no
other reasons why they should be separately disclosed.
The platform functions of the business primarily support the
airline operations. These activities are not considered to be
reportable operating segments as they either earn revenues
incidental to the activities of the Group and resource allocation
decisions are made based on the passenger business or are not
reviewed regularly by the IAG MC and are included within Other
Group companies.
For the year to December 31, 2019
2019
===============================================================
Other
British Group
EUR million Airways Iberia Vueling Aer Lingus companies(1) Total
==================================== ======== ======= ======= ========== ============= ========
Revenue
Passenger revenue 13,307 4,020 2,437 2,060 644 22,468
Cargo revenue 805 255 - 54 3 1,117
Other revenue 752 912 18 2 237 1,921
------------------------------------ -------- ------- ------- ---------- ------------- --------
External revenue 14,864 5,187 2,455 2,116 884 25,506
Inter-segment revenue 242 458 - 9 575 1,284
------------------------------------ -------- ------- ------- ---------- ------------- --------
Segment revenue 15,106 5,645 2,455 2,125 1,459 26,790
------------------------------------ -------- ------- ------- ---------- ------------- --------
Depreciation, amortisation and
impairment (1,258) (390) (250) (130) (83) (2,111)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit before exceptional
items 2,182 497 240 276 90 3,285
------------------------------------ -------- ------- ------- ---------- ------------- --------
Exceptional items (note 4) (672) - - - - (672)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit after exceptional
items 1,510 497 240 276 90 2,613
------------------------------------ -------- ------- ------- ---------- ------------- --------
Net non-operating costs (338)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Profit before tax 2,275
------------------------------------ -------- ------- ------- ---------- ------------- --------
Total assets 22,312 8,733 3,756 2,131 (1,271) 35,661
Total liabilities (15,445) (6,940) (3,354) (1,320) (1,773) (28,832)
------------------------------------ -------- ------- ------- ---------- ------------- --------
1 Includes eliminations on total assets of EUR14,982 million and
total liabilities of EUR4,603 million.
For the year to December 31, 2018
2018 (restated)
===============================================================
Other
British Group
EUR million Airways Iberia Vueling Aer Lingus companies(1) Total
==================================== ======== ======= ======= ========== ============= ========
Revenue
Passenger revenue 12,909 3,754 2,317 1,941 480 21,401
Cargo revenue 867 251 - 54 1 1,173
Other revenue 682 749 20 9 224 1,684
------------------------------------ -------- ------- ------- ---------- ------------- --------
External revenue 14,458 4,754 2,337 2,004 705 24,258
Inter-segment revenue 215 417 1 5 538 1,176
------------------------------------ -------- ------- ------- ---------- ------------- --------
Segment revenue 14,673 5,171 2,338 2,009 1,243 25,434
------------------------------------ -------- ------- ------- ---------- ------------- --------
Depreciation, amortisation and
impairment (890) (207) (25) (83) (49) (1,254)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit before exceptional
items 2,207 437 200 305 81 3,230
------------------------------------ -------- ------- ------- ---------- ------------- --------
Exceptional items (note 4) 448 - - - - 448
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit after exceptional
items 2,655 437 200 305 81 3,678
------------------------------------ -------- ------- ------- ---------- ------------- --------
Net non-operating costs (191)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Profit before tax 3,487
------------------------------------ -------- ------- ------- ---------- ------------- --------
Total assets 18,531 6,829 1,882 1,915 (1,123) 28,034
Total liabilities (12,235) (5,051) (1,495) (1,072) (1,461) (21,314)
------------------------------------ -------- ------- ------- ---------- ------------- --------
1 Includes eliminations on total assets of EUR13,681 million and
total liabilities of EUR3,667 million.
b Geographical analysis
Revenue by area of original sale
Year to December
31
=======================
EUR million 2019 2018 (restated)
============== ====== ===============
UK 8,362 7,945
Spain 4,399 4,027
USA 4,379 4,074
Rest of world 8,366 8,212
-------------- ------ ---------------
25,506 24,258
-------------- ------ ---------------
Assets by area
December 31, 2019
Property,
plant Intangible
EUR million and equipment assets
============== ============== ==========
UK 12,214 1,401
Spain 5,324 1,402
USA 188 19
Rest of world 1,442 620
-------------- -------------- ----------
19,168 3,442
-------------- -------------- ----------
December 31, 2018
Property,
plant Intangible
EUR million and equipment assets
-------------- -------------- ----------
UK 9,017 1,285
Spain 2,512 1,291
USA 29 4
Rest of world 879 618
-------------- -------------- ----------
12,437 3,198
============== ============== ==========
4 Exceptional items
Year to December
31
==================
EUR million 2019 2018
============================================= ======== ========
Employee benefit obligations(1) 672 (584)
Restructuring costs(2) - 136
--------------------------------------------- -------- --------
Recognised in expenditure on operations 672 (448)
--------------------------------------------- -------- --------
Total exceptional charge/(credit) before tax 672 (448)
--------------------------------------------- -------- --------
Tax on exceptional items - 32
--------------------------------------------- -------- --------
Total exceptional charge/(credit) after tax 672 (416)
--------------------------------------------- -------- --------
1 Employee benefit obligations
The exceptional expense of EUR672 million relates to the past
service cost of the Airways Pension Scheme ('APS') settlement
agreement described in note 30. This amount arises from the
increase in the IAS 19 defined benefit liability of APS following
the settlement agreement between the Trustee Directors of APS and
British Airways which was approved by the High Court in November
2019. The settlement agreement established higher pensions in
payment growth assumptions in future years, resulting in a non-cash
increase to the IAS 19 defined benefit liability.
In the year to December 31, 2018:
British Airways closed its New Airways Pension Scheme ('NAPS')
to future accrual and British Airways Retirement Plan ('BARP') to
future contributions from March 31, 2018. The schemes have been
replaced by a flexible defined contribution scheme, the British
Airways Pension Plan ('BAPP'). The changes resulted in a one-off
reduction of the NAPS IAS 19 defined benefit liability of EUR872
million and associated transitional arrangement cash costs of
EUR192 million through employee costs. These items are presented
net, together with BARP closure costs, as an exceptional credit
within the year to December 31, 2018 Income statement of EUR678
million, with a related tax charge of EUR58 million.
On October 26, 2018, the High Court of Justice of England and
Wales issued a judgment in a claim by Lloyds Banking Group Pension
Trustees Limited as claimant to Lloyds Bank plc and others as
defendants regarding the rights of female members of certain
pension schemes to equality of treatment in relation to pension
benefits. The judgment concluded that the claimant is under a duty
to amend the schemes in order to equalise benefits for men and
women in relation to GMP benefits. The judgment affects some of the
occupational pension schemes of British Airways as set out in note
30. The estimated increase in IAS 19 liabilities as a result of the
High Court judgment was recorded as an exceptional charge of EUR94
million in the year to December 31, 2018 Income statement.
2 Restructuring costs
During 2018 British Airways continued to implement the
restructuring programme that started in July 2016, to develop a
more efficient and cost-effective structure. The overall costs of
the programme principally comprised employee severance costs and
include other directly associated costs such as onerous lease
provisions and asset write down costs. Costs incurred in the year
to December 31, 2018 in respect of this programme amounted to
EUR136 million, with a related tax credit of EUR26 million.
5 Expenses by nature
Operating profit is arrived at after charging
Depreciation, amortisation and impairment of non-current
assets:
EUR million 2019 2018
==================================================== ===== =====
Owned assets 776 711
Right of use assets (2018: Finance leased aircraft) 1,153 371
Other leasehold interests 40 40
Amortisation of intangible assets 142 132
---------------------------------------------------- ----- -----
2,111 1,254
---------------------------------------------------- ----- -----
Operating leases costs:
EUR million 2019 2018
========================================= ==== =====
Minimum lease
rentals - aircraft - 890
- property and equipment - 236
Sub-lease rentals received - (12)
========================================= ==== =====
- 1,114
----------------------------------------- ---- -----
Cost of inventories:
EUR million 2019 2018
========================================================== ===== =====
Cost of inventories recognised as an expense, mainly fuel 3,242 3,165
---------------------------------------------------------- ----- -----
6 Auditors' remuneration
The fees for audit and non-audit services provided by the
auditor of the Group's consolidated financial statements and of
certain individual financial statements of the consolidated
companies, Ernst & Young S.L., and by companies belonging to
Ernst & Young's network, were as follows:
EUR'000 2019 2018
=============================================================== ===== =====
Fees payable for the audit of the Group and individual
accounts 3,916 4,328
Fees payable for other services:
Audit of the Group's subsidiaries pursuant to legislation 632 634
Other services pursuant to legislation 496 436
Other services relating to taxation 3 -
Other assurance services 727 506
Services relating to working capital review 1,218 -
Services relating to corporate finance transactions 175 191
All other services 3 305
--------------------------------------------------------------- ----- -----
7,170 6,400
--------------------------------------------------------------- ----- -----
7 Employee costs and numbers
EUR million 2019 2018
=================================================== ===== =====
Wages and salaries 3,334 3,240
Social security costs 561 516
Costs/(credits) related to pension scheme benefits 932 (317)
Other post-retirement benefit costs - 5
Cost of share-based payments 34 31
Other employee costs(1) 773 877
--------------------------------------------------- ----- -----
Total employee costs 5,634 4,352
--------------------------------------------------- ----- -----
1 Other employee costs include allowances and accommodation for
crew.
The number of employees during the year and at December 31 was
as follows:
2019 2018
======================================== ========================================
December 31, December 31,
2019 2018
========================= =========================
Average Average
number Number Percentage number Number Percentage
of employees of employees of women of employees of employees of women
================== ============= ============= ========== ============= ============= ==========
Senior executives 201 198 30% 196 208 27%
Ground employees:
Managerial 2,319 1,777 41% 1,857 1,872 40%
Non-managerial 32,968 32,614 34% 33,231 32,159 35%
Technical crew:
Managerial 8,136 7,885 38% 8,569 8,501 38%
Non-managerial 22,410 22,168 59% 20,881 20,791 61%
------------------ ------------- ------------- ---------- ------------- ------------- ----------
66,034 64,642 64,734 63,531
------------------ ------------- ------------- ---------- ------------- ------------- ----------
The number of employees is based on manpower equivalent. The
average headcount for 2019 was 73,299 (2018: 71,472).
8 Finance costs, income and other non-operating (charges)/credits
a Finance costs
EUR million 2019 2018
========================================================= ===== =====
Interest expense on:
Bank borrowings (12) (17)
Asset financed liabilities (9) -
Lease liabilities (2018: Finance lease obligations) (489) (144)
Provisions unwinding of discount (37) (27)
Other borrowings (77) (56)
Capitalised interest on progress payments 17 13
Other finance costs (4) -
--------------------------------------------------------- ----- -----
(611) (231)
--------------------------------------------------------- ----- -----
b Finance income
EUR million 2019 2018
============================================ ==== ====
Interest on other interest-bearing deposits 47 33
Other finance income 3 8
-------------------------------------------- ---- ----
50 41
-------------------------------------------- ---- ----
c Net financing credit relating to pensions
EUR million 2019 2018
------------------------------------------ ---- ----
Net financing credit relating to pensions 26 27
------------------------------------------ ---- ----
d Other non-operating charges
EUR million 2019 2018
----------------------------------------------------------------- ---- ----
Loss on sale of property, plant and equipment and investments (22) (29)
Credit related to equity investments (note 17) 3 5
Share of profits in investments accounted for using the
equity method (note 16) 6 5
Realised gain on derivatives not qualifying for hedge accounting 8 20
Unrealised gains/(losses) on derivatives not qualifying
for hedge accounting 1 (10)
----------------------------------------------------------------- ---- ----
(4) (9)
----------------------------------------------------------------- ---- ----
9 Tax
a Tax charges
Tax (charge)/credit in the Income statement, Other comprehensive
income and Statement of changes in equity:
2019 2018
---------------------------------------------- ----------------------------------------------
Other Statement Other Statement
Income comprehensive of changes Income comprehensive of changes
EUR million statement income in equity Total statement income in equity Total
==================== ========== ============== =========== ===== ========== ============== =========== =====
Current tax
Movement in respect
of prior years 26 (8) - 18 4 - - 4
Movement in respect
of current year (494) 146 - (348) (475) 162 - (313)
-------------------- ---------- -------------- ----------- ----- ---------- -------------- ----------- -----
Total current tax (468) 138 - (330) (471) 162 - (309)
-------------------- ---------- -------------- ----------- ----- ---------- -------------- ----------- -----
Deferred tax
Movement in respect
of prior years (14) - - (14) 22 - - 22
Movement in respect
of current year (79) (160) (1) (240) (144) 206 - 62
Rate change / rate
differences 1 3 - 4 3 (13) - (10)
-------------------- ---------- -------------- ----------- ----- ---------- -------------- ----------- -----
Total deferred tax (92) (157) (1) (250) (119) 193 - 74
-------------------- ---------- -------------- ----------- ----- ---------- -------------- ----------- -----
Total tax (560) (19) (1) (580) (590) 355 - (235)
-------------------- ---------- -------------- ----------- ----- ---------- -------------- ----------- -----
The current tax credit in Other comprehensive income relates to
employee retirement benefit plans of EUR154 million (2018: EUR136
million) and cash flow hedges of EUR16 million tax charge (2018:
EUR26 million tax credit).
Tax in the Statement of changes in equity relates to share-based
payment schemes of EUR1 million (2018: nil).
Within tax in Other comprehensive income is a tax charge of
EUR184 million (2018: tax credit of EUR222 million) that may be
reclassified to the Income statement and a tax credit of EUR165
million (2018: tax credit of EUR133 million) that will not.
b Current tax (liability)/asset
EUR million 2019 2018
----------------------------- ----- -----
Balance at January 1 218 180
Income statement (468) (471)
Other comprehensive income 138 162
Cash 119 343
Exchange movements and other (13) 4
----------------------------- ----- -----
Balance at December 31 (6) 218
----------------------------- ----- -----
Current tax asset 186 383
Current tax liability (192) (165)
----------------------------- ----- -----
Balance at December 31 (6) 218
----------------------------- ----- -----
c Deferred tax asset/(liability)
Tax
Deferred loss
tax carried
deductions Employee Fair forwards
on IFRS leaving Employee value Share-based and Other
Fixed 16 indemnities benefit gain/ payment tax temporary
EUR million assets Leases transition and others plans losses schemes credits differences Total
-------------- ------- ------ ---------- ----------- -------- ------- ----------- -------- ----------- -----
Balance at
January 1,
2019 (999) - - 348 42 234 16 411 31 83
Adjustments
arising
on adoption
of IFRS
16 287 (148) 31 - - - - - - 170
Income
statement 4 (26) (7) (52) (7) - 5 (10) 1 (92)
Other
comprehensive
income - - - 13 3 (173) - - - (157)
Statement of
changes
in equity - - - - - - (1) - - (1)
Exchange
movements and
other (24) (21) - 3 3 9 (1) - 2 (29)
-------------- ------- ------ ---------- ----------- -------- ------- ----------- -------- ----------- -----
Balance at
December
31, 2019 (732) (195) 24 312 41 70 19 401 34 (26)
-------------- ------- ------ ---------- ----------- -------- ------- ----------- -------- ----------- -----
Balance at
January 1,
2018 (1,029) - - 374 140 39 15 430 28 (3)
Income
statement 19 - - (25) (96) - 2 (18) (1) (119)
Other
comprehensive
income - - - - (2) 195 - - - 193
Exchange
movements and
other 11 - - (1) - - (1) (1) 4 12
-------------- ------- ------ ---------- ----------- -------- ------- ----------- -------- ----------- -----
Balance at
December
31, 2018 (999) - - 348 42 234 16 411 31 83
-------------- ------- ------ ---------- ----------- -------- ------- ----------- -------- ----------- -----
EUR million 2019 2018
----------------------- ----- -----
Deferred tax asset 546 536
Deferred tax liability (572) (453)
----------------------- ----- -----
Balance at December 31 (26) 83
----------------------- ----- -----
The deferred tax asset mainly arises in Spain. A reversal of
EUR60 million on the deferred tax asset is expected within one year
and the remainder beyond one year.
d Reconciliation of the total tax charge in the income statement
The tax charge is calculated at the domestic rates applicable to
pro ts/(losses) in the country in which the profit/(loss) arise.
The tax charge on the profit for the year to December 31, 2019 is
higher (2018: lower) than the notional tax charge. The differences
are explained below:
EUR million 2019 2018
=========================================================== ===== =====
Accounting profit before tax 2,275 3,487
----------------------------------------------------------- ----- -----
Weighted average tax charge of the Group(1) (440) (671)
Current year tax assets not recognised (11) (9)
Disposal and write down of investments - 1
Effect of tax rate changes 1 3
Employee benefit plans accounted for net of withholding
tax - recurring 7 1
Employee benefit plans accounted for net of withholding
tax - non-recurring (128) 53
Euro preferred securities accounted for as non-controlling
interests - 2
Investment incentives 11 10
Movement in respect of prior years 12 26
Non-deductible expenses - recurring items (14) (7)
Other items 2 1
----------------------------------------------------------- ----- -----
Tax charge in the income statement (560) (590)
----------------------------------------------------------- ----- -----
1 The expected tax charge is calculated by aggregating the
expected tax charges arising in each company in the Group and
changes each year as tax rates and profit mix change. The corporate
tax rates for the Group's main countries of operation are Spain 25%
(2018: 25%), the UK 19% (2018: 19%) and Ireland 12.5% (2018:
12.5%).
e Payroll related taxes and UK Air Passenger Duty
The Group was also subject to other taxes paid during the year
which are as follows:
EUR million 2019 2018
====================== ===== =====
Payroll related taxes 555 509
UK Air Passenger Duty 967 885
1,522 1,394
---------------------- ----- -----
f Factors that may affect future tax charges
Unrecognised temporary differences - losses
EUR million 2019 2018
======================================================== ==== ====
Spanish corporate income tax losses and other temporary
differences 47 47
UK capital losses 335 316
Irish capital losses 25 25
Corporate income tax losses outside of the Group's main
countries of operation 249 210
-------------------------------------------------------- ---- ----
None of the unrecognised temporary differences have an expiry
date.
Unrecognised temporary differences - investment in subsidiaries
and associates
No deferred tax liability has been recognised in respect of
EUR2,959 million (2018: EUR2,826 million) of temporary differences
relating to subsidiaries and associates. The Group either controls
the reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future or no tax
consequences would arise from their reversal.
Tax rate changes
Reductions in the UK corporation tax rate to 19% (effective from
April 1, 2017) and to 18% (effective April 1, 2020) were
substantively enacted on October 26, 2015 and an additional
reduction to 17% (effective April 1, 2020) was substantively
enacted on September 6, 2016. This will reduce the Group's future
current tax charge accordingly. The deferred tax on UK temporary
differences as at December 31, 2019 is calculated at the rate
applicable to the year in which the temporary differences are
expected to reverse.
g Tax related contingent liabilities
The Group has certain contingent liabilities, across all taxes,
which at December 31, 2019 amounted to EUR165 million (December 31,
2018: EUR60 million). No material losses are likely to arise from
such contingent liabilities. As such the Group does not consider it
appropriate to make a provision for these amounts. Included in the
tax related contingent liabilities is the following:
Merger gain
Following tax audits covering the period 2011 to 2014, the
Spanish Tax Authorities issued a corporate income tax assessment to
the Company regarding the merger in 2011 between British Airways
and Iberia. The assessment is for EUR 69 million, resulting in a
contingent liability of EUR90 million, including accrued interest.
The Company subsequently appealed the assessment to the Tribunal
Económico-Administrativo Central or 'TEAC' (Central Administrative
Tax Tribunal). On October 23, 2019 the TEAC ruled in favour of the
Spanish Tax Authorities. The Company subsequently appealed this
ruling to the Audiencia Nacional (National High Court) on December
20, 2019. The Company does not expect a hearing at the National
High Court until 2021 at the earliest.
The Company disputes the technical merits of the assessment and
ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain. The Company believes that it has
strong arguments to support its appeals. The Company does not
consider it appropriate to make a provision for these amounts and
accordingly has recognised this matter as a contingent
liability.
10 Earnings per share
EUR million 2019 2018
========================================================== ===== =====
Earnings attributable to equity holders of the parent for
basic earnings 1,715 2,885
Interest expense on convertible bonds 26 18
---------------------------------------------------------- ----- -----
Diluted earnings attributable to equity holders of the
parent and diluted earnings per share 1,741 2,903
---------------------------------------------------------- ----- -----
2019 2018
Number Number
'000 '000
------------------------------------------------------- --------- ---------
Weighted average number of ordinary shares in issue(1) 1,984,073 2,021,622
Assumed conversion on convertible bonds 59,398 72,944
Dilutive employee share schemes outstanding 22,305 18,515
------------------------------------------------------- --------- ---------
Weighted average number for diluted earnings per share 2,065,776 2,113,081
------------------------------------------------------- --------- ---------
EUR cents 2019 2018
=========================== ==== =====
Basic earnings per share 86.4 142.7
--------------------------- ---- -----
Diluted earnings per share 84.3 137.4
--------------------------- ---- -----
1 In 2018 included 27 million as the weighted average impact for
66 million treasury shares purchased in the share buyback programme
(note 27).
The calculation of basic and diluted earnings per share before
exceptional items is included in the Alternative performance
measures section.
11 Dividends
EUR million 2019 2018
============================================================= ==== ====
Cash dividend declared
Interim dividend for 2019 of 14.5 EUR cents per share (2018:
14.5 EUR cents per share) 288 288
Final dividend for 2018 of 16.5 EUR cents per share (2017:
14.5 EUR cents per share) 327 295
Special dividend for 2018 of 35.0 EUR cents per share 695 -
------------------------------------------------------------- ---- ----
Proposed cash dividend
Final dividend for 2019 of 17.0 EUR cents per share 337
============================================================= ====
The proposed dividend will be distributed from net profit for
the year to December 31, 2019.
Proposed dividends on ordinary shares are subject to approval at
the annual general meeting and, subject to approval, are recognised
as a liability on that date.
12 Property, plant and equipment
EUR million Fleet Property Equipment Total
============================= ======= ======== ========= =======
Cost
Balance at January 1, 2018 19,698 2,143 1,484 23,325
Additions 2,255 79 140 2,474
Disposals (1,130) - (125) (1,255)
Exchange movements (310) (34) (17) (361)
----------------------------- ------- -------- --------- -------
Balance at December 31, 2018 20,513 2,188 1,482 24,183
Adoption of IFRS 16 4,783 735 23 5,541
----------------------------- ------- -------- --------- -------
Balance at January 1, 2019 25,296 2,923 1,505 29,724
Additions 3,946 67 147 4,160
Modification of leases 128 94 - 222
Disposals (1,319) (85) (71) (1,475)
Reclassifications 44 - (44) -
Exchange movements 1,287 163 68 1,518
============================= ======= ======== ========= =======
December 31, 2019 29,382 3,162 1,605 34,149
----------------------------- ------- -------- --------- -------
Depreciation and impairment
Balance at January 1, 2018 9,465 1,040 974 11,479
Charge for the year 984 55 83 1,122
Disposals (562) - (95) (657)
Exchange movements (164) (18) (16) (198)
----------------------------- ------- -------- --------- -------
Balance at December 31, 2018 9,723 1,077 946 11,746
Adoption of IFRS 16 1,053 1 2 1,056
----------------------------- ------- -------- --------- -------
Balance at January 1, 2019 10,776 1,078 948 12,802
Charge for the year 1,710 169 90 1,969
Disposals (447) (63) (57) (567)
Reclassifications 8 - (8) -
Exchange movements 660 65 52 777
----------------------------- ------- -------- --------- -------
December 31, 2019 12,707 1,249 1,025 14,981
----------------------------- ------- -------- --------- -------
Net book values
December 31, 2019 16,675 1,913 580 19,168
January 1, 2019 14,520 1,845 557 16,922
December 31, 2018 10,790 1,111 536 12,437
------------------ ------ ----- --- ------
Analysis at December 31, 2019
Owned 5,321 1,028 460 6,809
Right of use assets (note 13) 9,746 774 68 10,588
Progress payments 1,525 110 52 1,687
Assets not in current use 83 1 - 84
------------------------------ ------ ----- --- ------
Property, plant and equipment 16,675 1,913 580 19,168
------------------------------ ------ ----- --- ------
Analysis at December 31, 2018
Owned 3,935 987 401 5,323
Finance leased 5,695 4 68 5,767
Progress payments 1,069 118 65 1,252
Assets not in current use 91 2 2 95
------------------------------ ------ ----- --- ------
Property, plant and equipment 10,790 1,111 536 12,437
------------------------------ ------ ----- --- ------
The net book value of property comprises:
EUR million 2019 2018
---------------------------------------- ----- -----
Freehold 560 448
Right of use assets (note 13) 774 -
Long leasehold improvements > 50 years 321 330
Short leasehold improvements < 50 years 258 333
---------------------------------------- ----- -----
Property 1,913 1,111
---------------------------------------- ----- -----
At December 31, 2019, bank and other loans of the Group are
secured on fleet assets with a net book value of EUR325 million
(2018: EUR467 million).
13 Leases
a Amounts recognised in the Consolidated balance sheet
Property, plant and equipment includes the following amounts
relating to right of use assets:
EUR million Fleet Property Equipment Total
------------------------ ------ -------- --------- ------
Cost
Balance at January
1, 2019(1) 12,491 734 119 13,344
Additions 1,039 13 16 1,068
Modifications of leases 128 94 - 222
Disposals (23) - - (23)
Reclassifications(2) (290) (4) (16) (310)
Exchange movements 509 45 4 558
------------------------- ------ -------- --------- ------
December 31, 2019 13,854 882 123 14,859
------------------------- ------ -------- --------- ------
Depreciation
Balance at January
1, 2019(1) 3,056 - 36 3,092
Charge for the year 1,032 104 17 1,153
Disposals (21) - - (21)
Reclassifications(2) (123) - - (123)
Exchange movements 164 4 2 170
------------------------- ------ -------- --------- ------
December 31, 2019 4,108 108 55 4,271
------------------------- ------ -------- --------- ------
Net book value
December 31, 2019 9,746 774 68 10,588
January 1, 2019 9,435 734 83 10,252
------------------------- ------ -------- --------- ------
1 The net book value of ROU assets recognised at January 1, 2019
includes EUR5,767 million in respect of assets previously leased
through finance leases before the adoption of IFRS 16 (split
between EUR7,793 million at cost and EUR2,026 million of
accumulated depreciation). In 2018 the Group recognised lease
assets and lease liabilities in relation to leases that were
classified as 'finance leases' under IAS 17 'leases'. The assets
were presented in property, plant and equipment and the lease
liabilities in the Group's long-term borrowings.
2 Amounts with a net book value of EUR187 million were
reclassified from ROU assets to Owned Property, plant and equipment
at the cessation of the respective leases.
Interest-bearing long-term borrowings includes the following
amounts relating to lease liabilities:
EUR million 2019
============================================ =======
Finance lease liabilities December 31, 2018 5,928
-------------------------------------------- -------
Adoption of IFRS 16 January 1, 2019 5,195
Additions 1,017
Modifications of leases 182
Repayments (1,941)
Interest expense 489
Exchange movements 176
-------------------------------------------- -------
Lease liability December 31, 2019 11,046
-------------------------------------------- -------
Current 1,694
Non-current 9,352
-------------------------------------------- -------
b Amounts recognised in the Consolidated income statement
EUR million 2019
====================================================================== =====
Amounts not included in the measurement of lease liabilities
Variable lease payments 28
Expenses relating to short-term leases 74
Expenses relating to leases of low-value assets, excluding short-term
leases of low value assets 1
Amounts expensed as a result of the recognition of ROU assets
and lease liabilities
Interest expense on lease liabilities 489
Gain arising from sale and leaseback transactions (1)
Depreciation charge 1,153
---------------------------------------------------------------------- -----
c Amounts recognised in the Consolidated cash flow statement
The Group had total cash outflows for leases of EUR2,057 million
in 2019.
The Group is exposed to future cash outflows (on an undiscounted
basis) as at December 31, 2019, for which no amount has been
recognised in relation to leases not yet commenced to which the
Group is committed of EUR787 million.
d Maturity profile of the lease liabilities
The maturity profile of the lease liabilities is disclosed in
note 25e.
e Operating lease commitments
From January 1, 2019, the Group has recognised ROU assets and
lease liabilities for the leases it has entered into (except for
short-term and low-value leases) and accordingly no longer presents
operating lease commitments. Having applied the modified
retrospective approach to the implementation of IFRS 16, the Group
has continued to present the comparative financial information for
the aggregate payments, for which there were commitments under
operating leases as follows as at December 31:
2018
============================
Property,
plant
EUR million Fleet and equipment Total
=========================== ===== ============== =====
Within one year 975 148 1,123
Between one and five years 3,049 362 3,411
Over five years 2,235 1,895 4,130
--------------------------- ----- -------------- -----
Total 6,259 2,405 8,664
--------------------------- ----- -------------- -----
f Obligations under financing leases
On implementation of IFRS 16, those leases previously recognised
as finance leases were reclassified to ROU assets and lease
liabilities and are included in section (a) above. Accordingly, the
Group no longer presents obligations under finance leases. Having
applied the modified retrospective approach to the implementation
of IFRS 16, the Group has continued to present the comparative
financial information for the aggregate payments, for which there
are future minimum lease payments as follows:
EUR million 2018
----------------------------------------------------------- -----
Future minimum payments due
Within one year 876
Between one and five years 3,186
Over five years 2,642
----------------------------------------------------------- -----
6,704
Less: finance charges (776)
----------------------------------------------------------- -----
Present value of minimum lease payments 5,928
----------------------------------------------------------- -----
The present value of minimum lease payments is as follows:
Within one year 723
Between one and five years 2,734
Over five years 2,471
----------------------------------------------------------- -----
5,928
----------------------------------------------------------- -----
g Extension options
The Group has certain leases which contain extension options
exercisable by the Group prior to the non-cancellable contract
period. Where practicable, the Group seeks to include extension
options in new leases to provide operational flexibility. The Group
assesses at lease commencement whether it is reasonably certain to
exercise the extension options.
The Group is exposed to future cash outflows (on an undiscounted
basis) as at December 31, 2019, for which no amount has been
recognised, for potential extension options of EUR871 million due
to it not being reasonably certain that these leases will be
extended.
14 Capital expenditure commitments
Capital expenditure authorised and contracted for but not
provided for in the accounts amounts to EUR12,830 million (December
31, 2018: EUR10,831 million). The majority of capital expenditure
commitments are denominated in US dollars, and as such are subject
to changes in exchange rates.
The outstanding commitments include EUR12,673 million for the
acquisition of 34 Airbus A320s (from 2020 to 2022), 45 Airbus A321s
(from 2020 to 2024), one Airbus A330 (in 2020), 33 Airbus A350s
(from 2020 to 2024), four Boeing 777-300s (in 2020), 18 Boeing
777-9s (from 2022 to 2025) and 12 Boeing 787-10s (from 2020 to
2023).
15 Intangible assets and impairment review
a Intangible assets
Customer
loyalty Landing
EUR million Goodwill Brand programmes rights(1) Software Other Total
============================ ======== ===== =========== ========== ======== ===== =====
Cost
Balance at January 1,
2018 596 451 253 1,519 948 128 3,895
Additions - - - 55 195 105 355
Disposals - - - - (14) (20) (34)
Exchange movements (1) - - (15) (13) (2) (31)
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
Balance at December 31,
2018 595 451 253 1,559 1,116 211 4,185
Additions - - - 5 232 120 357
Disposals - - - - (28) (55) (83)
Exchange movements 3 - - 52 56 6 117
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
December 31, 2019 598 451 253 1,616 1,376 282 4,576
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
Amortisation and impairment
Balance at January 1,
2018 249 - - 101 475 52 877
Charge for the year - - - 6 123 3 132
Disposals - - - - (13) - (13)
Exchange movements - - - (1) (8) - (9)
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
Balance at December 31,
2018 249 - - 106 577 55 987
Charge for the year - - - 6 131 5 142
Disposals - - - - (28) - (28)
Exchange movements - - - 3 30 - 33
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
December 31, 2019 249 - - 115 710 60 1,134
---------------------------- -------- ----- ----------- ---------- -------- ----- -----
Net book values
December 31, 2019 349 451 253 1,501 666 222 3,442
December 31, 2018 346 451 253 1,453 539 156 3,198
============================ ======== ===== =========== ========== ======== ===== =====
1 The net book value includes non-EU based landing rights of EUR94 million
(2018: EUR100 million) that have a definite life. The remaining life
of these landing rights is 15 years.
b Impairment review
The carrying amounts of intangible assets with indefinite life
and goodwill allocated to cash generating units (CGUs) of the Group
are:
Customer
Landing loyalty
EUR million Goodwill rights Brand programmes Total
================================ ======== ======= ===== =========== =====
2019
Iberia
-------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2019 - 423 306 - 729
-------------------------------- -------- ------- ----- ----------- -----
British Airways
January 1, 2019 46 767 - - 813
Exchange movements 3 49 - - 52
-------------------------------- -------- ------- ----- ----------- -----
December 31, 2019 49 816 - - 865
-------------------------------- -------- ------- ----- ----------- -----
Vueling
January 1, 2019 28 89 35 - 152
Additions - 5 - - 5
-------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2019 28 94 35 - 157
-------------------------------- -------- ------- ----- ----------- -----
Aer Lingus
-------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2019 272 62 110 - 444
-------------------------------- -------- ------- ----- ----------- -----
Avios
-------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2019 - - - 253 253
-------------------------------- -------- ------- ----- ----------- -----
Other CGUs
-------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2019 - 12 - - 12
-------------------------------- -------- ------- ----- ----------- -----
December 31, 2019 349 1,407 451 253 2,460
================================ ======== ======= ===== =========== =====
Customer
Landing loyalty
EUR million Goodwill rights Brand programmes Total
================================== ======== ======= ===== =========== =====
2018
Iberia
---------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2018 - 423 306 - 729
---------------------------------- -------- ------- ----- ----------- -----
British Airways
January 1, 2018 47 738 - - 785
Additions - 55 - - 55
Transfer to other Group companies - (12) - - (12)
Exchange movements (1) (14) - - (15)
---------------------------------- -------- ------- ----- ----------- -----
December 31, 2018 46 767 - - 813
---------------------------------- -------- ------- ----- ----------- -----
Vueling
---------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2018 28 89 35 - 152
---------------------------------- -------- ------- ----- ----------- -----
Aer Lingus
---------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2018 272 62 110 - 444
---------------------------------- -------- ------- ----- ----------- -----
Avios
---------------------------------- -------- ------- ----- ----------- -----
January 1 and December 31, 2018 - - - 253 253
---------------------------------- -------- ------- ----- ----------- -----
Other CGUs
January 1, 2018 - - - - -
Transfer from British Airways - 12 - - 12
---------------------------------- -------- ------- ----- ----------- -----
December 31, 2018 - 12 - - 12
---------------------------------- -------- ------- ----- ----------- -----
December 31, 2018 346 1,353 451 253 2,403
---------------------------------- -------- ------- ----- ----------- -----
Basis for calculating recoverable amount
The recoverable amounts of CGUs have been measured based on
their value-in-use.
Value-in-use is calculated using a discounted cash flow model.
Cash flow projections are based on the Business plans approved by
the relevant operating companies covering a five year period. Cash
flows extrapolated beyond the five year period are projected to
increase based on long-term growth rates. Cash flow projections are
discounted using the CGU's pre-tax discount rate.
Annually the relevant operating companies prepare and approve
five year Business plans, and the Board approved the Group three
year Business plan in the fourth quarter of the year. The Business
plan cash flows used in the value-in-use calculations reflect all
restructuring of the business where relevant that has been approved
by the Board and which can be executed by Management under existing
agreements.
Key assumptions
For each of the internal CGUs the key assumptions used in the
value-in-use calculations are as follows:
2019
=============================================
British
Per cent Airways Iberia Vueling Aer Lingus Avios
============================= ======== ====== ======= ========== ======
Operating margin(1) 15 10-15 10-14 13-15 20-23
Average ASK growth per annum 2-4 3 1-5 2-11 n/a(2)
Long-term growth rate 2.2 1.8 1.5 1.8 1.8
Pre-tax discount rate 8.0 9.1 9.4 8.0 8.5
----------------------------- -------- ------ ------- ---------- ------
2018
=============================================
British
Per cent Airways Iberia Vueling Aer Lingus Avios
=================================== ======== ====== ======= ========== ======
Lease adjusted operating margin(3) 15 9-15 11-15 15 21(2)
Average ASK growth per annum 3-4 5-6 9-10 7-8 n/a(2)
Long-term growth rate 2.3 2.0 1.9 1.8 1.9
Pre-tax discount rate 8.3 9.0 8.4 8.3 9.3
----------------------------------- -------- ------ ------- ---------- ------
1 The Group adopted IFRS 16 from January 1, 2019 at which time a
ROU asset was recognised and depreciated over the expected lease
term through operating expenses. Accordingly, for 2019 onwards the
Group has determined its key assumption to be operating margin.
2 Operating margin (2018: lease adjusted operating margin) for
the Avios loyalty reward business is not adjusted for aircraft
leases. ASK growth rate assumption is not applicable for Avios,
which conducts business with partners both within and outside
IAG.
3 Lease adjusted operating margin is the average annual
operating result, adjusted for aircraft operating lease costs, as a
percentage of revenue over the five year Business plan. It is
presented as a percentage point range and is based on past
performance, Management's expectation of the market development and
incorporating risks into the cash flow estimates.
ASK growth is the average annual increase over the Business
plan, based on planned network growth and taking into account
Management's expectation of the market.
The long-term growth rate is calculated for each CGU based on
the forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics). The
airline's network plans are reviewed annually as part of the
Business plan and reflect Management's plans in response to
specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment
of the risks specific to each CGU, taking into consideration the
time value of money and underlying risks of its primary market. The
discount rate calculation is based on the circumstances of the
airline industry, the Group and the CGU. It is derived from the
weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost
of equity is derived from the expected return on investment by
airline investors and the cost of debt is broadly based on the
Group's interest-bearing borrowings. CGU specific risk is
incorporated by applying individual beta factors which are
evaluated annually based on available market data. The pre-tax
discount rate reflects the timing of future tax flows.
Summary of results
In 2019, Management reviewed the recoverable amount of each of
its CGUs and concluded the recoverable amounts exceeded the
carrying values. Sensitivities have been considered for each CGU.
Reducing long-term growth rates to zero, increasing pre-tax
discount rates by 4 percentage points, and increasing the fuel
price by 40 per cent, does not result in any impairment.
16 Investments
a Investments in subsidiaries
The Group's subsidiaries at December 31, 2019 are listed in the
Group investments section.
All subsidiary undertakings are included in the consolidation.
The proportion of the voting rights in the subsidiary undertakings
held directly do not differ from the proportion of ordinary shares
held. There have been no significant changes in ownership interests
of subsidiaries during the year.
On August 28, 2018, British Airways exercised its option to
redeem its EUR300 million, 6.75 per cent fixed coupon preferred
securities which were previously classified as a non-controlling
interest. The total non-controlling interest at December 31, 2019
is EUR6 million (2018: EUR6 million).
British Airways Employee Benefit Trustee (Jersey) Limited, a
wholly-owned subsidiary of British Airways, governs the British
Airways Plc Employee Share Ownership Trust (the Trust). The Trust
is not a legal subsidiary of IAG; however, it is consolidated
within the Group results.
b Investments in associates and joint ventures
The share of assets, liabilities, revenue and profit of the
Group's associates and joint ventures, which are included in the
Group's financial statements, are as follows:
EUR million 2019 2018
==================== ==== ====
Total assets 122 113
Total liabilities (92) (77)
Revenue 112 75
Profit for the year 6 5
-------------------- ---- ----
The detail of the movement in Investment in associates and joint
ventures is shown as follows:
EUR million 2019 2018
========================== ==== ====
At beginning of year 31 30
Share of retained profits 6 5
Dividends received (5) (2)
Exchange movements (1) (2)
-------------------------- ---- ----
31 31
-------------------------- ---- ----
At December 31, 2019 there are no restrictions on the ability of
associates or joint ventures to transfer funds to the parent and
there are no related contingent liabilities.
At both December 31, 2019 and December 31, 2018 the investment
in Sociedad Conjunta para la Emisión y Gestión de Medios de Pago
EFC, S.A. exceeded 50 per cent ownership by the Group (50.5 per
cent). The entity is treated as a joint venture as decisions
regarding its strategy and operations require the unanimous consent
of the parties who share control, including IAG.
17 Other equity investments
Other equity investments include the following:
EUR million 2019 2018
==================== ==== ====
Listed securities
Comair Limited 10 17
Unlisted securities 72 63
-------------------- ---- ----
82 80
-------------------- ---- ----
The credit relating to other equity investments was EUR3 million
(2018: EUR5 million).
18 Trade and other receivables
EUR million 2019 2018
==================================== ===== =====
Amounts falling due within one year
Trade receivables 2,368 1,695
Provision for expected credit loss (113) (98)
------------------------------------ ----- -----
Net trade receivables 2,255 1,597
Prepayments and accrued income 1,040 823
Other non-trade debtors 274 352
------------------------------------ ----- -----
3,569 2,772
------------------------------------ ----- -----
Amounts falling due after one year
Prepayments and accrued income 258 298
Other non-trade debtors 15 11
------------------------------------ ----- -----
273 309
------------------------------------ ----- -----
Movements in the provision for expected credit loss were as
follows:
EUR million 2019 2018
======================================== ==== ====
At beginning of year 98 63
Provided during the year 22 36
Released (1) (2)
Receivables written off during the year (8) 1
Exchange movements 2 -
---------------------------------------- ---- ----
113 98
======================================== ==== ====
Trade receivables are generally non-interest-bearing and on 30
days terms (2018: 30 days).
The credit risk exposure on the Group's trade receivables is set
out below:
December 31, 2019
30-60
EUR million Current <30 days days >60 days
=================================== ======= ======== ===== ========
Trade receivables 1,411 198 208 551
Expected credit loss rate 0.03% 0.16% 0.01% 20.10%
----------------------------------- ------- -------- ----- --------
Provision for expected credit loss 1 - - 112
----------------------------------- ------- -------- ----- --------
December 31, 2018
30-60
EUR million Current <30 days days >60 days
=================================== ======= ======== ===== ========
Trade receivables 988 163 135 409
Expected credit loss rate 0.04% 0.29% 1.60% 23.26%
----------------------------------- ------- -------- ----- --------
Provision for expected credit loss 1 - 2 95
----------------------------------- ------- -------- ----- --------
19 Cash, cash equivalents and other current interest-bearing
deposits
EUR million 2019 2018
=========================================================== ===== =====
Cash at bank and in hand 2,320 2,453
Short-term deposits maturing within three months 1,742 1,384
----------------------------------------------------------- ----- -----
Cash and cash equivalents 4,062 3,837
Other current interest-bearing deposits maturing after
three months 2,621 2,437
----------------------------------------------------------- ----- -----
Cash, cash equivalents and other interest-bearing deposits 6,683 6,274
----------------------------------------------------------- ----- -----
Cash at bank is primarily held in AAA money market funds and
bank deposits. Short-term deposits are for periods up to three
months and earn interest based on the floating deposit rates.
At December 31, 2019 the Group had no outstanding bank
overdrafts (2018: nil).
Current interest-bearing deposits are made for periods in excess
of three months with maturity typically within 12 months and earn
interest based on the market rates available at the time the
deposit was made.
At December 31, 2019 Aer Lingus held EUR41 million of restricted
cash (2018: EUR42 million) within interest-bearing deposits
maturing after more than three months to be used for employee
related obligations.
a Net debt
Movements in net debt were as follows:
Balance IFRS 16 Balance
at January opening Exchange New leases at December
EUR million 1, 2019 adjustment Cash flows movements and modifications Non-cash 31, 2019
======================== =========== =========== ========== ========== ================== ======== ============
Bank, other loans and
asset financed
liabilities 1,581 - 1,556 (12) - 83 3,208
Lease liabilities 5,928 5,195 (1,507) 176 1,199 55 11,046
------------------------ ----------- ----------- ---------- ---------- ------------------ -------- ------------
Liabilities from
financing
activities 7,509 5,195 49 164 1,199 138 14,254
------------------------ ----------- ----------- ---------- ---------- ------------------ -------- ------------
Cash and cash
equivalents (3,837) - (85) (140) - - (4,062)
Other current
interest-bearing
deposits (2,437) - (103) (81) - - (2,621)
------------------------ ----------- ----------- ---------- ---------- ------------------ -------- ------------
1,235 5,195 (139) (57) 1,199 138 7,571
------------------------ ----------- ----------- ---------- ---------- ------------------ -------- ------------
Balance Balance
at January Exchange at December
EUR million 1, 2018 Cash flows movements Non-cash 31, 2018
======================================== =========== ========== ========== ======== ============
Bank and other loans 1,824 (275) 4 28 1,581
Finance leases 5,507 254 134 33 5,928
---------------------------------------- ----------- ---------- ---------- -------- ------------
Liabilities from financing activities 7,331 (21) 138 61 7,509
---------------------------------------- ----------- ---------- ---------- -------- ------------
Cash and cash equivalents (3,292) (583) 38 - (3,837)
Other current interest-bearing deposits (3,384) 924 23 - (2,437)
---------------------------------------- ----------- ---------- ---------- -------- ------------
655 320 199 61 1,235
---------------------------------------- ----------- ---------- ---------- -------- ------------
20 Trade and other payables
EUR million 2019 2018
=================================== ===== =====
Trade creditors 2,311 2,079
Other creditors 1,099 1,007
Other taxation and social security 271 332
Accruals and deferred income 663 541
----------------------------------- ----- -----
4,344 3,959
----------------------------------- ----- -----
Average payment days to suppliers - Spanish Group companies
Days 2019 2018
============================================== ==== ====
Average payment days for payment to suppliers 33 37
Ratio of transactions paid 32 33
Ratio of transactions outstanding for payment 43 119
---------------------------------------------- ---- ----
EUR million 2019 2018
=========================== ===== =====
Total payments made 7,165 6,306
Total payments outstanding 114 317
--------------------------- ----- -----
21 Deferred revenue on ticket sales
Customer Sales
loyalty in advance
EUR million programmes of carriage Total
================================================ =========== ============ ========
Balance at January 1, 2019 1,769 3,066 4,835
Changes in estimates 6 (20) (14)
Cash received from customers - 23,029 23,029
Loyalty points issued to customers 844 47 891
Revenue recognised in the income statement(1,2) (805) (22,691) (23,496)
Exchange movements 103 138 241
------------------------------------------------ ----------- ------------ --------
Balance at December 31, 2019 1,917 3,569 5,486
------------------------------------------------ ----------- ------------ --------
Customer Sales
loyalty in advance
EUR million programmes of carriage Total
============================================== =========== ============ ========
Balance at January 1, 2018 1,752 2,990 4,742
Changes in estimates - (8) (8)
Cash received from customers - 22,149 22,149
Loyalty points issued to customers 781 - 781
Revenue recognised in the income statement(1) (733) (22,027) (22,760)
Exchange movements (31) (38) (69)
---------------------------------------------- ----------- ------------ --------
Balance at December 31, 2018 1,769 3,066 4,835
---------------------------------------------- ----------- ------------ --------
1 Where the Group acts as an agent in the provision of
redemption products and services to customers through loyalty
programmes, or in the provision of interline flights to passengers,
revenue is recognised in the income statement net of the related
costs.
2 Included within revenue recognised in the Income statement is
an amount of EUR3,361 million previously held as deferred revenue
at December 31, 2018.
Deferred revenue relating to customer loyalty programmes
consists primarily of revenue allocated to performance obligations
associated with Avios points. Avios points are issued by the
Group's airlines through their loyalty programmes, or are sold to
third parties such as credit card providers, who issue them as part
of their loyalty programme. Avios points do not have an expiry date
and can be redeemed at any time in the future. Revenue may
therefore be recognised at any time in the future. Deferred revenue
in respect of sales in advance of carriage consists of revenue
allocated to airline tickets to be used for future travel.
Typically these tickets expire within 12 months after the planned
travel date, if they are not used within that time period.
22 Other long-term liabilities
EUR million 2019 2018
============================= ==== ====
Non-current trade creditors 6 6
Accruals and deferred income 65 192
----------------------------- ---- ----
71 198
----------------------------- ---- ----
23 Long-term borrowings
a Current
EUR million 2019 2018
==================================================== ===== ====
Bank and other loans 75 153
Asset financed liabilities 74 -
Lease liabilities (2018: Finance lease obligations) 1,694 723
---------------------------------------------------- ----- ----
Interest-bearing long-term borrowings 1,843 876
---------------------------------------------------- ----- ----
b Non-current
EUR million 2019 2018
==================================================== ====== =====
Bank and other loans 1,879 1,428
Asset financed liabilities 1,180 -
Lease liabilities (2018: Finance lease obligations) 9,352 5,205
---------------------------------------------------- ------ -----
Interest-bearing long-term borrowings 12,411 6,633
---------------------------------------------------- ------ -----
Banks and other loans are repayable up to the year 2028. Bank
and other loans of the Group amounting to EUR266 million (2018:
EUR354 million) are secured on fleet assets with a net book value
of EUR325 million (2018: EUR467 million) (note 12). Asset financing
liabilities are all secured on the associated aircraft or property,
plant and equipment.
In July 2019, two senior unsecured bonds were issued by the
Group for an aggregate principal amount of EUR1 billion; EUR500
million fixed rate 0.50 per cent due in 2023, and EUR500 million
fixed rate 1.50 per cent due in 2027.
During the year the Group early redeemed all of the EUR500
million 0.25 per cent convertible bonds due in 2020.
c Total long-term borrowings
EUR million 2019 2018
======================================== ====== =====
Current portion of long-term borrowings 1,843 876
Interest-bearing long-term borrowings 12,411 6,633
======================================== ====== =====
Interest-bearing long-term borrowings 14,254 7,509
---------------------------------------- ------ -----
d Bank and other loans
EUR million 2019 2018
============================================================== ===== =====
EUR500 million fixed rate 0.50 per cent bond 2023(1) 497 -
EUR500 million fixed rate 1.50 per cent bond 2027(1) 496 -
EUR500 million fixed rate 0.625 per cent convertible bond
2022(2) 470 460
Floating rate euro mortgage loans secured on aircraft(3) 226 252
EUR200 million fixed rate unsecured bonds(4) 136 175
Fixed rate unsecured US dollar mortgage loan(5) 71 43
Fixed rate Chinese yuan mortgage loans secured on aircraft(6) 40 53
Fixed rate unsecured euro loans with the Spanish State
(Department of Industry)(7) 18 13
EUR500 million fixed rate 0.25 per cent convertible bond
2020(8) - 482
Floating rate euro syndicate loan secured on investments(9) - 99
Floating rate pound sterling mortgage loans secured on
aircraft(10) - 4
-------------------------------------------------------------- ----- -----
1,954 1,581
Less current instalments due on bank and other loans (75) (153)
-------------------------------------------------------------- ----- -----
1,879 1,428
-------------------------------------------------------------- ----- -----
1 In July 2019, the Group issued two tranches of senior
unsecured bonds for an aggregate principal amount of EUR1 billion,
EUR500 million due July 4, 2023 and EUR500 million due July 4,
2027. The bonds bear a fixed rate of interest of 0.5 per cent and
1.5 per cent per annum annually payable in arrears, respectively.
The bonds were issued at 99.417 per cent and 98.803 per cent of
their principal amount, respectively, and, unless previously
redeemed or purchased and cancelled, will be redeemed at 100 per
cent of their principal amount on their respective maturity
dates.
2 Senior unsecured bond convertible into ordinary shares of IAG
was issued by the Group in November 2015; EUR500 million fixed rate
0.625 per cent raising net proceeds of EUR494 million and due in
2022. The Group holds an option to redeem the convertible bond at
its principal amount, together with accrued interest, no earlier
than two years prior to the final maturity date. The bond contains
dividend protection and a total of 40,306,653 options related to
the bond were outstanding at December 31, 2019.
3 Floating rate euro mortgage loans are secured on specific
aircraft assets of the Group and bear interest of between 0.13 and
1.10 per cent. The loans are repayable between 2024 and 2027.
4 Total of EUR200 million fixed rate unsecured bonds between 3.5
to 3.75 per cent coupon repayable between 2022 and 2027.
5 Fixed rate unsecured US dollar mortgage loan bearing interest
between 1.98 to 2.86 per cent. The loan is repayable in 2023.
6 Fixed rate Chinese yuan mortgage loans are secured on specific
aircraft assets of the Group and bear interest of 5.20 per cent.
The loans are repayable in 2022.
7 Fixed rate unsecured euro loans with the Spanish State
(Department of Industry) bear interest of between nil and 5.68 per
cent and are repayable between 2020 and 2028.
8 Senior unsecured bond convertible into ordinary shares of IAG
issued in November 2015; EUR500 million fixed rate 0.25% raising
net proceeds of EUR494 million and due in 2020. The Group held an
option to redeem the bond at its principal amount, together with
accrued interest, no earlier than two years prior to the final
maturity date. The Group exercised its option to early redeem the
bond in July 2019 with no conversion to ordinary shares.
9 Floating rate euro syndicate loan secured on specific
investment assets of the Group and bears interest of 1.375 per cent
above 3 month EURIBOR. The loan was repaid in 2019.
10 Floating rate pound sterling mortgage loans are secured on
specific aircraft assets of the Group and bear interest of 0.81 per
cent. The loans were repaid in 2019.
e Total loans, asset financed liabilities and lease liabilities
Million 2019 2018
========================================= ========= =========
Loans
Bank:
US dollar $79 $49
Euro EUR380 EUR364
Pound sterling - GBP4
Chinese yuan CNY 314 CNY 422
----------------------------------------- --------- ---------
EUR491 EUR465
----------------------------------------- --------- ---------
Fixed rate bonds:
Euro EUR1,463 EUR1,116
----------------------------------------- --------- ---------
EUR1,463 EUR1,116
----------------------------------------- --------- ---------
Asset financed liabilities
US dollar $996 -
Euro EUR319 -
Japanese yen Yen4,867 -
----------------------------------------- --------- ---------
EUR1,254 -
----------------------------------------- --------- ---------
Lease liabilities (2018: finance leases)
US dollar $8,408 $3,259
Euro EUR2,142 EUR2,308
Japanese yen Yen77,984 Yen77,379
Pound sterling GBP597 GBP134
----------------------------------------- --------- ---------
EUR11,046 EUR5,928
----------------------------------------- --------- ---------
EUR14,254 EUR7,509
========================================= ========= =========
24 Provisions
Employee
leaving
indemnities
and other
Restoration employee Legal
and handback Restructuring related claims Other
EUR million provisions provisions provisions provisions provisions Total
=============================== ============= ============= ============ =========== =========== =====
Net book value January 1, 2019 1,359 693 591 112 72 2,827
Transition to IFRS 16 120 - - - - 120
------------------------------- ------------- ------------- ------------ ----------- ----------- -----
Net book value January 1, 2019 1,479 693 591 112 72 2,947
Reclassifications - - - - (31) (31)
Provisions recorded during the
year 395 26 133 34 110 698
Utilised during the year (224) (180) (76) (58) (50) (588)
Release of unused amounts (28) (21) (2) (9) (7) (67)
Unwinding of discount 14 4 18 1 - 37
Exchange differences 39 6 - 2 4 51
------------------------------- ------------- ------------- ------------ ----------- ----------- -----
Net book value December 31,
2019 1,675 528 664 82 98 3,047
------------------------------- ------------- ------------- ------------ ----------- ----------- -----
Analysis:
Current 259 202 58 46 66 631
Non-current 1,416 326 606 36 32 2,416
------------------------------- ------------- ------------- ------------ ----------- ----------- -----
1,675 528 664 82 98 3,047
------------------------------- ------------- ------------- ------------ ----------- ----------- -----
Restoration and handback provisions
The provision for restoration and handback costs is maintained
to meet the contractual maintenance and return conditions on
aircraft held under lease. The provision also includes an amount
relating to leased land and buildings where restoration costs are
contractually required at the end of the lease. Such costs are
capitalised within ROU assets. The provision is long-term in
nature, typically covering the leased asset term, which for
aircraft is up to 12 years.
Restructuring provisions
The restructuring provision includes provisions for voluntary
redundancies including the collective redundancy programme for
Iberia's Transformation Plan, which provides for payments to
affected employees until they reach the statutory retirement age.
The amount provided for has been determined by an actuarial
valuation made by independent actuaries, and was based on the same
assumptions as those made to determine the provisions for
obligations to flight crew below, with the exception of the
discount rate, which in this case was 0.00 per cent. The payments
related to this provision will continue over next nine years. The
restructuring provision also includes a provision recognised in
2018 in relation to restructuring plans at British Airways. The
payments related to this provision will be made over a maximum of
five years.
At December 31, 2019, EUR513 million of this provision related
to collective redundancy programmes (2018: EUR682 million).
Employee leaving indemnities and other employee related
provisions
This provision includes employees leaving indemnities relating
to staff under various contractual arrangements.
The Group recognises a provision relating to flight crew who
having met certain conditions, have the option of being placed on
reserve and retaining their employment relationship until reaching
the statutory retirement age, or taking early retirement. The Group
is required to remunerate these employees until they reach the
statutory retirement age, and an initial provision was recognised
based on an actuarial valuation. The provision was reviewed at
December 31, 2019 with the use of independent actuaries using the
projected unit credit method, based on a discount rate consistent
with the iBoxx index of 0.59 per cent and 0.00 per cent (2018:
iBoxx index of 1.59 per cent and 0.39 per cent) depending on
whether the employees are currently active or not, the PERM/F-2000P
mortality tables, and assuming a 1.50 per cent annual increase in
the Consumer Price Index (CPI). This is mainly a long-term
provision. The amount relating to this provision was EUR600 million
at December 31, 2019 (2018: EUR523 million).
Legal claims provisions
Legal claims provisions include:
-- Amounts for multi-party claims from groups or employees on a
number of matters related to its operations, including claims for
additional holiday pay and for age discrimination; and
-- Amounts related to investigations by a number of competition
authorities in connection with alleged anti-competitive activity
concerning the Group's passenger and cargo businesses.
The final amount required to pay the remaining claims and fines
is subject to uncertainty (note 31).
Other provisions
Other provisions include a provision for the Emissions Trading
Scheme for CO(2) emitted on flights within the EU in excess of the
EU Emission Allowances granted.
Reclassifications from other provisions relate to the movement
of the provision arising from costs the Group incurs in relation to
compensation for flight delays and cancellations into accruals and
deferred income within trade payables.
25 Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market
risk (including fuel price risk, foreign currency risk and interest
rate risk), counterparty risk and liquidity risk. Further
information on the Group's financial instruments exposure to these
risks is disclosed on note 26. The Board approves the key strategic
principles and the risk appetite, defining the amount of risk that
the Group is prepared to retain. The Group's Financial Risk
Management programme focuses on the unpredictability of financial
markets and seeks to minimise the risk of incremental costs arising
from adverse financial markets movements.
The Group Treasury department is responsible for the oversight
of the Financial Risk Management programme. Fuel price
fluctuations, euro-US dollar and sterling-US dollar exchange rate
volatility represents the largest financial risks facing the Group.
Other foreign exchange currencies and interest rate risks are also
the subject of the Financial Risk Management. The IAG Audit and
Compliance Committee approves the Group hedging profile and
delegates to the operating company Risk Committee to agree on the
degree of flexibility in applying the approved hedging levels. Each
operating company Risk Committee meets at least once a month to
review and approve a mandate to place hedging cover in the market
including the instruments to be used.
The Group Treasury Committee provides a quarterly report on the
hedging position to the IAG Management Committee and the Audit and
Compliance Committee. The Board reviews the strategy and risk
appetite once a year.
a Fuel price risk
The Group is exposed to fuel price risk. The Group's fuel price
risk management strategy aims to provide protection against sudden
and significant increases in fuel prices while ensuring that the
Group is not competitively disadvantaged in the event of a
substantial fall in the price. The Group Treasury Policies
determine the list of approved over the counter (OTC) derivative
instruments that can contracted with approved counterparties.
The Group strategy is to hedge a proportion of fuel consumption
up to three years within the approved hedging profile.
The following table demonstrates the sensitivity of financial
instruments to a reasonable possible change in fuel prices, with
all other variables held constant, on result before tax and
equity:
2019 2018
=============================================== ===================================================
Effect on
Increase/(decrease) result Effect on Increase/(decrease) Effect on result Effect on
in fuel price before tax equity in fuel price before tax equity
per cent EUR million EUR million per cent EUR million EUR million
=================== ============ ============ =================== ================ ============
30 - 1,774 30 - 1,613
(30) - (1,824) (30) (3) (1,695)
------------------- ------------ ------------ ------------------- ---------------- ------------
b Foreign currency risk
The Group presents its consolidated financial statements in
euros, has subsidiaries with functional currencies in euro and
pound sterling, and conducts business in a number of different
countries. Consequently the Group is exposed to currency risk on
revenue, purchases and borrowings that are denominated in a
currency other than the functional currency of the entity. The
currencies in which these transactions are denominated are
primarily euro, US dollar and pound sterling. The Group generates a
surplus in most currencies in which it does business. The US dollar
is an exception as fuel purchases, maintenance expenses and debt
repayments denominated in US dollars typically create a
deficit.
The Group has a number of strategies to hedge foreign currency
risk. The operational US dollar short position is subject to the
same governance structure as the fuel hedging strategy set out
above. The Group strategy is to hedge a proportion of up to three
years within the approved hedging profile.
Each operating company hedges its net balance sheet assets and
liabilities in US dollars through a rolling hedging programme using
a number of derivative instruments to minimise the profit and loss
volatility arising from revaluation of these items into its
functional currency. British Airways utilises its euro, Japanese
yen and Chinese yuan debt repayments as a hedge of future euro,
Japanese yen and Chinese yuan revenues.
The following table demonstrates the sensitivity of the Group's
principal foreign exchange exposure to a reasonable possible change
in the US dollar, pound sterling and Japanese yen exchange rates,
with all other variables held constant, on result before tax and
equity:
Effect Effect Effect
Strengthening/ on Strengthening/ on on
(weakening) result Effect (weakening) result Effect Strengthening/ result
in US before on in pound before on (weakening) before Effect
dollar tax equity sterling tax equity in Japanese tax on equity
rate EUR EUR rate EUR EUR yen rate EUR EUR
per cent million million per cent million million per cent million million
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
2019 10 22 388 10 (23) (178) 10 (1) (58)
(10) - (365) (10) 20 171 (10) 2 58
2018 10 (16) (9) 10 (40) 262 10 (6) (54)
(10) 18 91 (10) 41 (273) (10) 1 54
----- -------------- -------- -------- -------------- -------- -------- -------------- -------- ---------
c Interest rate risk
The Group is exposed to changes in interest rates on debt and on
cash deposits.
Interest rate risk on floating rate debt is managed through
interest rate swaps, cross currency swaps and interest rate
collars. After taking into account the impact of these derivatives,
88 per cent of the Group's borrowings were at fixed rates and 12
per cent were at floating rates.
All cash deposits are generally on tenors less than one year.
The interest rate is predominantly fixed for the tenor of the
deposit.
The following table demonstrates the sensitivity of the Group's
interest rate exposure to a reasonable possible change in the US
dollar, euro and sterling interest rates, on result before tax and
equity:
Effect Effect Effect
Strengthening/ on Strengthening/ on Strengthening/ on
(weakening) result Effect (weakening) result Effect (weakening) result
in before on in before on in sterling before Effect
US interest tax equity euro interest tax equity interest tax on equity
rate EUR EUR rate EUR EUR rate EUR EUR
Basis points million million Basis points million million Basis points million million
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
2019 50 - 19 50 (2) 16 50 2 -
(50) - (19) (50) 2 (13) (50) (2) -
2018 50 (1) 20 50 2 16 50 2 -
(50) 1 (20) (50) (2) (25) (50) (2) -
----- -------------- -------- -------- -------------- -------- -------- -------------- -------- ---------
d Counterparty risk
The Group is exposed to the non-performance by its
counterparties in respect of financial assets receivable. The Group
has policies and procedures to monitor the risk by assigning limits
to each counterparty by underlying exposure and by operating
company. The underlying exposures are monitored on a daily basis
and the overall exposure limit by counterparty is periodically
reviewed by using available market information.
The financial assets recognised in the financial statements, net
of impairment losses (if any), represent the Group's maximum
exposure to credit risk, without taking account any guarantees in
place or other credit enhancements.
At December 31, 2019 the Group's credit risk position, allocated
by region, in respect of treasury managed cash and derivatives was
as follows:
Mark-to-market
of treasury controlled
financial
instruments allocated
by geography
=========================
Region 2019 2018
================= ============ ===========
United Kingdom 41% 42%
Spain 3% -
Ireland 3% 3%
Rest of Eurozone 30% 33%
Rest of world 23% 22%
----------------- ------------ -----------
e Liquidity risk
The Group invests cash in interest-bearing accounts, time
deposits and money market funds, choosing instruments with
appropriate maturities or liquidity to retain sufficient headroom
to readily generate cash inflows required to manage liquidity risk.
The Group has also committed revolving credit facilities.
At December 31, 2019 the Group had undrawn overdraft facilities
of EUR13 million (2018: EUR11 million). The Group held undrawn
uncommitted money market lines of EURnil (2018: EUR28 million).
The Group held undrawn general and committed aircraft financing
facilities:
2019
========================
Million Currency EUR equivalent
=========================================================== ======== ==============
Euro facilities expiring between February and October 2020 EUR129 129
US dollar facility expiring December 2021 $652 587
US dollar facility expiring June 2020 $1,330 1,196
----------------------------------------------------------- -------- --------------
2018
========================
Million Currency EUR equivalent
======================================================= ======== ==============
Euro facilities expiring between January and June 2020 EUR131 131
US dollar facility expiring December 2021 $1,164 1,024
US dollar facility expiring June 2022 $1,044 918
------------------------------------------------------- -------- --------------
The following table analyses the Group's (outflows) and inflows
in respect of financial liabilities and derivative financial
instruments into relevant maturity groupings based on the remaining
period at December 31 to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows
and include interest.
Within 6-12 1-2 2-5 More than Total
EUR million 6 months months years years 5 years 2019
======================================= ========= ======= ======= ======= ========= ========
Interest-bearing loans and borrowings:
Asset financing liabilities (56) (49) (95) (289) (988) (1,477)
Lease liabilities (1,073) (957) (1,753) (4,505) (6,289) (14,577)
Fixed rate borrowings (20) (31) (46) (1,158) (599) (1,854)
Floating rate borrowings (13) (17) (30) (110) (67) (237)
Trade and other payables (3,881) - 1 - - (3,880)
Derivative financial instruments
(assets):
Interest rate swaps 1 1 1 2 - 5
Forward contracts 115 116 157 96 - 484
Fuel derivatives 66 25 12 2 - 105
Derivative financial instruments
(liabilities):
Interest rate swaps (9) (19) (18) (22) (1) (69)
Forward contracts (47) (43) (62) (86) - (238)
Fuel derivatives (61) (73) (90) (11) - (235)
======================================= ========= ======= ======= ======= ========= ========
December 31, 2019 (4,978) (1,047) (1,923) (6,081) (7,944) (21,973)
--------------------------------------- --------- ------- ------- ------- --------- --------
Within 6-12 1-2 2-5 More than Total
EUR million 6 months months years years 5 years 2018
======================================= ========= ======= ======= ======= ========= ========
Interest-bearing loans and borrowings:
Finance lease obligations (509) (367) (882) (2,304) (2,642) (6,704)
Fixed rate borrowings (53) (18) (533) (645) (58) (1,307)
Floating rate borrowings (18) (67) (80) (93) (118) (376)
Trade and other payables (3,591) - (13) - - (3,604)
Derivative financial instruments
(assets):
Interest rate derivatives 11 2 2 6 4 25
Foreign exchange contracts 69 58 122 72 - 321
Fuel derivatives 23 18 15 1 - 57
Derivative financial instruments
(liabilities):
Interest rate derivatives (18) (7) (13) (16) (1) (55)
Foreign exchange contracts (16) (8) (18) (16) - (58)
Fuel derivatives (342) (290) (270) (110) - (1,012)
--------------------------------------- --------- ------- ------- ------- --------- --------
December 31, 2018 (4,444) (679) (1,670) (3,105) (2,815) (12,713)
--------------------------------------- --------- ------- ------- ------- --------- --------
f Offsetting financial assets and liabilities
The Group enters into derivative transactions under ISDA
(International Swaps and Derivatives Association) documentation. In
general, under such agreements the amounts owed by each
counterparty on a single day in respect of all transactions
outstanding are aggregated into a single net amount that is payable
by one party to the other.
The following financial assets and liabilities are subject to
offsetting, enforceable master netting arrangements and similar
agreements.
Financial
instruments Net amounts Related
that are of financial amounts
Gross offset instruments not offset
value under in the in the
December 31, 2019 of financial netting balance balance
EUR million instruments agreements sheet sheet Net amount
================================= ============= ============ ============= =========== ==========
Financial assets
Derivative financial assets 550 42 592 (9) 583
Financial liabilities
Derivative financial liabilities 580 (42) 538 (9) 529
--------------------------------- ------------- ------------ ------------- ----------- ----------
Financial
instruments Net amounts Related
that are of financial amounts
Gross offset instruments not offset
value under in the in the
December 31, 2018 of financial netting balance balance
EUR million instruments agreements sheet sheet Net amount
================================= ============= ============ ============= =========== ==========
Financial assets
Derivative financial assets 363 13 376 (7) 369
Financial liabilities
Derivative financial liabilities 1,092 (13) 1,079 (7) 1,072
--------------------------------- ------------- ------------ ------------- ----------- ----------
g Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern to maintain an
optimal capital structure, to reduce the cost of capital and to
provide returns to shareholders.
The Group monitors capital on the basis of the net debt to
EBITDA ratio. For the year to December 31, 2019, the net debt to
EBITDA was 1.4 times (2018 pro forma: 1.2 times). The definition
and calculation for this performance measure is included in the
Alternative performance measures section.
Further detail on liquidity and capital resources and capital
risk management is disclosed in the financial review.
26 Financial instruments
a Financial assets and liabilities by category
The detail of the Group's nancial instruments at December 31,
2019 and December 31, 2018 by nature and classi cation for
measurement purposes is as follows:
Financial assets
-----------------------------------------
Total
carrying
amount
Fair value Fair value by
through through balance
December 31, 2019 Amortised Other comprehensive Income Non-financial sheet
EUR million cost income statement assets item
---------------------------------------- --------- -------------------- ------------ ------------- ---------
Non-current assets
Other equity investments - 82 - - 82
Derivative financial instruments - - 268 - 268
Other non-current assets 133 - - 140 273
---------------------------------------- --------- -------------------- ------------ ------------- ---------
Current assets
Trade receivables 2,255 - - - 2,255
Other current assets 414 - - 900 1,314
Derivative financial instruments - - 324 - 324
Other current interest-bearing deposits 2,621 - - - 2,621
Cash and cash equivalents 4,062 - - - 4,062
======================================== ========= ==================== ============ ============= =========
Financial liabilities
--------------------------------------------
Total
carrying
amount
Fair value Fair value by
through through Non- balance
Amortised Other comprehensive Income financial sheet
EUR million cost income statement liabilities item
---------------------------------------- ---------- -------------------- ---------- ------------ ---------
Non-current liabilities
Lease liabilities 9,352 - - - 9,352
Interest-bearing long-term borrowings 3,059 - - - 3,059
Derivative financial instruments - - 286 - 286
Other long-term liabilities 12 - - 59 71
---------------------------------------- ---------- -------------------- ---------- ------------ ---------
Current liabilities
Lease liabilities 1,694 - - - 1,694
Current portion of long-term borrowings 149 - - - 149
Trade and other payables 3,881 - - 463 4,344
Derivative financial instruments - - 252 - 252
======================================== ========== ==================== ========== ============ =========
Financial assets
-------------------------------------------
Total
carrying
Fair value Fair value amount
through through by balance
December 31, 2018 Amortised Other comprehensive income Non-financial sheet
EUR million cost income statement assets item
---------------------------------------- --------- -------------------- ---------- ------------- -----------
Non-current assets
Other equity investments - 80 - - 80
Derivative financial instruments - - 221 - 221
Other non-current assets 154 - - 155 309
---------------------------------------- --------- -------------------- ---------- ------------- -----------
Current assets
Trade receivables 1,597 - - - 1,597
Other current assets 444 - - 731 1,175
Derivative financial instruments - - 155 - 155
Other current interest-bearing deposits 2,437 - - - 2,437
Cash and cash equivalents 3,837 - - - 3,837
======================================== ========= ==================== ========== ============= ===========
Financial liabilities
-------------------------------------------
Total
carrying
amount
Fair value Fair value by
through through Non- balance
Amortised Other comprehensive Income financial sheet
EUR million cost income statement liabilities item
---------------------------------------- --------- -------------------- ---------- ------------ ---------
Non-current liabilities
Interest-bearing long-term borrowings 6,633 - - - 6,633
Derivative financial instruments - - 423 - 423
Other long-term liabilities 13 - - 185 198
---------------------------------------- --------- -------------------- ---------- ------------ ---------
Current liabilities
Current portion of long-term borrowings 876 - - - 876
Trade and other payables 3,591 - - 368 3,959
Derivative financial instruments - - 656 - 656
======================================== ========= ==================== ========== ============ =========
b Fair value of financial assets and financial liabilities
The fair values of the Group's financial instruments are
disclosed in hierarchy levels depending on the nature of the inputs
used in determining the fair values and using the following methods
and assumptions:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets and liabilities. A market is regarded as active if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service, or regulatory
agency, and those prices represent actual and regularly occurring
market transactions on an arm's length basis. Level 1 methodologies
(market values at the balance sheet date) were used to determine
the fair value of listed asset investments classified as equity
investments and listed interest-bearing borrowings.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not
traded in an active market is determined by valuation techniques.
These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity
specific estimates. Derivative instruments are measured based on
the market value of instruments with similar terms and conditions
at the balance sheet date using forward pricing models.
Counterparty and own credit risk is deemed to be not significant.
The fair value of the Group's interest-bearing borrowings including
leases is determined by discounting the remaining contractual cash
flows at the relevant market interest rates at the balance sheet
date.
Level 3: Inputs for the asset or liability that are not based on
observable market data.
The fair value of cash and cash equivalents, other current
interest-bearing deposits, trade receivables, other current assets
and trade and other payables approximate their carrying value
largely due to the short-term maturities of these instruments.
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2019 are as follows:
Carrying
Fair value value
-------------------------- --------
Level Level Level
EUR million 1 2 3 Total Total
--------------------------------------- ----- ----- ----- ----- --------
Financial assets
Other equity investments 10 - 72 82 82
Derivative financial assets:
Interest rate swaps(1) - 1 - 1 1
Foreign exchange contracts(1) - 488 - 488 488
Fuel derivatives(1) - 103 - 103 103
Financial liabilities
Interest-bearing loans and borrowings:
Asset financed liabilities - 1,623 - 1,623 1,254
Fixed rate borrowings 1,640 136 - 1,776 1,728
Floating rate borrowings - 226 - 226 226
Derivative financial liabilities:
Interest rate derivatives(2) - 67 - 67 67
Foreign exchange contracts(2) - 240 - 240 240
Fuel derivatives(2) - 231 - 231 231
======================================= ===== ===== ===== ===== ========
1 Current portion of derivative financial assets is EUR324
million
2 Current portion of derivative financial liabilities is EUR252
million
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2018 are set out below:
Carrying
Fair value value
-------------------------- --------
Level Level Level
EUR million 1 2 3 Total Total
--------------------------------------- ----- ----- ----- ----- --------
Financial assets
Equity investments 17 - 63 80 80
Derivative financial assets:
Interest rate derivatives(1) - 12 - 12 12
Foreign exchange contracts(1) - 321 - 321 321
Fuel derivatives(1) - 43 - 43 43
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations - 6,086 - 6,086 5,928
Fixed rate borrowings 1,096 113 - 1,209 1,226
Floating rate borrowings - 355 - 355 355
Derivative financial liabilities:
Forward currency contracts(2) - 43 - 43 43
Foreign exchange contracts(2) - 54 - 54 54
Fuel derivatives(2) - 982 - 982 982
======================================= ===== ===== ===== ===== ========
1 Current portion of derivative financial assets is EUR155
million.
2 Current portion of derivative financial liabilities is EUR656
million.
There have been no transfers between levels of fair value
hierarchy during the year.
The financial instruments listed in the previous table are
measured at fair value in the consolidated financial statements,
with the exception of interest-bearing borrowings, which are
measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3
financial assets:
EUR million 2019 2018
============================= ==== ====
Opening balance for the year 63 56
Additions 6 8
Exchange movements 3 (1)
============================= ==== ====
Closing balance for the year 72 63
============================= ==== ====
d Hedges
Cash flow hedges
At December 31, 2019 the Group's principal risk management
activities that were hedging future forecast transactions were:
-- Future loan repayments in foreign currency (predominantly US
dollar loan repayments), hedging foreign exchange fluctuations on
revenue cash inflows. Remeasurement gains and losses on the loans
are recognised in equity and transferred to the income statement
within revenue when the loan is repaid (generally in instalments
over the life of the loan).
-- Foreign exchange contracts, hedging foreign currency exchange
risk on revenue cash inflows and certain operational payments.
Remeasurement gains and losses on the derivatives are recognised in
equity and transferred to the income statement or balance sheet to
match against the related cash inflow or outflow.
-- Forward crude, gas oil and jet kerosene derivative contracts,
hedging price risk on fuel expenditure. Remeasurement gains and
losses on the derivatives are recognised in equity and transferred
to the income statement within fuel, oil costs and emissions
charges to match against the related fuel cash outflow.
-- Interest rate contracts, hedging interest rate risk on
floating rate debt and certain operational payments.
The amounts included in equity including the periods over which
the related cash flows are expected to occur are summarised
below:
(Gains)/losses in respect of cash flow hedges included
within equity
EUR million 2019 2018
============================================================ ==== =====
Loan repayments to hedge future revenue 141 682
Foreign exchange contracts to hedge future revenue and
expenditure(1) (80) (216)
Crude, gas oil and jet kerosene derivative contracts(1) 113 933
Derivatives used to hedge interest rates(1) 72 34
Instruments for which hedge accounting no longer applies(1) 355 22
------------------------------------------------------------ ---- -----
601 1,455
Related tax credit (94) (267)
------------------------------------------------------------ ---- -----
Total amount included within equity 507 1,188
============================================================ ==== =====
1 The carrying value of derivative instruments recognised in
assets and liabilities is analysed in parts a and b above.
The notional amounts of significant financial instruments used
as cash flow hedging instruments are set out below:
Notional principal amounts Within Total December
EUR million Hedge range 1 year 1-2 years 2-5 years 31, 2019
====================================== ============ ======= ========= ========= ==============
Foreign exchange contracts to hedge
future revenue and expenditure
from US dollars to pound sterling(1) 1.17-1.51 3,493 1,810 1,359 6,662
Foreign exchange contracts to hedge
future revenue and expenditure
from US dollars to euros(1) 0.74-1.39 1,397 1,091 483 2,971
====================================== ============ ======= ========= ========= ==============
1 Represents the value of the hedged item.
Notional principal amounts Within Total December
EUR million Hedge range 1 year 1-2 years 2-5 years 31, 2018
====================================== ============ ======= ========= ========= ==============
Foreign exchange contracts to hedge
future revenue and expenditure
from US dollars to pound sterling(1) 1.22-1.50 1,982 1,858 1,685 5,525
Foreign exchange contracts to hedge
future revenue and expenditure
from US dollars to euros(1) 1.06-1.34 2,299 1,993 2,197 6,489
====================================== ============ ======= ========= ========= ==============
1 Represents the value of the hedged item.
The movements in other comprehensive income in relation to cash
flow hedges are set out below:
(Gains)/losses
associated
(Gains)/losses with ineffectiveness Gains/(losses) Gains/(losses)
recognised recognised reclassified reclassified
For the year to December 31, in Other in the Total recognised to the to the
2019 comprehensive Income (gains)/ Income Balance
EUR million income(1) statement(2) losses statement sheet
============================= ============== ===================== ================ ============== ==============
Loan repayments to hedge
future
revenue (106) - (106) (20) -
Foreign exchange contracts to
hedge
future revenue and
expenditure 20 - 20 99 7
Crude, gas oil and jet
kerosene
derivative contracts (622) 8 (614) (178) -
Derivatives used to hedge
interest
rates 56 - 56 (11) -
Instruments for which hedge
accounting
no longer applies (38) - (38) (54) -
----------------------------- -------------- --------------------- ---------------- -------------- --------------
(690) 8 (682) (164) 7
============================= ============== ===================== ================ ============== ==============
1 Gains and losses recognised in Other comprehensive income
represent gains and losses on the hedged items
2 Ineffectiveness recognised in the Income statement is
presented as Realised and Unrealised gains and losses on
derivatives not qualifying for hedge accounting within
non-operating items.
(Gains)/losses
associated
(Gains)/losses with ineffectiveness Gains/(losses) Gains/(losses)
recognised recognised Total reclassified reclassified
in Other in the recognised to the to the
For the year to December 31, 2018 comprehensive Income (gains)/ Income Balance
EUR million income(1) statement(2) losses statement sheet
================================== ============== ===================== =========== ============== ==============
Loan repayments to hedge future
revenue 208 - 208 (82) -
Foreign exchange contracts to
hedge
future revenue and expenditure (387) - (387) 10 1
Crude, gas oil and jet kerosene
derivative contracts 732 16 748 672 -
Derivatives used to hedge interest
rates 37 - 37 (2) -
Instruments for which hedge
accounting
no longer applies 6 - 6 (2) -
---------------------------------- -------------- --------------------- ----------- -------------- --------------
596 16 612 596 1
================================== ============== ===================== =========== ============== ==============
1 Gains and losses recognised in Other comprehensive income
represent gains and losses on the hedged items.
2 Ineffectiveness recognised in the Income statement is
presented as Realised and Unrealised gains and losses on
derivatives not qualifying for hedge accounting within
non-operating items.
The Group has no significant fair value hedges at December 31,
2019 and 2018.
27 Share capital, share premium and treasury shares
Ordinary
Number share Share
of shares capital premium
Allotted, called up and fully paid '000s EUR million EUR million
================================================= ========== ============ ============
January 1, 2018: Ordinary shares of EUR0.50 each 2,057,990 1,029 6,022
Cancellation of ordinary shares of EUR0.50 each (65,957) (33) -
------------------------------------------------- ---------- ------------ ------------
January 1, 2019: Ordinary shares of EUR0.50 each 1,992,033 996 6,022
Special 2018 dividend of EUR0.35 per share (695)
------------------------------------------------- ---------- ------------ ------------
December 31, 2019 1,992,033 996 5,327
------------------------------------------------- ---------- ------------ ------------
A total of 1.0 million shares were issued to employees during
the year as a result of vesting of employee share schemes. At
December 31, 2019 the Group held 7.7 million shares (2018: 8.7
million) which represented 0.39 per cent of the issued share
capital of the Company.
During 2018, IAG carried out a EUR500 million share buyback
programme as part of its corporate finance strategy to return cash
to shareholders. The programme was executed between May and October
2018 during which time IAG acquired and subsequently cancelled
65,956,660 ordinary shares.
28 Share-based payments
The Group operates share-based payment schemes as part of the
total remuneration package provided to employees. These schemes
comprise both share option schemes where employees acquire shares
at an option price and share award plans whereby shares are issued
to employees at no cost, subject to the achievement by the Group of
specified performance targets.
a IAG Performance Share Plan
The IAG Performance Share Plan (PSP) is granted to senior
executives and managers of the Group who are most directly involved
in shaping and delivering business success over the medium to long
term. From 2015, the awards have been made as nil-cost options, and
also have a two-year additional holding period after the end of the
performance period, before vesting takes place. The awards made
since 2015 will vest based one-third on achievement of IAG's TSR
performance targets relative to the MSCI European Transportation
Index, one-third based on achievement of earnings per share
targets, and one-third based on achievement of Return on Invested
Capital targets.
b IAG Incentive Award Deferral Plan
The IAG Incentive Award Deferral Plan (IADP) is granted to
qualifying employees based on performance and service tests. It
will be awarded when an incentive award is triggered subject to the
employee remaining in employment with the Group for three years
after the grant date. The relevant population will receive 50 per
cent of their incentive award up front in cash, and the remaining
50 per cent in shares after three years through the IADP.
c Share-based payment schemes summary
Vested
Outstanding Outstanding and exercisable
at January Granted Lapsed Vested at December December
1, 2019 number number number 31, 2019 31, 2019
'000s '000s '000s '000s '000s '000s
------------------------------- ----------- ------- ------- ------- ------------ ----------------
Performance Share Plans 16,549 6,456 (3,783) (44) 19,178 52
Incentive Award Deferral Plans 4,238 2,113 (213) (1,665) 4,473 17
------------------------------- ----------- ------- ------- ------- ------------ ----------------
20,787 8,569 (3,996) (1,709) 23,651 69
------------------------------- ----------- ------- ------- ------- ------------ ----------------
The fair value of equity-settled share-based payment plans
determined using the Monte-Carlo valuation model, taking into
account the terms and conditions upon which the plans were granted,
used the following assumptions:
December December
31, 31,
2019 2018
==================================================== ======== ========
Expected share price volatility (per cent) 35 35
Expected comparator group volatility (per cent) 20 20
Expected comparator correlation (per cent) 55 60
Expected life of options (years) 4.8 4.6
Weighted average share price at date of grant (GBP) 5.67 6.91
---------------------------------------------------- -------- --------
Weighted average fair value (GBP) 1.93 4.01
---------------------------------------------------- -------- --------
Volatility was calculated with reference to the Group's weekly
pound sterling share price volatility. The expected volatility
reflects the assumption that the historical volatility is
indicative of future trends, which may not necessarily be the
actual outcome. The fair value of the PSP also takes into account a
market condition of TSR as compared to strategic competitors. No
other features of share-based payment plans granted were
incorporated into the measurement of fair value.
The Group recognised a share-based payment charge of EUR34
million for the year to December 31, 2019 (2018: EUR31
million).
29 Other reserves and non-controlling interests
For the year to December 31, 2019
Other reserves
===============================================================================================
Equity
Unrealised Time portion
gains value of Redeemed Total Non-controlling
Retained and of Currency convertible Merger capital other interest
EUR million earnings losses(1) options(2) translation(3) bond(4) reserve(5) reserve(6) reserves (7)
================ ======== ========== ========== ============== =========== ========== ========== ======== ===============
January 1, 2019 3,324 (1,138) 10 (136) 101 (2,467) 70 (236) 6
Adoption of IFRS
16 (554) 8 (4) - - - - (550) -
Profit for the
year 1,715 - - - - - - 1,715 -
Other
comprehensive
income for the
year
Cash flow hedges
reclassified and
reported in net
profit:
Passenger
revenue - 55 - - - - - 55 -
Fuel and oil
costs - 106 - - - - - 106 -
Currency
differences - (26) - - - - - (26) -
Finance costs - 6 - - - - - 6 -
Net change in
fair
value of cash
flow
hedges - 540 - - - - - 540 -
Net change in
fair
value of other
equity
investments - (8) - - - - - (8) -
Net change in
fair
value of cost
of
hedging - - 68 - - - - 68 -
Cost of hedging
reclassified
and reported in
the
net profit - - (10) - - - - (10) -
Currency
translation
differences - - - 296 - - - 296 -
Remeasurements
of
post-employment
benefit
obligations (788) - - - - - - (788) -
Hedges
reclassified
and reported in
property,
plant and
equipment - (7) (4) - - - - (11) -
Cost of
share-based
payments 33 - - - - - - 33 -
Vesting of
share-based
payment schemes (14) - - - - - - (14) -
Dividend (615) - - - - - - (615) -
Redemption of
convertible
bond 38 - - - (39) - - (1) -
================ ======== ========== ========== ============== =========== ========== ========== ======== ===============
December 31,
2019 3,139 (464) 60 160 62 (2,467) 70 560 6
---------------- -------- ---------- ---------- -------------- ----------- ---------- ---------- -------- ---------------
Other reserves
===============================================================================================
Equity
Unrealised Time portion
gains value of Redeemed Total Non-controlling
Retained and of Currency convertible Merger capital other interest
EUR million earnings losses(1) options(2) translation(3) bond(4) reserve(5) reserve(6) reserves (7)
================ ======== ========== ========== ============== =========== ========== ========== ======== ===============
January 1, 2018 2,278 (161) (3) (133) 101 (2,467) 37 (348) 307
Profit for the
year 2,885 - - - - - - 2,885 12
Other
comprehensive
income for the
year
Cash flow hedges
reclassified and
reported in net
profit:
Passenger
revenue - 77 - - - - - 77 -
Fuel and oil
costs - (565) - - - - - (565) -
Currency
differences - 4 - - - - - 4 -
Finance costs - 4 - - - - - 4 -
Net change in
fair
value of cash
flow
hedges - (491) - - - - - (491) -
Net change in
fair
value of cost
of
hedging - - 13 - - - - 13 -
Net change in
fair
value of other
equity
investments - (5) - - - - - (5) -
Currency
translation
differences - - - (80) - - - (80) -
Remeasurements
of
post-employment
benefit
obligations (696) - - - - - - (696) -
Hedges
reclassified
and reported in
property,
plant and
equipment - (1) - - - - - (1) -
Cost of
share-based
payments 31 - - - - - - 31 -
Vesting of
share-based
payment schemes (15) - - - - - - (15) -
Dividend (582) - - - - - - (582) -
Cancellation of
treasury
shares (500) - - - - - 33 (467) -
Dividend of a
subsidiary - - - - - - - - (1)
Transfer between
reserves (77) - - 77 - - - - -
Distributions
made
to holders of
perpetual
securities - - - - - - - - (312)
---------------- -------- ---------- ---------- -------------- ----------- ---------- ---------- -------- ---------------
December 31,
2018 3,324 (1,138) 10 (136) 101 (2,467) 70 (236) 6
---------------- -------- ---------- ---------- -------------- ----------- ---------- ---------- -------- ---------------
1 The unrealised gains and losses reserve records fair value
changes on equity investments and the portion of the gain or loss
on a hedging instrument in a cash flow hedge that is determined to
be an effective hedge.
2 The time value of options reserve records fair value changes
on the cost of hedging.
3 The currency translation reserve records exchange differences
arising from the translation of the financial statements of
non-euro functional currency subsidiaries and investments accounted
for under the equity method into the Group's reporting currency of
euros. The movement through this reserve is affected by the
fluctuations in the pound sterling to euro foreign exchange
translation rate.
4 The equity portion of convertible bond reserve represents the
equity portion of convertible bonds issued. At December 31, 2019,
this related to the EUR500 million fixed rate 0.625 per cent
convertible bond (note 23). During 2019 the Group exercised its
option to early redeem the EUR500 million fixed rate 0.25 per cent
convertible bond with no conversion to ordinary shares.
5 The merger reserve originated from the merger transaction
between British Airways and Iberia. The balance represents the
difference between the fair value of the Group on the transaction
date, and the fair value of Iberia and the book value of British
Airways (including its reserves).
6 The redeemed capital reserve represents the nominal value of
the decrease in share capital, relating to cancelled shares.
7 On August 28, 2018, British Airways exercised its option to
redeem its EUR300 million, 6.75 per cent fixed coupon preferred
security which was previously classified as a non-controlling
interest. The total non-controlling interest at December 31, 2019
is EUR6 million (2018: EUR6 million).
30 Employee benefit obligations
The Group operates a variety of post-employment benefit
arrangements, covering both defined contribution and defined
benefit schemes. The Group also has a scheme for flight crew who
meet certain conditions and therefore have the option of being
placed on reserve and retaining their employment relationship until
reaching the statutory retirement age, or taking early retirement
(note 24).
Defined contribution schemes
The Group operates a number of defined contribution schemes for
its employees.
Costs recognised in respect of defined contribution pension
plans in Spain, UK and Ireland for the year to December 31, 2019
were EUR262 million (2018: EUR214 million).
Defined benefit schemes
APS and NAPS
The principal funded defined benefit pension schemes within the
Group are the Airways Pension Scheme (APS) and the New Airways
Pension Scheme (NAPS), both of which are in the UK and are closed
to new members. NAPS was closed to future accrual from March 31,
2018, resulting in a reduction of the defined benefit obligation.
Following closure members' deferred pensions will now be increased
annually by inflation up to five per cent per annum (measured using
the Government's annual Pension Increase (Review) Orders, which
since 2011 have been based on CPI). As part of the closure of NAPS
to future accrual in 2018, British Airways agreed to make certain
additional transition payments to NAPS members if the deficit had
reduced more than expected at either the 2018 or 2021 valuations.
No payment was triggered by the 2018 valuation and no allowance for
such payments following the 2021 valuation has been made in the
valuation of the defined benefit obligation.
APS has been closed to new members since 1984. The benefits
provided under APS are based on final average pensionable pay and,
for the majority of members, are subject to inflationary increases
in payment.
As reported in previous years, the Trustee of APS has proposed
an additional discretionary increase above CPI inflation for
pensions in payment for the year to March 31, 2014. British Airways
challenged the decision and initiated legal proceedings to
determine the legitimacy of the discretionary increase. The High
Court issued a judgment in May 2017, which determined that the
Trustee had the power to grant discretionary increases, whilst
reiterating the Trustee must take into consideration all relevant
factors, and ignore irrelevant factors. British Airways appealed
the judgment to the Court of Appeal. In July 2018 the Court of
Appeal released its judgment, upholding British Airways' appeal,
concluding the Trustee did not have the power to introduce a
discretionary increase rule.
Subsequently, in April 2019 the Trustee Directors of the Airways
Pension Scheme unanimously agreed with British Airways terms for an
out-of-court settlement and on November 11, 2019 the APS
discretionary pension increase settlement agreement ('the
Agreement') was ratified by the High Court. This brought to an end
the dispute that commenced in 2013, that would otherwise have
proceeded to final appeal at the Supreme Court. Under the
Agreement, the Trustee of APS are permitted, subject to certain
affordability tests, to award discretionary increases so that APS
pensions are increased up to the annual change in the Retail Prices
Index (RPI) from 2021 with interim catch-up increases tending to
RPI prior to 2021. British Airways ceased to pay further deficit
recovery contributions from January 1, 2019, including cash sweep
payments. British Airways has provided a EUR47 million indemnity,
which is payable in full or part as appropriate following the
triennial valuation of the scheme as at March 31, 2027 if that
valuation shows that the scheme is not able to pay pension
increases at RPI for the remaining life of the scheme. The APS
actuarial valuation as at March 31, 2015 and March 31, 2018 was
completed in November 2019. The APS actuarial valuation at March
31, 2018 resulted in a surplus of EUR683 million.
APS and NAPS are governed by separate Trustee Boards. Although
APS and NAPS have separate Trustee Boards, much of the business of
the two schemes is common. Some main Board and committee meetings
are held in tandem although each Trustee Board reaches its
decisions independently. There are three sub committees which are
separately responsible for the governance, operation and
investments of each scheme. British Airways Pension Trustees
Limited holds the assets of both schemes on behalf of their
respective Trustees.
Deficit payment plans are agreed with the Trustee of each scheme
every three years based on the actuarial valuation rather than the
IAS 19 accounting valuation. In October 2019, the latest deficit
recovery plan was agreed as at March 31, 2018 with respect to NAPS
(see note 30i below). The actuarial valuations performed as at
March 31, 2018 for APS and NAPS are different to the valuation
performed as at December 31, 2019 under IAS 19 'Employee Benefits'
mainly due to timing differences of the measurement dates and to
the specific scheme assumptions in the actuarial valuation compared
with IAS 19 guidance used in the accounting valuation assumptions.
For example, IAS 19 requires the discount rate to be based on
corporate bond yields regardless of how the assets are actually
invested, which may not result in the calculations in this report
being a best estimate of the cost to the Group of providing
benefits under either Scheme. The investment strategy of each
Scheme is likely to change over its life, so the relationship
between the discount rate and the expected rate of return on each
Scheme's assets may also change.
Other plans
British Airways provides certain additional post-retirement
healthcare benefits to eligible employees in the US through the US
Post-Retirement Medical Benefit plan (US PRMB) which is considered
to be a defined benefit scheme. In addition, Aer Lingus operates
certain defined benefit plans, both funded and unfunded.
The defined benefit plans expose the Company to actuarial risks,
such as longevity risk, interest rate risk, inflation risk and
market (investment) risk, including currency risk.
Cash payments
Cash payments in respect to pension obligations comprise normal
employer contributions by the Group; deficit contributions based on
the agreed deficit payment plan with APS and NAPS; and cash sweep
payments relating to additional payments made conditional on the
level of cash in British Airways. Total payments for the year to
December 31, 2019 net of service costs were EUR865 million (2018:
EUR843 million) being the employer contributions of EUR870 million
(2018: EUR716 million) less the current service cost of EUR5
million (2018: EUR55 million) (note 30b) and including payments
made under transitional arrangements on the closure of NAPS to
future accrual in 2018 of EUR182 million.
a Employee benefit schemes recognised on the Balance sheet
2019
-------------------------------------
EUR million APS NAPS Other(1) Total
------------------------------------ ------- -------- -------- --------
Scheme assets at fair value 8,830 22,423 428 31,681
Present value of scheme liabilities (8,401) (21,650) (731) (30,782)
------------------------------------ ------- -------- -------- --------
Net pension asset/(liability) 429 773 (303) 899
Effect of the asset ceiling(2) (127) (565) - (692)
Other employee benefit obligations - - (11) (11)
------------------------------------ ------- -------- -------- --------
December 31, 2019 302 208 (314) 196
------------------------------------ ------- -------- -------- --------
Represented by:
Employee benefit assets 524
Employee benefit obligations (328)
------------------------------------ ------- -------- -------- --------
196
------------------------------------ ------- -------- -------- --------
2018
-------------------------------------
EUR million APS NAPS Other(1) Total
------------------------------------ ------- -------- -------- --------
Scheme assets at fair value 8,372 18,846 382 27,600
Present value of scheme liabilities (7,110) (17,628) (645) (25,383)
------------------------------------ ------- -------- -------- --------
Net pension asset/(liability) 1,262 1,218 (263) 2,217
Effect of the asset ceiling(2) (469) (896) - (1,365)
Other employee benefit obligations - - (12) (12)
------------------------------------ ------- -------- -------- --------
December 31, 2018 793 322 (275) 840
------------------------------------ ------- -------- -------- --------
Represented by:
Employee benefit assets 1,129
Employee benefit obligations (289)
------------------------------------ ------- -------- -------- --------
840
------------------------------------ ------- -------- -------- --------
1 The present value of scheme liabilities for the US PRMB was
EUR15 million at December 31, 2019 (2018: EUR13 million).
2 APS and NAPS have an accounting surplus under IAS 19, which
would be available to the Group as a refund upon wind up of the
scheme. This refund is restricted due to withholding taxes that
would be payable by the Trustee.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
EUR million 2019 2018
=================================================== ==== =====
Defined benefit plans:
Current service cost 5 55
Past service cost/(credit)(1, 2) 665 (586)
--------------------------------------------------- ---- -----
670 (531)
Defined contribution plans 262 214
--------------------------------------------------- ---- -----
Pension costs/(credits) recorded as employee costs 932 (317)
--------------------------------------------------- ---- -----
1 Refer to note 4 for amounts recorded within exceptional items
in 2019 and 2018.
2 Includes a past service credit of EUR7 million (2018: EURnil)
relating to schemes other than APS and NAPS.
Pension costs charged as finance costs are:
EUR million 2019 2018
========================================== ===== =====
Interest income on scheme assets (775) (731)
Interest expense on scheme liabilities 710 690
Interest expense on asset ceiling 39 14
------------------------------------------ ----- -----
Net financing income relating to pensions (26) (27)
------------------------------------------ ----- -----
c Remeasurements recognised in the Statement of other comprehensive income
EUR million 2019 2018
============================================================= ======= =====
Return on plan assets excluding interest income (1,916) 1,313
Remeasurement of plan liabilities from changes in financial
assumptions 3,423 (997)
Remeasurement of experience losses/(gains) 193 (297)
Remeasurement of the APS and NAPS asset ceilings (781) 806
Exchange movements (13) 5
------------------------------------------------------------- ------- -----
Pension remeasurements charged to Other comprehensive income 906 830
------------------------------------------------------------- ------- -----
d Fair value of scheme assets
A reconciliation of the opening and closing balances of the fair
value of scheme assets is set out below:
EUR million 2019 2018
================================================ ======= =======
January 1 27,600 29,172
Interest income 775 731
Return on plan assets excluding interest income 1,916 (1,313)
Employer contributions(1) 870 716
Employee contributions 6 128
Benefits paid (1,269) (1,340)
Exchange movements 1,783 (494)
------------------------------------------------ ------- -------
December 31 31,681 27,600
------------------------------------------------ ------- -------
1 Includes employer contributions to APS of EUR5 million (2018:
EUR111 million) and to NAPS of EUR816 million (2018: EUR582
million) of which deficit funding payments represented nil for APS
(2018: EUR108 million) and EUR797 million for NAPS (2018: EUR509
million).
For both APS and NAPS, the Trustee has ultimate responsibility
for decision making on investments matters, including the
asset-liability matching strategy. The latter is a form of
investing designed to match the movement in pension plan assets
with the movement in the projected benefit obligation over time.
The Trustees' investment committee adopts an annual business plan
which sets out investment objectives and work required to support
achievement of these objectives. The committee also deals with the
monitoring of performance and activities, including work on
developing the strategic benchmark to improve the risk return
profile of the scheme where possible, as well as having a trigger
based dynamic governance process to be able to take advantage of
opportunities as they arise. The investment committee reviews the
existing investment restrictions, performance benchmarks and
targets, as well as continuing to develop the de-risking and
liability hedging portfolio.
Both schemes use derivative instruments for investment purposes
and to manage exposures to financial risks, such as interest rate,
foreign exchange and liquidity risks arising in the normal course
of business. Exposure to interest rate risk is managed through the
use of Inflation-Linked Swap contracts. Foreign exchange forward
contracts are entered into to mitigate the risk of currency
fluctuations.
Scheme assets held by all defined benefit schemes operated by
the Group at December 31 comprise:
EUR million 2019 2018
====================================== ====== ======
Return seeking investments - equities
------ ------
UK 2,310 1,737
Rest of world 4,774 4,602
------ ------
7,084 6,339
Return seeking investments - other
------ ------
Private equity 1,035 931
Property 2,135 1,917
Alternative investments 1,081 1,183
------ ------
4,251 4,031
Liability matching investments
------ ------
UK fixed bonds 6,356 4,885
Rest of world fixed bonds 93 70
UK index-linked bonds 6,266 5,019
Rest of world index-linked bonds 120 103
------ ------
12,835 10,077
Other
Cash and cash equivalents 689 418
Derivatives (344) 57
Insurance contract 1,740 1,663
Longevity swap 4,547 4,321
Other 879 694
-------------------------------------- ------ ------
31,681 27,600
-------------------------------------- ------ ------
All equities and bonds have quoted prices in active markets.
For APS and NAPS, the composition of the scheme assets is:
December 31, December 31,
2019 2018
============== ==============
EUR million APS NAPS APS NAPS
============================================== ====== ====== ====== ======
Return seeking investments 347 10,844 702 9,477
Liability matching investments 1,897 10,828 1,538 8,457
---------------------------------------------- ------ ------ ------ ------
2,244 21,672 2,240 17,934
Insurance contract and related longevity swap 6,260 - 5,956 -
Other 326 751 176 912
---------------------------------------------- ------ ------ ------ ------
Fair value of scheme assets 8,830 22,423 8,372 18,846
---------------------------------------------- ------ ------ ------ ------
The strategic benchmark for asset allocations differentiate
between 'return seeking assets' and 'liability matching assets'
depending on the maturity of each scheme. At December 31, 2019, the
benchmark for NAPS was 46 per cent (2018: 49 per cent) in return
seeking assets and 54 per cent (2018: 51 per cent) in liability
matching investments. Bandwidths are set around these strategic
benchmarks that allow for tactical asset allocation decisions,
providing parameters for the Investment Committee and their
investment managers to work within. APS no longer has a 'strategic
benchmark' as instead, APS now runs off its liquidation portfolio
to a liability matching portfolio of bonds and cash. The actual
asset allocation for APS at December 31, 2019 was 4 per cent (2018:
8 per cent) in return seeking assets and 96 per cent (2018: 92 per
cent) in liability matching investments.
APS has an insurance contract with Rothesay Life which covers 24
per cent (2018: 24 per cent) of the pensioner liabilities for an
agreed list of members. The insurance contract is based on future
increases to pensions in line with inflation and will match future
obligations on that basis for that part of the scheme. The
insurance contract can only be used to pay or fund employee
benefits under the scheme. APS also has secured a longevity swap
contract with Rothesay Life, which covers an additional 20 per cent
(2018: 20 per cent) of the pensioner liabilities for the same
members covered by the insurance contract above. The value of the
contract is based on the difference between the value of the
payments expected to be received under this contract and the
pensions payable by the scheme under the contract. The fees are
linked to LIBOR, and an assumed future LIBOR rate has been derived
based on swap prices at December 31, 2019.
During 2018 the Trustee of APS secured a buy-in contract with
Legal & General. The buy-in contract covers all members in
receipt of pension from APS at March 31, 2018, excluding dependent
children receiving a pension at that date and members in receipt of
equivalent pension (EPB) only benefits, who are alive on October 1,
2018. Benefits coming into payment for retirements after March 31,
2018 are not covered. The contract covers benefits payable from
October 1, 2018 onwards. The policy covers approximately 60 per
cent of all benefits APS expects to pay out in future. Along with
existing insurance products (the asset swap and longevity swaps
with Rothesay Life), APS is now 90 per cent protected against all
longevity risk and fully protected in relation to all pensions that
were already being paid as at March 31, 2018. It is also more than
90 per cent protected against interest rates and inflation (on a
Retail Price Index (RPI) basis).
e Present value of scheme liabilities
A reconciliation of the opening and closing balances of the
present value of the defined benefit obligations is set out
below:
EUR million 2019 2018
============================================ ======= =======
January 1 25,383 28,363
Current service cost 5 55
Past service cost/(credit) 665 (778)
Interest expense 710 690
Remeasurements - financial assumptions 3,423 (997)
Remeasurements of experience losses/(gains) 193 (297)
Benefits paid (1,269) (1,340)
Employee contributions 6 128
Exchange movements 1,666 (441)
-------------------------------------------- ------- -------
December 31 30,782 25,383
-------------------------------------------- ------- -------
The defined benefit obligation comprises EUR30 million (2018:
EUR36 million) arising from unfunded plans and EUR30,752 million
(2018: EUR25,347 million) from plans that are wholly or partly
funded.
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling used in
calculating the IAS 19 irrecoverable surplus in APS is set out
below:
EUR million 2019 2018
=================== ===== =====
January 1 1,365 570
Interest expense 39 14
Remeasurements(1) (781) 806
Exchange movements 69 (25)
------------------- ----- -----
December 31 692 1,365
------------------- ----- -----
1 The decrease in remeasurements follows the reduction in APS
surplus as a result of the discretionary pension increase
settlement agreement, and a decrease in the NAPS surplus
principally due to the reduction in the discount rate. In 2018 the
increase in remeasurements is mainly due to the closure of NAPS to
future accrual in 2018 which resulted in an IAS 19 accounting
surplus in the scheme, which would be available to the Group as a
refund upon wind up of the scheme. This refund is restricted due to
withholding taxes that would be payable by the Trustee.
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial
valuations were as follows:
2019 2018
==================== ====================
Other Other
Per cent per annum APS NAPS schemes APS NAPS schemes
================================ ==== ==== ======== ==== ==== ========
0.8 - 1.6 -
Discount rate(1) 1.85 2.05 3.2 2.65 2.85 4.4
Rate of increase in pensionable 2.5 -
pay(2) 2.90 - 2.5 3.20 - 3.7
Rate of increase of pensions 1.2 - 1.5 -
in payment(3) 2.90 2.15 3.5 2.10 2.05 3.8
2.5 - 2.5 -
RPI rate of inflation 2.90 n/a 2.8 3.20 3.15 3.2
1.2 - 1.5 -
CPI rate of inflation n/a 2.15 3.0 2.10 2.05 3.0
-------------------------------- ---- ---- -------- ---- ---- --------
1 Discount rate is determined by reference to the yield on high
quality corporate bonds of currency and term consistent with the
scheme liabilities.
2 Rate of increase in pensionable pay is assumed to be in line
with long term market inflation expectations. The RPI rate
assumptions for APS, from April 2021 are based on the difference
between the yields on index-linked and fixed-interest long-term
government bonds. Historically market expectations for RPI could be
derived by comparing the prices of UK government fixed-interest and
index-linked gilts, with CPI assessed by considering the Bank of
England's inflation target and comparison of the construction of
the two inflation indices. As described in note 2(b), in September
2019 correspondence was published relating to potential future
changes to RPI outlining a clear preference by the UK Statistics
Authority (UKSA) for alignment of RPI with CPIH (a variant of CPI).
To make changes prior to 2030, however, the UKSA requires the
consent of the Chancellor. Following this announcement,
market-implied break-even RPI inflation forward rates after 2030
have reduced in investment market. In assessing RPI and CPI from
investment market data, allowance has therefore been made for a
reduction in the gap between RPI and CPI from 2030.
3 It has been assumed that the rate of increase of pensions in
payment will be in line with CPI for NAPS and from April 2021 with
RPI for APS. At December 31, 2018 pension increases for both
schemes were based in CPI.
Rate of increase in healthcare costs is based on medical trend
rates of 6.50 per cent grading down to 5.00 per cent over five
years (2018: 6.25 per cent to 5.00 per cent over five years).
In the UK, mortality rates for APS and NAPS are calculated using
the standard SAPS mortality tables produced by the CMI. The
standard mortality tables were selected based on the actual recent
mortality experience of members and were adjusted to allow for
future mortality changes. The current longevities underlying the
values of the scheme liabilities were as follows:
Mortality assumptions 2019 2018
================================= ==== ====
Life expectancy at age 60 for a:
- male currently aged 60 28.2 28.5
- male currently aged 40 29.9 29.7
- female currently aged 60 29.0 30.3
- female currently aged 40 31.6 32.9
--------------------------------- ---- ----
At December 31, 2019, the weighted-average duration of the
defined benefit obligation was 12 years for APS (2018: 11 years)
and 19 years for NAPS (2018: 19 years).
In the US, mortality rates were based on the RP-14 mortality
tables.
h Sensitivity analysis
Reasonable possible changes at the reporting date to significant
actuarial assumptions, holding other assumptions constant, would
have affected the present value of scheme liabilities by the
amounts shown:
(Decrease)/increase
in scheme liabilities
==========================
Other
EUR million APS NAPS schemes
==================================================== ====== ====== ==========
Discount rate (decrease of 10 basis points) (24) (402) 45
Future salary growth (increase of 10 basis points) - n/a 6
Future pension growth (increase of 10 basis points) (24) (354) 24
Future mortality rate (one year increase in life
expectancy) (24) (732) 8
---------------------------------------------------- ------ ------ ----------
Although the analysis does not take into account the full
distribution of cash flows expected under the plan, it does provide
an approximation of the sensitivity of the assumptions shown.
i Funding
Pension contributions for APS and NAPS were determined by
actuarial valuations made at March 31, 2018, using assumptions and
methodologies agreed between the Group and Trustee of each scheme.
At the date of the actuarial valuation, the actuarial deficit of
NAPS amounted to EUR2,736 million. In order to address the deficit
in the scheme, the Group has also committed to the following
undiscounted deficit payments:
EUR million NAPS
========================================= =====
Within 12 months 488
2-5 years 1,195
------------------------------------------ -----
Total expected deficit payments for NAPS 1,683
------------------------------------------ -----
The Group has determined that the minimum funding requirements
set out above for NAPS will not be restricted. The present value of
the contributions payable is expected to be available as a refund
or a reduction in future contributions after they are paid into the
plan. This determination has been made independently for each plan,
subject to withholding taxes that would be payable by the
Trustee.
Deficit payments in respect of local arrangements outside of the
UK have been determined in accordance with local practice.
In total, the Group expects to pay EUR491 million in employer
contributions and deficit payments to the two significant
post-retirement benefit plans in 2020. This is made up of EUR488
million of deficit payments for NAPS as agreed at the latest
triennial valuation in October 2019 and ongoing employer
contributions of EUR4 million for APS.
Until September 2022, if British Airways pays a dividend to IAG
higher than 50 per cent of pre-exceptional profit after tax it will
either accelerate contributions to the scheme or provide a
guarantee, in respect of the amount by which the dividend exceeds
50 per cent of the pre-exceptional profit after tax.
31 Contingent liabilities and guarantees
Details of contingent liabilities are set out below. The Group
does not consider it probable that there will be an outflow of
economic resources with regard to these proceedings and accordingly
no provision for these proceedings has been recognised.
Contingent liabilities associated with income and deferred taxes
are now presented Note 9. For information pertaining to previously
reported contingent liabilities associated with the Airways Pension
Scheme, refer to Note 30.
Cargo
The European Commission issued a decision in which it found that
British Airways, and 10 other airline groups, had engaged in cartel
activity in the air cargo sector (Original Decision). British
Airways recorded the financial effect of the resultant fine in the
2007 financial statements. Following an appeal to the General Court
(GC), the decision was subsequently partially annulled against
British Airways (and annulled in full against the other appealing
airlines) (General Court Judgment). British Airways appealed the
partial annulment to the Court of Justice of the European Union,
but that appeal was rejected. In parallel, the European Commission
chose not to appeal the General Court Judgment, and instead adopted
a new decision in March 2017 (New Decision). British Airways repaid
the fine previously refunded and appealed the New Decision (as have
other carriers). British Airways is expecting a decision on its
appeal during 2020.
A large number of claimants brought proceedings in the English
courts to recover damages from British Airways which, relying on
the findings in the Commission decisions, they claimed arose from
the alleged cartel activity. British Airways joined the other
airlines alleged to have participated in cartel activity to those
proceedings. These claims were fully concluded in 2019.
British Airways is party to litigation in other jurisdictions
together with a number of other airlines. The Directors' estimate
of the outcome of these claims is included in the legal claims
provisions in note 24.
Theft of customer data at British Airways
On September 6, 2018 British Airways announced the theft of
certain of its customers' personal data. Following an investigation
into the theft, British Airways announced on October 25, 2018 that
further personal data had potentially been compromised. On July 4,
2019, British Airways received a Notice of Intent from the
Information Commissioner's Office (ICO) in which it informed the
airline of its intention to fine it approximately GBP183 million
(EUR205 million) under the UK Data Protection Act.
British Airways made extensive representations to the ICO
regarding the proposed fine and has complied with various further
information requests. As part of its procedures, the ICO will seek
the views of other EU data protection authorities. The ICO
initially had six months from issuing the Notice of Intent to
British Airways within which it could issue a penalty notice, which
has been extended through to May 18, 2020, to allow the ICO to
fully consider the representations and information provided by
British Airways. If a penalty notice is issued, British Airways has
28 days within which to lodge an appeal with the First-tier
Tribunal in the General Regulatory Chamber. A decision by the
First-tier Tribunal may, with permission, be appealed to the Upper
Tribunal. Any appeal of the Upper Tribunal decision would be to the
Court of Appeal. It is British Airways' intention to vigorously
defend itself in this matter, including using all available appeal
routes should they be required.
At December 31, 2019, and through to the date of these financial
statements, no final penalty notice has been received from the ICO,
although it reserves the right to issue such a notice on completion
of its investigation. It has not been proven that British Airways
failed to comply with its obligations under GDPR and the UK Data
Protection Act. Should any final penalty notice be issued, and
having regard to the representations made by British Airways, the
Directors consider that it should be for a considerably lower
amount than the initial Notice of Intent.
Other
There are a number of other legal and regulatory proceedings
against the Group in a number of jurisdictions which at December
31, 2019 amounted to EUR53 million (December 31, 2018: EUR28
million).
The Group also has guarantees and indemnities entered into as
part of the normal course of business, which at December 31, 2019
are not expected to result in material losses for the Group.
32 Related party transactions
The following transactions took place with related parties for
the financial years to December 31:
EUR million 2019 2018
============================================ ==== ====
Sales of goods and services
Sales to associates and joint ventures(1) 6 7
Sales to significant shareholders(2) 32 44
Purchases of goods and services
Purchases from associates(3) 76 55
Purchases from significant shareholders(2) 149 121
============================================ ==== ====
Receivables from related parties
Amounts owed by associates(4) 2 7
Amounts owed by significant shareholders(5) 8 3
Payables to related parties
Amounts owed to associates(6) 3 3
Amounts owed to significant shareholders(5) 18 7
============================================ ==== ====
1 Sales to associates and joint ventures: Consisted primarily of
sales for airline related services to Dunwoody Airline Services
(Holding) Limited (Dunwoody) of EUR4 million (2018: EUR5 million)
and EUR1 million (2018: EUR1 million) to Sociedad Conjunta para la
Emisión y gestión de Medios de Pago EFC, S.A. (Iberia Cards) and
Serpista, S.A.
2 Sales to and purchases from significant shareholders: Related
to interline services with Qatar Airways.
3 Purchases from associates: Consisted primarily of EUR50
million of airport auxiliary services purchased from Multiservicios
Aeroportuarios, S.A. (2018: EUR35 million), EUR16 million of
maintenance services received from Serpista, S.A. (2018: EUR13
million) and EUR10 million of handling services provided by
Dunwoody (2018: EUR6 million).
4 Amounts owed by associates: Consisted primarily of EUR1
million of services provided to Multiservicios Aeroportuarios, S.A.
(2018: EUR1 million) and EUR1 million of services provided to
Dunwoody, Iberia Cards and Empresa Hispano Cubana de Mantenimiento
de Aeronaves, Ibeca, S.A. (2018: EUR5 million for Dunwoody and EUR1
million for Iberia Cards, Viajes AME, S.A. and Empresa Hispano
Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).
5 Amounts owed by and to significant shareholders: Related to
Qatar Airways.
6 Amounts owed to associates: Consisted primarily of EUR1
million due to Dunwoody (2018: less than EUR1 million) and EUR2
million due to Multiservicios Aeroportuarios, S.A., Serpista, S.A.
and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca,
S.A. (2018: EUR3 million due to Multiservicios Aeroportuarios,
S.A., Serpista, S.A. and Empresa Hispano Cubana de Mantenimiento de
Aeronaves, Ibeca, S.A.).
During the year to December 31, 2019 British Airways met certain
costs of administering its retirement benefit plans, including the
provision of support services to the Trustees. Costs borne on
behalf of the retirement benefit plans amounted to EUR9 million
(2018: EUR10 million) in relation to the costs of the Pension
Protection Fund levy.
The Group has transactions with related parties that are
conducted in the normal course of the airline business, which
include the provision of airline and related services. All such
transactions are carried out on an arm's length basis.
For the year to December 31, 2019, the Group has not made any
provision for expected credit loss arising relating to amounts owed
by related parties (2018: nil).
Significant shareholders
In this instance, significant shareholders are those parties who
have the power to participate in the financial and operating policy
decisions of the Group, as a result of their shareholdings in the
Group, but who do not have control over these policies.
At December 31, 2019 the Group had cash deposit balances with
shareholders holding a participation of between 3 to 5 per cent, of
nil (2018: EUR98 million).
Board of Directors and Management Committee remuneration
Compensation received by the Group's Board of Directors and
Management Committee, in 2019 and 2018 is as follows:
Year to December
31
------------------
EUR million 2019 2018
------------------------------- -------- --------
Base salary, fees and benefits
Board of Directors
Short-term benefits 5 5
Share based payments 3 2
Management Committee
Short-term benefits 8 10
Share based payments 5 5
=============================== ======== ========
For the year to December 31, 2019 the Board of Directors
includes remuneration for three Executive Directors (December 31,
2018: two Executive Directors). The Management Committee includes
remuneration for 12 members (December 31, 2018: ten members).
The Company provides life insurance for all executive directors
and the Management Committee. For the year to December 31, 2019 the
Company's obligation was EUR63,000 (2018: EUR58,000).
At December 31, 2019 the transfer value of accrued pensions
covered under defined benefit pension obligation schemes, relating
to the current members of the Management Committee totalled EUR1
million (2018: EUR4 million).
No loan or credit transactions were outstanding with Directors
or officers of the Group at December 31, 2019 (2018: nil).
33 Changes to accounting policies
New accounting policy
IFRS 16 'Leases' was adopted by the Group on January 1, 2019.
The new standard eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee
accounting model.
The Group used the modified retrospective transition approach on
application of IFRS 16. Lease liabilities were determined based on
the value of the remaining lease payments, discounted by the
appropriate incremental borrowing rates and translated at the rates
of exchange at the date of transition (January 1, 2019). ROU assets
in respect of aircraft were measured as if IFRS 16 had been applied
at the commencement date of each lease using the appropriate
incremental borrowing rates at the date of transition and rates of
exchange at the commencement of each lease and depreciated to
January 1, 2019. Other ROU assets were measured based on the
related lease liability as at the date of transition, adjusted for
prepaid or accrued lease payments. Deferred gains on sale and
operating leasebacks, previously recognised in current and
non-current liabilities, were reclassified to the related ROU
asset. IFRS 16 does not permit comparative information to be
restated if the modified retrospective transition approach is
used.
The details of the changes in accounting policy are disclosed
below:
1. Interest-bearing borrowings and non-current assets increased
on implementation of the standard as obligations to make future
payments under leases previously classified as operating leases
were recognised on the Balance sheet, along with the related ROU
asset. The Group has used the practical expedients in respect of
leases of less than 12 months duration and leases for low value
items and excluded them from the scope of IFRS 16. Rental payments
associated with these leases are recognised in the Income statement
on a straight-line basis over the life of the lease. No adjustment
has been made to the recognition and measurement of assets
previously recognised as 'finance leases' under IAS 17 which were
transferred to ROU assets on adoption of IFRS 16, with the related
borrowings transferred to lease liabilities.
2. Expenditure on operations has decreased and finance costs
have increased, as operating lease costs have been replaced by
depreciation and lease interest expense.
3. The adoption of IFRS 16 required the Group to make a number
of judgements, estimates and assumptions. These included:
-- The estimated lease term - The term of each lease was based
on the original lease term unless management was 'reasonably
certain' to exercise options to extend the lease. Further
information used to determine the appropriate lease term included
fleet plans which underpin approved business plans, and historic
experience regarding extension options.
-- The discount rate used to determine the lease liability - The
rates used on transition to discount future lease payments were the
Group's incremental borrowing rates. These rates have been
calculated for each airline, reflecting the underlying lease terms
and based on observable inputs. The risk-free rate component was
based on LIBOR rates available in the same currency and over the
same term as the lease and was adjusted for credit risk. For future
aircraft lease obligations, the Group will use the interest rate
implicit in the lease.
-- Terminal arrangements - The Group has reviewed its
arrangements at airport terminals to determine whether any
agreements previously considered to be service agreements should be
classified as leases. No additional leases have been
identified.
-- Restoration obligations - The Group has certain obligations
associated with the maintenance condition of its aircraft on
redelivery to the lessor, such as the requirement to complete a
final airframe check, repaint the aircraft and reconfigure the
cabin. Under IAS 17 these costs were recognised as a maintenance
expense over the lease term. On adoption of IFRS 16, they were
recognised as part of the ROU asset on transition, resulting in an
increase in restoration and handback provisions. Judgement has been
used to identify the appropriate obligations and estimation has
been used (based on observable data) to measure them. Other
maintenance obligations associated with these assets, comprising
obligations that arise as the aircraft is utilised, such as engine
overhauls and periodic airframe checks, are recognised as a
maintenance expense over the lease term.
The above adjustments resulted in a post-tax charge to equity of
EUR550 million.
Foreign currency balances on lease obligations, which are
predominantly denominated in US dollars, are remeasured at each
balance sheet date, with the ROU asset recognised at the historic
exchange rate. The Group manages foreign exchange risk arising on
these US dollar obligations as part of its risk management strategy
as described further in note 25.
The Group recognised the following assets and liabilities on the
Consolidated balance sheet at January 1, 2019 on adoption of IFRS
16:
Consolidated balance sheet (extract as at January 1, 2019)
As IFRS 16
EUR million reported adjustments Restated
---------------------------------------- --------- ------------ --------
Non-current assets
Property, plant and equipment
Fleet 10,790 3,730 14,520
Property and equipment 1,647 755 2,402
Deferred tax assets 536 130 666
Other non-current assets 4,968 - 4,968
---------------------------------------- --------- ------------ --------
17,941 4,615 22,556
---------------------------------------- --------- ------------ --------
Current assets
Other current assets 10,093 (35) 10,058
---------------------------------------- --------- ------------ --------
10,093 (35) 10,058
---------------------------------------- --------- ------------ --------
Total assets 28,034 4,580 32,614
---------------------------------------- --------- ------------ --------
Total equity 6,720 (550) 6,170
---------------------------------------- --------- ------------ --------
Non-current liabilities
Interest-bearing long-term borrowings 6,633 4,315 10,948
Deferred tax liability 453 (40) 413
Provisions 2,268 120 2,388
Other non-current liabilities 910 (125) 785
---------------------------------------- --------- ------------ --------
10,264 4,270 14,534
---------------------------------------- --------- ------------ --------
Current liabilities
Current portion of long-term borrowings 876 880 1,756
Other current liabilities 10,174 (20) 10,154
---------------------------------------- --------- ------------ --------
11,050 860 11,910
---------------------------------------- --------- ------------ --------
Total liabilities 21,314 5,130 26,444
---------------------------------------- --------- ------------ --------
Total equity and liabilities 28,034 4,580 32,614
---------------------------------------- --------- ------------ --------
The following table reconciles the amount disclosed as operating
lease commitments at December 31, 2018 disclosed in the Group's
2018 consolidated financial statements to the amount recognised on
the Balance sheet in respect of lease liabilities on adoption of
IFRS 16.
EUR million
-------------------------------------------------------------------- ------
Operating lease commitments at December 31, 2018 8,664
Weighted average incremental borrowing rate at January 1, 2019 6.2%
-------------------------------------------------------------------- ------
Operating lease commitments discounted using the weighted average
incremental borrowing rate 5,612
Less:
Leases considered to be short-term (less than 12 months duration) (61)
Leases for assets considered to be substitutable (66)
Future variable payments based on an index or rate (140)
Prepayments (11)
Commitments for leases that had not commenced on December 31,
2018 (459)
Add:
Service contracts 232
Residual value guarantees 61
Rentals associated with extension options reasonably certain
to be exercised 27
-------------------------------------------------------------------- ------
Lease liability recognised at January 1, 2019 5,195
Reclassification from finance lease obligations 5,928
-------------------------------------------------------------------- ------
Lease liability at January 1, 2019 11,123
-------------------------------------------------------------------- ------
Change in accounting policy
In September 2019, the IFRS Interpretations Committee clarified
that under IFRS 15 compensation payments for flight delays and
cancellations form compensation for passenger losses and
accordingly should be recognised as variable compensation and
deducted from revenue. This clarification had led the Group to
change its accounting policy, which previously classified this
compensation as an operating expense. Accordingly, the Group has
restated the comparative period for 2018 to reflect EUR148 million
of compensation costs as a deduction from Passenger revenue and a
corresponding reduction within Handling, catering and other
operating costs. The following table summarises the impact of the
change in accounting policy on the Income statement for the year to
December 31, 2018:
Consolidated income statement (extract for the year to December
31, 2018)
Previously
EUR million reported Adjustment Restated
--------------------------------------------- ---------- ---------- --------
Passenger revenue 21,549 (148) 21,401
Cargo revenue 1,173 - 1,173
Other revenue 1,684 - 1,684
--------------------------------------------- ---------- ---------- --------
Total revenue 24,406 (148) 24,258
--------------------------------------------- ---------- ---------- --------
Handling, catering and other operating costs 2,888 (148) 2,740
Other expenditure on operations 17,840 - 17,840
--------------------------------------------- ---------- ---------- --------
Total expenditure on operations 20,728 (148) 20,580
--------------------------------------------- ---------- ---------- --------
Operating profit 3,678 3,678
Non-operating expenses (191) - (191)
--------------------------------------------- ---------- ---------- --------
Profit before tax 3,487 - 3,487
Tax (590) - (590)
--------------------------------------------- ---------- ---------- --------
Profit after tax 2,897 - 2,897
--------------------------------------------- ---------- ---------- --------
There is no impact on profit after tax in the Consolidated
Income Statement for 2018, the Consolidated Balance Sheet as at
January 1, 2018 or December 31, 2018 or the Consolidated Statement
of Changes in Equity as at January 1, 2018 or December 31,
2018.
ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of
alternative performance measures (APMs), some of which have been
identified as key performance indicators of the Group. These
measures are not defined under International Financial Reporting
Standards (IFRS), should be considered in addition to IFRS
measurements and may differ to definitions given by regulatory
bodies applicable to the Group. They are used to measure the
outcome of the Group's strategy based on 'Unrivalled customer
proposition', 'Value accretive and sustainable growth' and
'Efficiency and innovation'.
The definition of each APM, together with a reconciliation to
the nearest measure prepared in accordance with IFRS is presented
below.
a Changes to APMs in 2019
The Group has adopted IFRS 16 'Leases' on January 1, 2019, and
has used the modified retrospective transition approach. In doing
so, for 2019, all operating leases have been recognised on the
balance sheet as a right of use (ROU) asset with associated lease
liability, and all finance leases previously recognised have been
transferred into the ROU asset within Property, plant and
equipment. As a result of this adoption the way in which the Group
monitors the performance of the Group and how the associated
measures are calculated have changed as follows:
New APMs
-- Pro forma financial information - In adopting the modified
retrospective transition approach for IFRS 16, the comparative
figures for 2018 have not been restated. Accordingly, to provide a
consistent basis for comparison with 2019, the Group has introduced
Pro forma financial information for 2018, which is the Group's
restated statutory results for 2018 with an adjustment to reflect
the estimated impact of IFRS 16 from January 1, 2018;
-- Levered free cash flow - A measure which represents the cash
generating ability of the underlying businesses before shareholder
returns and is used in conjunction with a targeted level of
leverage, measured using Net debt to EBITDA. This measure is
monitored by the Group in making both investment and capital
decisions;
-- Airline non-fuel costs per ASK - A measure for monitoring
airline unit cost performance per ASK excluding, amongst other
items, fuel. The measure is monitored by the Group to demonstrate
the performance of the airline based activities that are largely
within the control of the Group.
Changes to APMs
-- Adjusted net debt to EBITDAR - Both Adjusted net debt and
EBITDAR incorporated adjustments to reflect the impact of aircraft
operating leases, which under IFRS 16 the Group now presents within
total borrowings and EBITDA. Accordingly, this measure has been
revised and presented as net debt to EBITDA;
-- Return on Invested Capital - The Group has amended the
methodology to reflect IFRS 16. Prior to IFRS 16, in calculating
the numerator (return) a cost of 0.67 times the annual lease rental
was deducted and in calculating the denominator (invested capital)
a capital value was calculated for the operating leased aircraft by
multiplying the annual operating lease rentals by a factor of 8.
These adjustments are no longer required, as the aircraft now have
ROU values and associated depreciation.
No longer applicable
-- Lease adjusted operating margin - The associated impact of
lease expenses is now reflected within the operating margin, such
that this adjusted measure is no longer applicable;
-- Equity free cash flows - The Group no longer considers the
equity free cash flow measure in assessing the performance of the
Group, as certain arrangements are treated differently on
transition to IFRS 16 compared to pre-transition and accordingly
there is inconsistency over time. This has been replaced with
'levered free cash flow' as defined above.
b Pro forma financial information
The Group elected to apply the modified retrospective approach
on transition to IFRS 16 to reduce complexity on transition arising
from the volume and nature of the leases held by the Group. The
modified transition approach does not allow restatement of
comparatives. To aid users of the financial statements, the Group
has provided Pro forma information for 2018 to provide a consistent
basis for comparison with 2019 results. Pro forma results for 2018
are the Group's restated statutory results with an adjustment to
reflect the estimated impact of IFRS 16 as if it had applied from
January 1, 2018, and have been prepared using the same assumptions
used for the IFRS 16 transition adjustment at January 1, 2019 (set
out in note 33) adjusted for any new aircraft leases entered into
during 2018 and using the incremental borrowing rates at January 1,
2019. The IFRS 16 adjustments for aircraft lease liabilities are
based on US dollar exchange rates at the transition date. There is
no adjustment to the 2019 financial information.
The following table provides a reconciliation from the reported
Consolidated income statement to the Pro forma financial
information for 2018.
2018
Consolidated income statement Before
2018 exceptional Exceptional Restated IFRS 16 2018
EUR million items items 2018 Reported Adjustment 2018 Adjustment Pro forma
============================= ============ =========== ============= ========== ======== =========== ==========
Passenger revenue 21,549 21,549 (148) 21,401 21,401
Cargo revenue 1,173 1,173 1,173 1,173
Other revenue 1,684 1,684 1,684 1,684
============================= ============ =========== ============= ========== ======== =========== ==========
Total revenue 24,406 24,406 (148) 24,258 24,258
============================= ============ =========== ============= ========== ======== =========== ==========
Employee costs 4,812 (460) 4,352 4,352 4,352
Fuel, oil costs and emissions
charges 5,283 5,283 5,283 5,283
Handling, catering and other
operating costs 2,888 2,888 (148) 2,740 (7) 2,733
Landing fees and en-route
charges 2,184 2,184 2,184 2,184
Engineering and other
aircraft
costs 1,828 1,828 1,828 29 1,857
Property, IT and other costs 918 12 930 930 (129) 801
Selling costs 1,046 1,046 1,046 1,046
Depreciation, amortisation
and impairment 1,254 1,254 1,254 742 1,996
Aircraft operating lease
costs 890 890 890 (890) -
Currency differences 73 73 73 73
============================= ============ =========== ============= ========== ======== =========== ==========
Total expenditure on
operations 21,176 (448) 20,728 (148) 20,580 (255) 20,325
============================= ============ =========== ============= ========== ======== =========== ==========
Operating profit 3,230 448 3,678 - 3,678 255 3,933
Net finance costs (182) (182) (182) (330) (512)
Other non-operating charges (9) (9) (9) (9)
============================= ============ =========== ============= ========== ======== =========== ==========
Profit before tax 3,039 448 3,487 - 3,487 (75) 3,412
Tax (558) (32) (590) - (590) 16 (574)
============================= ============ =========== ============= ========== ======== =========== ==========
Profit after tax 2,481 416 2,897 - 2,897 (59) 2,838
============================= ============ =========== ============= ========== ======== =========== ==========
Attributable to:
Equity holders of the parent 2,469 416 2,885 2,885 (59) 2,826
Non-controlling interest 12 12 12 12
============================= ============ =========== ============= ========== ======== =========== ==========
2,481 416 2,897 - 2,897 (59) 2,838
============================= ============ =========== ============= ========== ======== =========== ==========
c Profit after tax before exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or incidence. In
identifying and quantifying adjusting items, the Group consistently
applies a policy that defines criteria that are required to be met
for an item to be classified as exceptional.
Management believes that these additional measures are useful as
they exclude the impact of exceptional items in profit from
operations, which have less bearing on the routine operating
activities of the Group, thereby enhancing users' understanding of
underlying business performance.
The details of these exceptional items are given in Note 4 to
the financial statements and on the face of the Consolidated income
statement.
d Basic earnings per share before exceptional items and adjusted earnings per share (KPI)
Earnings are based on results before exceptional items after tax
and adjusted for earnings attributable to equity holders and
interest on convertible bonds, divided by the weighted average
number of ordinary shares, adjusted for the dilutive impact of the
assumed conversion of the bonds and employee share schemes
outstanding.
2018
EUR million note 2019 2018 Reported Pro forma
============================================ ==== ========= ============= ==========
Earnings attributable to equity holders of
the parent b 1,715 2,885 2,826
Exceptional items 4 672 (416) (416)
============================================ ==== ========= ============= ==========
Earnings attributable to equity holders of
the parent before exceptional items 2,387 2,469 2,410
Interest expense on convertible bonds 26 18 18
============================================ ==== ========= ============= ==========
Adjusted earnings 2,413 2,487 2,428
============================================ ==== ========= ============= ==========
Weighted average number of shares used for
basic earnings per share 10 1,984,073 2,021,622 2,021,622
Weighted average number of shares used for
diluted earnings per share 10 2,065,776 2,113,081 2,113,081
Adjusted earnings per share (EUR cents) 116.8 117.7 114.9
============================================ ==== ========= ============= ==========
Basic earnings per share before exceptional
items (EUR cents) 120.3 122.1 119.2
============================================ ==== ========= ============= ==========
e Airline non-fuel unit costs
The Group monitors airline unit costs (per ASK, a standard
airline measure of capacity) as a means of tracking operating
efficiency of the core airline business. As fuel costs can vary
with commodity prices, the Group monitors fuel and non-fuel costs
individually. Within non-fuel costs are the costs associated with
generating Other revenue, which typically do not represent the
costs of transporting passengers or cargo and instead represent the
costs of handling and maintenance for other airlines, non-flight
products in BA Holidays and costs associated with other
miscellaneous non-flight revenue streams. Airline non-fuel costs
per ASK is defined as total operating expenditure before
exceptional items, less fuel, oil costs and emission charges and
less non-flight specific costs divided by total available seat
kilometres (ASKs), and is shown on a constant currency basis.
The comparative information for 2018 has been presented on a Pro
forma basis due to the Group adopting IFRS 16 from January 1, 2019.
See note b for further information.
2019 ccy 2019 2018
EUR million note Reported adjustment(1) ccy Pro forma
======================================== ===== ========= ============== ======= ==========
Total operating expenditure before
exceptionals b 22,221 (325) 21,896 20,773
Less: Fuel, oil costs and emission
charges 6,021 (212) 5,809 5,283
=============================================== ========= ============== ======= ==========
Non-fuel costs 16,200 (113) 16,087 15,490
Less: Non-flight specific costs 1,654 (40) 1,614 1,450
=============================================== ========= ============== ======= ==========
Airline non-fuel costs 14,546 14,473 14,040
=============================================== ========= ============== ======= ==========
Available seat kilometres (ASK million) 337,754 337,754 324,808
=============================================== ========= ============== ======= ==========
Airline non-fuel unit costs (EUR cents) 4.31 4.29 4.32
=============================================== ========= ============== ======= ==========
1 Refer to note i for the definition of the ccy adjustment
f Levered free cash flow (KPI)
Levered free cash flow represents the cash generating ability of
the underlying businesses before shareholder returns and is defined
as the net increase in cash and cash equivalents taken from the
Cash flow statement, adjusting for movements in Other current
interest-bearing deposits and adding back the cash outflows
associated with dividends paid and the acquisition of treasury
shares. The Group believes that this measure is useful to the users
of the financial statements in understanding the underlying cash
generating ability of the Group that is available to return to
shareholders, to improve leverage and/or to undertake inorganic
growth opportunities.
EUR million 2019 2018
=========================================================================== ===== =====
Net Increase in cash and cash equivalents 85 583
=========================================================================== ===== =====
Add / less: Increase/(decrease) in other current interest-bearing deposits 103 (924)
Add: Acquisition of treasury shares - 500
Add: Dividends paid 1,308 577
=========================================================================== ===== =====
Levered free cash flow 1,496 736
=========================================================================== ===== =====
g Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives
an indication of the Group's capital efficiency relative to the
capital invested as well as the ability to fund growth and to pay
dividends. In 2019 RoIC is defined as EBITDA, less fleet
depreciation adjusted for inflation, depreciation of other
property, plant and equipment, and amortisation of software
intangibles, divided by average invested capital and is expressed
as a percentage.
Invested capital is defined as the average of property, plant
and equipment and software intangible assets between the opening
and closing net book values. The fleet aspect of property, plant
and equipment is inflated over the average age of the fleet to
approximate the replacement cost of the associated assets.
EUR million note 2019
================================================================= ==== =======
EBITDA h 5,396
Less: Fleet depreciation multiplied by inflation adjustment (2,040)
Less: Other property, plant and equipment depreciation (259)
Less: Software intangible amortisation (131)
================================================================= ==== =======
2,966
Invested capital
Average fleet book value(2) 12 15,598
Less: Average progress payments(3) 12 (1,297)
================================================================= ==== =======
Fleet book value less progress payments 14,301
Inflation adjustment(1) 1.19
================================================================= ==== =======
17,065
Average net book value of other property, plant and equipment(4) 12 2,448
Average net book value of software intangible assets(5) 14 603
================================================================= ==== =======
Total invested capital 20,116
----------------------------------------------------------------- ---- -------
Return on invested capital 14.7%
----------------------------------------------------------------- ---- -------
1 Presented to two decimal places and calculated using a 1.5 per
cent inflation rate over the weighted average age of the fleet
(2019: 12 years).
2 The average net book value of owned aircraft excluding
progress payments is calculated from an amount of EUR13,451 million
at January 1, 2019 and EUR15,150 million at December 31, 2019.
3 The average net book value of progress payments is calculated
from an amount of EUR1,069 million at January 1, 2019 and EUR1,525
million at
December 31, 2019.
4 The average net book value of other property, plant and
equipment is calculated from an amount of EUR2,402 million at
January 1, 2019 and EUR2,493 million at December 31, 2019.
5 The average net book value of software intangible assets is
calculated from an amount of EUR539 million at December 31, 2018
and EUR666 million at
December 31, 2019.
2018 RoIC:
For 2018 RoIC is defined as EBITDAR (being operating profit
before depreciation, amortisation and rental charges), less
adjusted aircraft operating lease costs, fleet depreciation charge
adjusted for inflation, and the depreciation charge for other
property, plant and equipment, divided by invested capital. It is
expressed as a percentage.
The lease adjustment reduces aircraft operating lease costs to
0.67 of the annual reported charge. The inflation adjustment is
applied to the fleet depreciation charge and is calculated using a
1.5 per cent inflation rate over the average age of the fleet to
allow for inflation and efficiencies of new fleet.
Invested capital is the fleet net book value at the balance
sheet date, excluding progress payments for aircraft not yet
delivered and adjusted for inflation, plus the net book value of
the remaining property, plant and equipment plus annual aircraft
operating lease costs multiplied by 8. Intangible assets are
excluded from the calculation.
The table below shows the reconciliation to derive the RoIC
measure for 2018, including the change in methodology as described
for 2019 and adjusting for IFRS 16. As the Group adopted IFRS 16
from January 1, 2019, the comparative RoIC inputs for 2018 have
been adjusted on a pro forma basis to reflect the impact of this
change in the 2018 Income statement for the year to December 31,
2018 and for the balance sheets at January 1, 2018 and December 31,
2018:
Change Pro forma 2018
EUR million 2018 Reported in methodology adjustments Pro forma
=================================================== ============= =============== ============ ==========
EBITDAR / EBITDA 5,374 - 107 5,481
Less: Aircraft operating lease costs multiplied
by 0.67 (596) 596 - -
Less: Depreciation charge for fleet assets
multiplied by inflation adjustment
Depreciation charge for fleet assets (984) - (634) (1,618)
Inflation adjustment(1) 1.22 - 1.15 1.19
=================================================== ============= =============== ============ ==========
(1,205) - (726) (1,931)
Less: Depreciation charge for other property,
plant and equipment (138) - - (138)
Less: Depreciation charge for other ROU assets - (108) (108)
Less: Amortisation charge for software intangibles (123) - (123)
=================================================== ============= =============== ============ ==========
3,435 473 (727) 3,181
=================================================== ============= =============== ============ ==========
Invested capital
Fleet closing/average book value excluding
progress payments(2) 9,721 (223) 3,757 13,255
Inflation adjustment(1) 1.22 1.22 1.12 1.19
=================================================== ============= =============== ============ ==========
11,902 (273) 4,194 15,823
=================================================== ============= =============== ============ ==========
Closing/average book value of other property,
plant and equipment (3) 1,647 (17) 813 2,443
Aircraft operating lease costs multiplied
by 8 7,120 (7,120) - -
Average book value of software intangible
assets(4) 506 - 506
=================================================== ============= =============== ============ ==========
Total invested capital 20,669 (6,904) 5,007 18,772
=================================================== ============= =============== ============ ==========
Return on invested capital 16.6% 16.9%
=================================================== ============= =============== ============ ==========
1 Presented to two decimal places and calculated using a 1.5 per
cent inflation rate over the weighted average age of the fleet
(11.9 years).
2 The change in methodology to calculate the average net book
value of owned aircraft excluding progress payments is calculated
from an amount of EUR9,275 million at December 31, 2017 and
EUR9,721 million at December 31, 2018. The average pro forma net
book value of owned and ROU aircraft excluding progress payments is
calculated from an amount of EUR13,058 million at December 31, 2017
and EUR13,451 million at December 31, 2018.
3 The change in methodology to calculate the average net book
value of other property, plant and equipment is calculated from an
amount of EUR1,613 million at December 31, 2017 and EUR1,647
million at December 31, 2018. The average pro forma net book value
of owned and ROU other property plant and equipment is calculated
from an amount of EUR2,483 million at December 31, 2017 and
EUR2,402 million at December 31, 2018.
4 The change in methodology to calculate the average net book
value of software intangible assets is calculated from an amount of
EUR473 million at December 31, 2017 and EUR539 million at December
31, 2018.
h Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with
IFRS, the Group reviews net debt to EBITDA to assess its level of
net debt in comparison to the underlying earnings generated by the
Group in order to evaluate the underlying business performance of
the Group. This measure is used to monitor the Group's leverage and
to assess financial headroom.
Net debt is defined as long-term borrowings (both current and
non-current), less cash, cash equivalents and other current
interest-bearing deposits. The definition of Net debt remains
unchanged from 2018, however with the adoption of IFRS 16 from
January 1, 2019, total borrowings have significantly increased due
to the recognition of the lease liabilities. Accordingly, the
comparative figures for 2018 have been adjusted to reflect the
impact of such a change at December 31, 2018.
EBITDA is defined as operating profit before exceptional items,
interest, taxation, depreciation, amortisation and impairment. The
Group believes that this additional measure, which is used
internally to assess the Group's financial capacity, is useful to
the users of the financial statements in helping them to see how
the Group's financial capacity has changed over the year. It is a
measure of the profitability of the Group and of the core operating
cash flows generated by the business model.
2018
EUR million note 2019 Pro forma
=============================================== ====== ======= ==========
Interest-bearing long-term borrowings 23, 33 14,254 12,704
Less: Cash and cash equivalents 19 (4,062) (3,837)
Less: Other current interest-bearing deposits 19 (2,621) (2,437)
=============================================== ====== ======= ==========
Net debt 7,571 6,430
Operating profit before exceptionals b 3,285 3,485
Add: Depreciation, amortisation and impairment b 2,111 1,996
=============================================== ====== ======= ==========
EBITDA 5,396 5,481
=============================================== ====== ======= ==========
Net debt to EBITDA 1.4 1.2
=============================================== ====== ======= ==========
i Results on a constant currency (ccy) basis
Movements in foreign exchange rates impact the Group's financial
results. The Group reviews the results, including revenue and
operating costs at constant rates of exchange (abbreviated to
'ccy'). The Group calculates these financial measures at constant
rates of exchange based on a re-translation, at prior year exchange
rates, of the current year's results of the Group. Although the
Group does not believe that these measures are a substitute for
IFRS measures, the Group does believe that such results excluding
the impact of currency fluctuations year-on-year provide additional
useful information to investors regarding the Group's operating
performance on a constant currency basis. Accordingly, the
financial measures at constant currency within the discussion of
the Group Financial review should be read in conjunction with the
information provided in the Group financial statements.
The following table represents the main average and closing
exchange rates for the reporting periods. Where 2019 figures are
stated at a constant currency basis, they have applied the 2018
rates stated below:
Average Closing
============================ ========== ==========
Foreign exchange rates 2019 2018 2019 2018
============================ ==== ==== ==== ====
Euro to pound sterling 1.13 1.13 1.18 1.11
US dollar to euro 1.12 1.18 1.11 1.14
US dollar to pound sterling 1.27 1.33 1.31 1.26
============================ ==== ==== ==== ====
Group Investments
Subsidiaries
British Airways
Percentage
Principal Country of of equity
Name and address activity Incorporation owned
================================================= ===================== =============== ==========
Avios Group (AGL) Limited*
Astral Towers, Betts Way, London Road, Crawley,
West Sussex, RH10 9XY Airline marketing England 100%
================================================= ===================== =============== ==========
BA and AA Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
================================================= ===================== =============== ==========
BA Call Centre India Private Limited (callBA)
F-42, East of Kailash, New Delhi, 110065 Call centre India 100%
================================================= ===================== =============== ==========
BA Cityflyer Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Airline operations England 100%
================================================= ===================== =============== ==========
BA European Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
================================================= ===================== =============== ==========
BA Excepted Group Life Scheme Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Life insurance England 100%
================================================= ===================== =============== ==========
BA Healthcare Trust Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Healthcare England 100%
================================================= ===================== =============== ==========
BA Holdco Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
================================================= ===================== =============== ==========
BA Number One Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
================================================= ===================== =============== ==========
BA Number Two Limited
IFC 5, St Helier, JE1 1ST Dormant Jersey 100%
================================================= ===================== =============== ==========
Bealine Plc
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
================================================= ===================== =============== ==========
BritAir Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
================================================= ===================== =============== ==========
British Airways (BA) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
================================================= ===================== =============== ==========
British Airways 777 Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft leasing England 100%
================================================= ===================== =============== ==========
British Airways Associated Companies Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
================================================= ===================== =============== ==========
British Airways Avionic Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
================================================= ===================== =============== ==========
British Airways Capital Limited
Queensway House, Hilgrove Street, St Helier,
JE1 1ES Aircraft financing Jersey 100%
================================================= ===================== =============== ==========
British Airways E-Jets Leasing Limited*
Canon's Court, 22 Victoria Street, Hamilton,
HM 12 Aircraft leasing Bermuda 100%
================================================= ===================== =============== ==========
British Airways Holdings B.V.
Strawinskylaan 3105, Atrium, Amsterdam, 1077ZX Holding company Netherlands 100%
================================================= ===================== =============== ==========
British Airways Holidays Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Tour operator England 100%
================================================= ===================== =============== ==========
British Airways Interior Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
================================================= ===================== =============== ==========
British Airways Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft leasing England 100%
================================================= ===================== =============== ==========
British Airways Maintenance Cardiff Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
================================================= ===================== =============== ==========
British Airways Pension Trustees (No 2) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Trustee company England 100%
================================================= ===================== =============== ==========
British Mediterranean Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Former airline England 99%
================================================= ===================== =============== ==========
British Midland Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Former airline England 100%
================================================= ===================== =============== ==========
Percentage
Principal Country of of equity
Name and address activity Incorporation owned
=============================================== ================ =============== ==========
British Midland Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
=============================================== ================ =============== ==========
Diamond Insurance Company Limited
1st Floor, Rose House, 51-59 Circular Road,
Douglas, IM1 1RE Dormant Isle of Man 100%
=============================================== ================ =============== ==========
Flyline Tele Sales & Services GmbH
Hermann Koehl-Strasse 3, 28199, Bremen Call centre Germany 100%
=============================================== ================ =============== ==========
Gatwick Ground Services Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Ground services England 100%
=============================================== ================ =============== ==========
Overseas Air Travel Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Transport England 100%
=============================================== ================ =============== ==========
Speedbird Insurance Company Limited*
Canon's Court, 22 Victoria Street, Hamilton,
HM 12 Insurance Bermuda 100%
=============================================== ================ =============== ==========
Teleflight Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
=============================================== ================ =============== ==========
Iberia
Percentage
Country of of equity
Name and address Principal activity Incorporation owned
================================================== ======================= =============== ==========
Compañía Explotación Aviones
Cargueros Cargosur, S.A.
Calle Martínez Villergas 49, Madrid,
28027 Cargo transport Spain 100%
================================================== ======================= =============== ==========
Compañía Operadora de Corto y
Medio Radio Iberia Express, S.A.*
Calle Alcañiz 23, Madrid, 28006 Airline operations Spain 100%
================================================== ======================= =============== ==========
Iberia Líneas Aéreas de España,
S.A. Operadora*
Calle Martínez Villergas 49, Madrid, Airline operations
28027 and maintenance Spain 100%(1)
================================================== ======================= =============== ==========
Iberia México, S.A.*
Ejército Nacional 439, Mexico City, Storage and custody
11510 services Mexico 100%
================================================== ======================= =============== ==========
Iberia Tecnología, S.A.*
Calle Martínez Villergas 49, Madrid,
28027 Aircraft maintenance Spain 100%
================================================== ======================= =============== ==========
Auxiliar Logística Aeroportuaria, S.A.* Airport logistics
Centro de Carga Aérea, Parcela 2 P5, and cargo terminal
Nave 6, Madrid, 28042 management Spain 75%
================================================== ======================= =============== ==========
Compañía Auxiliar al Cargo Exprés,
S.A.*
Centro de Carga Aérea, Parcela 2 P5,
Nave 6, Madrid, 28042 Cargo transport Spain 75%
================================================== ======================= =============== ==========
Iberia Desarrollo Barcelona, S.L.*
Avenida de les Garrigues 38-44, Edificio
B, Airport infrastructure
El Prat de Llobregat, Barcelona, 08220 development Spain 75%
================================================== ======================= =============== ==========
Aer Lingus
Percentage
Country of of equity
Name and address Principal activity Incorporation owned
============================================== =========================== =============== ==========
Provision of human
Aer Lingus (Ireland) Limited resources support Republic
Dublin Airport, Dublin to fellow group companies of Ireland 100%
============================================== =========================== =============== ==========
Aer Lingus 2009 DCS Trustee Limited Republic
Dublin Airport, Dublin Dormant of Ireland 100%
============================================== =========================== =============== ==========
Aer Lingus Beachey Limited
Penthouse Suite, Analyst House, Peel
Road, Isle of Man, IM1 4LZ Dormant Isle of Man 100%
============================================== =========================== =============== ==========
Aer Lingus Group DAC* Republic
Dublin Airport, Dublin Holding company of Ireland 100%
============================================== =========================== =============== ==========
Aer Lingus Limited* Republic
Dublin Airport, Dublin Airline operations of Ireland 100%
============================================== =========================== =============== ==========
Aer Lingus Northern Ireland Limited
Aer Lingus Base, Belfast City Airport,
Sydenham Bypass, Belfast, Co. Antrim, Northern
BT3 9JH Dormant Ireland 100%
============================================== =========================== =============== ==========
ALG Trustee Limited
33-37 Athol Street, Douglas, IM1 1LB Trustee Isle of Man 100%
============================================== =========================== =============== ==========
Dirnan Insurance Company Limited
Canon's Court, 22 Victoria Street, Hamilton,
Bermuda, HM 12 Insurance Bermuda 100%
============================================== =========================== =============== ==========
Santain Developments Limited Republic
Dublin Airport, Dublin Dormant of Ireland 100%
============================================== =========================== =============== ==========
Shinagh Limited Republic
Dublin Airport, Dublin Dormant of Ireland 100%
============================================== =========================== =============== ==========
Avios
Percentage
Country of of equity
Name and address Principal activity Incorporation owned
=========================================== ==================== =============== ==========
Avios South Africa Proprietary Limited
Block C, 1 Marignane Drive, Bonaero Park,
Gauteng, 1619 Dormant South Africa 100%
=========================================== ==================== =============== ==========
Remotereport Trading Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Trademark ownership England 100%
=========================================== ==================== =============== ==========
IAG Cargo Limited
Percentage
Country of of equity
Name and address Principal activity Incorporation owned
========================================== =================== =============== ==========
Routestack Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Shipping solutions England 100%
========================================== =================== =============== ==========
Zenda Group Limited
Carrus Cargo Centre, PO Box 99, Sealand
Road, London Heathrow Airport, Hounslow,
Middlesex, TW6 2JS Shipping solutions England 100%
========================================== =================== =============== ==========
Vueling
Percentage
Country of equity
Name and address Principal activity of Incorporation owned
======================================== =================== ================== ==========
Anilec Holding GmbH
Office Park I Top B04, Vienna, 1300 Holding company Austria 100%
======================================== =================== ================== ==========
Level Europe GmbH
Office Park I Top B04, Vienna, 1300 Airline operations Austria 100%
======================================== =================== ================== ==========
Yellow Handling, S.L.U
Plaça Pla de l'Estany 5, Parque
de Negocios Mas Blau II, Ground handling
El Prat de Llobregat, Barcelona, 08820 services Spain 100%
======================================== =================== ================== ==========
Vueling Airlines, S.A.*
Plaça Pla de l'Estany 5, Parque
de Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820 Airline operations Spain 99.5%
======================================== =================== ================== ==========
Waleria Beteiligungs GmbH
Office Park I Top B04, Vienna, 1300 Holding company Austria 49.8%
======================================== =================== ================== ==========
LEVEL
Percentage
Country of equity
Name and address Principal activity of Incorporation owned
======================================= =================== ================== ==========
FLYLEVEL UK Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Airline operations England 100%
======================================= =================== ================== ==========
Openskies SASU
3 Rue le Corbusier, Rungis, 94150 Airline operations France 100%
======================================= =================== ================== ==========
International Consolidated Airlines Group S.A.
Percentage
Country of equity
Name and address Principal activity of Incorporation owned
================================================ ========================= ================== ==========
AERL Holding Limited
Waterside, PO Box 365, Harmondsworth, UB7
0GB Holding company England 100%
================================================ ========================= ================== ==========
British Airways Plc*
Waterside, PO Box 365, Harmondsworth, UB7
0GB Airline operations England 100%(2)
================================================ ========================= ================== ==========
FLY LEVEL, S.L.
Camino de la Muñoza s/n, El Caserío,
Iberia Zona Industrial 2, Madrid, 28042 Airline operations Spain 100%
================================================ ========================= ================== ==========
IAG Cargo Limited*
Carrus Cargo Centre, PO Box 99, Sealand
Road, London Heathrow Airport, Hounslow,
TW6 2JS Air freight operations England 100%
================================================ ========================= ================== ==========
IAG Connect Limited
Waterside, PO Box 365, Harmondsworth, UB7 Inflight eCommerce Republic
0GB platform of Ireland 100%
================================================ ========================= ================== ==========
IAG GBS Limited*
Waterside, PO Box 365, Harmondsworth, UB7 IT, finance, procurement
0GB services England 100%
================================================ ========================= ================== ==========
IAG GBS Poland sp z.o.o.* IT, finance, procurement
Ul. Opolska 114, Krakow, 31 -323 services Poland 100%
================================================ ========================= ================== ==========
IB Opco Holding, S.L.
Calle Martínez Villergas 49, Madrid,
28027 Holding company Spain 100%(1)
================================================ ========================= ================== ==========
Veloz Holdco, S.L.
Plaça Pla de l'Estany 5, Parque de
Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820 Holding company Spain 100%
================================================ ========================= ================== ==========
* Principal subsidiaries
1 The Group holds 49.9% of both the total nominal share capital
and the total number of voting rights in IB Opco Holding, S.L. (and
thus, indirectly, in Iberia Líneas Aéreas de España, S.A.
Operadora), such stake having almost 100% of the economic rights in
these companies. The remaining shares, representing 50.1% of the
total nominal share capital and the total number of voting rights
belong to a Spanish company incorporated for the purposes of
implementing the Iberia nationality structure.
2 The Group holds 49.9% of the total number of voting rights and
99.65% of the total nominal share capital in British Airways Plc,
such stake having almost 100% of the economic rights. The remaining
nominal share capital and voting rights, representing 0.35% and
50.1% respectively, correspond to a trust established for the
purposes of implementing the British Airways nationality
structure.
Associates
Percentage
Country of equity
Name and address of Incorporation owned
============================================================ ================== ==========
Empresa Hispano Cubana de Mantenimiento de Aeronaves,
Ibeca, S.A.
Avenida de Vantroi y Final, Aeropuerto de Jose Martí,
Ciudad de la Habana Cuba 50%
============================================================ ================== ==========
Empresa Logística de Carga Aérea, S.A.
Carretera de Wajay km 15,
Aeropuerto de Jose Martí, Ciudad de la Habana Cuba 50%
============================================================ ================== ==========
Multiservicios Aeroportuarios, S.A.
Avenida de Manoteras 46, 2-- planta, Madrid, 28050 Spain 49%
============================================================ ================== ==========
Dunwoody Airline Services Limited
Building 70, Argosy Road, East Midlands Airport,
Castle Donnington, Derby, DE74 2SA England 40%
============================================================ ================== ==========
Serpista, S.A.
Calle Cardenal Marcelo Spínola 10, Madrid, 28016 Spain 39%
============================================================ ================== ==========
Air Miles España, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
============================================================ ================== ==========
Inloyalty by Travel Club, S.L.U.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
============================================================ ================== ==========
Viajes Ame, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
============================================================ ================== ==========
DeepAir Solutions Limited
Ground Floor North, 86 Brook Street, London, W1K 5AY England 25%
============================================================ ================== ==========
Joint ventures
Percentage
Country of equity
Name and address of Incorporation owned
============================================================ ================== ==========
Sociedad Conjunta para la Emisión y Gestión
de Medios de Pago EFC, S.A.
Calle de O'Donnell 12, Madrid, 28009 Spain 50.5%
============================================================ ================== ==========
Other equity investments
The Group's principal other equity investments are as
follows:
Percentage Shareholder's Profit/(loss)
Country of equity funds before
Name and address of Incorporation owned Currency (million) tax (million)
============================================= ================== ========== ======== ============= ==============
Servicios de Instrucción de Vuelo,
S.L.
Camino de la Muñoza s/n, El
Caserío,
Iberia Zona Industrial 2, Madrid,
28042 Spain 19.9% EUR 62 14
============================================= ================== ========== ======== ============= ==============
The Airline Group Limited
5th Floor, Brettenham House South,
Lancaster Place, London, WC2N 7EN England 16.68% GBP 287 24
============================================= ================== ========== ======== ============= ==============
Importwise Limited
International House, 12 Constance
Street, London, E16 2DQ England 14.8% CHF n/a n/a
============================================= ================== ========== ======== ============= ==============
Comair Limited
1 Marignane Drive, Bonaero Park,
Johannesburg, South
1619 Africa 11.49% ZAR 2,571 1,103
============================================= ================== ========== ======== ============= ==============
Travel Quinto Centenario, S.A.
Calle Alemanes 3, Sevilla, 41004 Spain 10% EUR n/a n/a
============================================= ================== ========== ======== ============= ==============
Monese Limited
5th floor, 50 Finsbury Square, London,
EC2A 1HD England 7.42% GBP 18 (13)
============================================= ================== ========== ======== ============= ==============
Statement of directors' responsibilities
LIABILITY STATEMENT OF DIRECTORS FOR THE PURPOSES ENVISAGED
UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19
OCTOBER (REAL DECRETO 1362/2007).
At a meeting held on February 27, 2020, the directors of
International Consolidated Airlines Group, S.A. state that, to the
best of their knowledge, the consolidated financial statements for
the year to December 31, 2019 prepared in accordance with the
applicable international accounting standards, offer a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole, and the interim consolidated
management report includes a fair review of the required
information.
February 27, 2020
Antonio Vázquez Romero William Matthew Walsh
Chairman Chief Executive Officer
Marc Jan Bolland Margaret Ewing
Francisco Javier Ferrán Larraz Stephen William Lawrence Gunning
Deborah Linda Kerr María Fernanda Mejía Campuzano
Kieran Charles Poynter Emilio Saracho Rodríguez de Torres
Lucy Nicola Shaw Alberto Terol Esteban
AIRCRAFT FLEET
Changes
Total Total since
December December December
31, 31, 31, Future
Right
Owned of use(1) 2019 2018 2018 deliveries Options
================ ===== ========== ========= ========= ========= =========== =======
Airbus A318 1 - 1 1 - - -
Airbus A319 17 40 57 61 (4) - -
Airbus A320 50 204 254 241 13 34 76
Airbus A321 20 46 66 56 10 45 14
Airbus A330-200 5 19 24 22 2 - -
Airbus A330-300 2 14 16 16 - 1 -
Airbus A340-600 9 6 15 17 (2) - -
Airbus A350 5 4 9 2 7 33 52
Airbus A380 2 10 12 12 - - -
Boeing 747-400 32 - 32 35 (3) - -
Boeing 777-200 36 10 46 46 - - -
Boeing 777-300 2 10 12 12 - 4 -
Boeing 777-9 - - - - - 18 24
Boeing 787-8 - 12 12 12 - - -
Boeing 787-9 1 17 18 18 - - -
Boeing 787-10 - - - - - 12 -
Embraer E170 6 - 6 6 - - -
Embraer E190 9 9 18 16 2 - -
================ ===== ========== ========= ========= ========= =========== =======
Group total 197 401 598 573 25 147 166
================ ===== ========== ========= ========= ========= =========== =======
1 Includes 108 finance leased aircraft transferred to ROU assets
on adoption of IFRS 16.
As well as those aircraft in service the Group also holds 10
aircraft (2018: 5) not in service.
The table above excludes one wet lease which is recognised as
right of use asset on the Balance sheet.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR KKFBPABKKCBB
(END) Dow Jones Newswires
February 28, 2020 02:05 ET (07:05 GMT)
Grafico Azioni International Consolidat... (LSE:IAG)
Storico
Da Mar 2024 a Apr 2024
Grafico Azioni International Consolidat... (LSE:IAG)
Storico
Da Apr 2023 a Apr 2024
