TIDMIAG
RNS Number : 1662U
International Cons Airlines Group
29 July 2022
SIX MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (July 29,
2022) presents its Group consolidated results for the six months to
June 30, 2022.
IAG returns to profit in the second quarter following strong
recovery in demand across all airlines
IAG financial results highlights for the period:
-- Operating profit for the second quarter EUR293 million (2021:
operating loss EUR967 million), and operating profit before
exceptional items EUR287 million (2021: operating loss before
exceptional items EUR1,045 million)
-- Operating loss for the half year EUR438 million (2021:
operating loss EUR2,035 million), and operating loss before
exceptional items EUR467 million (2021: operating loss before
exceptional items EUR2,180 million)
-- Profit after tax and exceptional items for the second quarter
EUR133 million (2021: loss EUR981 million) and profit after tax
before exceptional items EUR127 million (2021: loss EUR1,045
million)
-- Loss after tax and exceptional items for the half year EUR654
million (2021: loss EUR2,048 million) and loss after tax before
exceptional items EUR683 million (2021: loss EUR2,169 million)
-- Strong liquidity at June 30, 2022:
-- Total liquidity increased to EUR13,489 million (December 31, 2021: EUR11,986 million)
-- Cash(1) of EUR9,190 million, up EUR1,247 million on December
31, 2021, with significantly positive working capital, driven
principally by bookings for travel in the second half of the
year
-- Committed and undrawn general and aircraft financing
facilities of EUR4,299 million (December 31, 2021: EUR4,043
million), including an additional EUR200 million loan facility for
Aer Lingus from the Ireland Strategic Investment Fund
-- Net debt at June 30, 2022 was down EUR688 million since
December 31, 2021 to EUR10,979 million, reflecting the seasonal
benefit on cash of bookings for travel in the second half of the
year
Customer demand continues to recover strongly
-- Passenger capacity in quarter 2 was 78% of 2019 (Q1 guidance:
c80%), up from 65% in quarter 1, driven primarily by IAG's key
regions of European shorthaul (capacity 89% of 2019), North America
(84%) and Latin America & Caribbean (81%)
-- Passenger unit revenue in quarter 2 increased by 6.4%
compared to 2019, helping to offset lower capacity and higher fuel
costs, driven by passenger revenue yield 10.6% higher than in
2019
-- Load factor of 81.8% (3.2 points lower than in 2019, but higher than 72.2% in quarter 1)
-- By the end of quarter 2, premium leisure revenue had almost
fully recovered to 2019's level, despite capacity being
significantly lower. Business channel revenue had recovered to
c.60% of 2019's level
-- In response to the challenging operational environment at
Heathrow, British Airways' capacity was limited to 69.1% in quarter
2 (compared to 57.4% in quarter 1) and plans to increase to c.75%
in quarter 3
-- IAG's overall passenger capacity plans for the remainder of
2022 are c.80% in quarter 3 and c.85% in quarter 4, a reduction of
5% for the second half of the year compared to previous guidance,
mainly due to the challenges at Heathrow; full-year capacity is
expected to be c.78% of 2019 (compared to c.80% previously), with
North America close to 2019 capacity by the end of the year
-- SAF (Sustainable Aviation Fuel) purchase commitments
increased to $865 million (from $400 million previously) for the
next 20 years, including a quarter of IAG's SAF target for 2030
(10% of total fuel needs)
Performance summary:
Six months to June 30
--------------------------
Higher /
Reported results (EUR million) 2022 2021 (lower)
Passenger revenue 7,604 1,141 nm
Total revenue 9,351 2,212 nm
Operating loss (438) (2,035) (78.5)%
Loss after tax (654) (2,048) (68.1)%
Basic loss per share (EUR cents) (13.2) (41.2) (68.0)%
---------------------------------------------------------------------- ------- ------- --------
Cash, cash equivalents and interest-bearing deposits (2) 9,190 7,943 15.7 %
Borrowings (2) 20,169 19,610 2.9 %
---------------------------------------------------------------------- ------- ------- --------
Higher /
Alternative performance measures (3) (EUR million) 2022 2021 (lower)
Passenger revenue before exceptional items 7,604 1,136 nm
Total revenue before exceptional items 9,351 2,207 nm
Operating loss before exceptional items (467) (2,180) (78.6)%
Loss after tax before exceptional items (683) (2,169) (68.5)%
Adjusted loss per share (EUR cents) (13.8) (43.7) (68.4)%
---------------------------------------------------------------------- ------- ------- --------
Net debt(2) 10,979 11,667 (5.9)%
---------------------------------------------------------------------- ------- ------- --------
Available seat kilometres (ASK million) 117,710 34,041 nm
Passenger revenue per ASK (EUR cents) 6.46 3.34 93.6 %
Non-fuel costs per ASK (EUR cents) 6.16 11.02 (44.1)%
---------------------------------------------------------------------- ------- ------- --------
(1) Cash comprises cash, cash equivalents and interest-bearing deposits.
(2) The prior year comparative is December 31, 2021.
(3) For definitions refer to the IAG 2021 Annual Report and Accounts.
Luis Gallego, IAG Chief Executive Officer, said:
"In the second quarter we returned to profit for the first time
since the start of the pandemic following a strong recovery in
demand across all our airlines. This result supports our outlook
for a full year operating profit.
"Our performance reflected a significant increase in capacity,
load factor and yield compared to the first quarter.
"Premium leisure remains strong while business travel continues
a steady recovery in all airlines.
"Iberia and Vueling were the best performing carriers within the
Group. The Spanish domestic market and routes to Latin America
continued to lead the recovery with demand exceeding 2019 levels
last month.
"Forward bookings show sustained strength and North Atlantic
demand continues to grow following the lifting of the US COVID
testing requirements in June.
"Although bookings into the fourth quarter are seasonally low at
this time of year, we are seeing no signs of any weakness in
demand.
"Our industry continues to face historic challenges due to the
unprecedented scaling up in operations, especially in the UK where
the operational challenges of Heathrow airport have been acute. Our
airline teams remain focused on enhancing operational resilience
and improving customer experience. I would like to thank those
customers affected for their loyalty and patience and our
colleagues for their hard work and commitment. We will continue
working with the industry to address these issues as aviation
emerges from its biggest crisis ever.
"In line with our net zero commitment by 2050, we have announced
the addition of 50 new Boeing 737s and 59 Airbus A320 Neo family
aircraft subject to shareholder approval. These modern,
fuel-efficient planes will see us over 60 per cent through our
shorthaul fleet replacement by 2028.
"As we build back operational resilience, our strong portfolio
of brands, ability to deliver efficiencies through our Group scale,
strong capital discipline and our leadership position in
sustainability will generate long term shareholder value."
Trading outlook
IAG expects pre-exceptional operating profit to be significantly
improved for quarter 3 2022 compared to quarter 2 and to be
positive for full year 2022. Net cash flow from operating
activities is expected to be significantly positive for the year.
This assumes no further setbacks related to COVID-19 and
government-imposed restrictions or material impacts from
geopolitical developments. Net debt is expected to increase by year
end compared with the end of 2021.
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 often use 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.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any
number of known and unknown risks, uncertainties and other factors,
including, but not limited to, the current economic and
geopolitical environment and ongoing recovery from the COVID-19
pandemic and uncertainties about its impact and duration, many of
which are difficult to predict and are generally beyond the control
of the Group, and it is not reasonably possible to itemise each
item. Accordingly, readers of this announcement are cautioned
against relying on forward-looking statements. 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 2021 Annual Report and Accounts; this
document is 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. Many of these risks are,
and will be, exacerbated by the ongoing uncertainty from the
recovery from the COVID-19 pandemic and any further disruption to
the global airline industry as well as the current economic and
geopolitical environment.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Six months to June 30 Three months to June 30
------------------------- ---------------------------
Higher/ Higher/
EUR million 2022 2021(1) (lower) 2022 2021(1) (lower)
Passenger revenue 7,604 1,141 nm 4,949 682 nm
Cargo revenue 843 769 9.6 % 411 419 (1.9)%
Other revenue 904 302 nm 556 143 nm
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
Total revenue 9,351 2,212 nm 5,916 1,244 nm
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
Employee costs 2,167 1,288 68.2 % 1,122 666 68.5 %
Fuel, oil costs and emissions charges 2,566 497 nm 1,648 271 nm
Handling, catering and other operating costs 1,322 367 nm 780 194 nm
Landing fees and en-route charges 847 287 nm 489 160 nm
Engineering and other aircraft costs 928 419 nm 553 212 nm
Property, IT and other costs 435 353 23.2 % 231 169 36.7 %
Selling costs 442 159 nm 241 89 nm
Depreciation, amortisation and impairment 1,015 920 10.3 % 484 450 7.6 %
Currency differences 67 (43) nm 75 - -
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
Total expenditure on operations 9,789 4,247 nm 5,623 2,211 nm
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
Operating (loss)/profit (438) (2,035) (78.5)% 293 (967) nm
Finance costs (480) (401) 19.7 % (247) (224) 10.3 %
Finance income 3 4 (25.0)% 2 1 nm
Net change in fair value of financial instruments 130 38 nm 70 38 84.2 %
Net financing credit relating to pensions 13 1 nm 6 2 nm
Net currency retranslation charges (197) (13) nm (136) - -
Other non-operating credits 126 70 80.0 % 85 30 nm
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
Total net non-operating costs (405) (301) 34.6 % (220) (153) 43.8 %
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
(Loss)/profit before tax (843) (2,336) (63.9)% 73 (1,120) nm
Tax 189 288 (34.4)% 60 139 (56.8)%
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
(Loss)/profit after tax for the period (654) (2,048) (68.1)% 133 (981) nm
----------------------------------------------------- ------ ------- -------- ------ -------- ---------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond. Further information is given in note 1.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional items.
Refer to Alternative performance measures section for more
detail.
Six months to June 30 Three months to June 30
---------------------------- ----------------------------
Before exceptional items Before exceptional items
---------------------------- ----------------------------
Higher/ Higher/
EUR million 2022 2021(1) (lower) 2022 2021(1) (lower)
Passenger revenue 7,604 1,136 nm 4,949 682 nm
Cargo revenue 843 769 9.6 % 411 419 (1.9)%
Other revenue 904 302 nm 556 143 nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total revenue 9,351 2,207 nm 5,916 1,244 nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Employee costs 2,167 1,288 68.2 % 1,122 666 68.5 %
Fuel, oil costs and emissions charges 2,566 637 nm 1,648 349 nm
Handling, catering and other operating costs 1,322 367 nm 780 194 nm
Landing fees and en-route charges 847 287 nm 489 160 nm
Engineering and other aircraft costs 928 419 nm 553 212 nm
Property, IT and other costs 458 353 29.7 % 231 169 36.7 %
Selling costs 442 159 nm 241 89 nm
Depreciation, amortisation and impairment 1,021 920 11.0 % 490 450 8.9 %
Currency differences 67 (43) nm 75 - -
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total expenditure on operations 9,818 4,387 nm 5,629 2,289 nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Operating (loss)/profit (467) (2,180) (78.6)% 287 (1,045) nm
Finance costs (480) (401) 19.7 % (247) (224) 10.3 %
Finance income 3 4 (25.0)% 2 1 nm
Net change in fair value of financial instruments 130 38 nm 70 38 84.2 %
Net financing credit relating to pensions 13 1 nm 6 2 nm
Net currency retranslation charges (197) (13) nm (136) - -
Other non-operating credits 126 70 80.0 % 85 30 nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Total net non-operating costs (405) (301) 34.6 % (220) (153) 43.8 %
----------------------------------------------------- -------- -------- -------- -------- -------- --------
(Loss)/profit before tax (872) (2,481) (64.9)% 67 (1,198) nm
Tax 189 312 (39.4)% 60 153 (60.8)%
----------------------------------------------------- -------- -------- -------- -------- -------- --------
(Loss)/profit after tax for the period (683) (2,169) (68.5)% 127 (1,045) nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Higher/ Higher/
Operating figures (2) 2022 2021(1) (lower) 2022 2021(1) (lower)
Available seat kilometres (ASK million) 117,710 34,041 nm 68,630 19,245 nm
Revenue passenger kilometres (RPK million) 91,546 16,748 nm 56,114 9,969 nm
Seat factor (per cent) 77.8 49.2 28.6pts 81.8 51.8 30.0pts
Passenger numbers (thousands) 39,969 8,080 nm 25,592 5,468 nm
Cargo tonne kilometres (CTK million) 1,939 1,853 4.6 % 949 999 (5.0)%
Sold cargo tonnes (thousands) 276 248 11.3 % 137 131 4.6 %
Sectors 277,368 77,956 nm 169,668 50,256 nm
Block hours (hours) 796,719 260,094 nm 474,636 151,186 nm
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Average manpower equivalent(3) 55,658 50,813 9.5 % 58,746 50,692 15.9 %
Aircraft in service 549 529 3.8 % n/a n/a -
----------------------------------------------------- -------- -------- -------- -------- -------- --------
Passenger revenue per RPK (EUR cents) 8.31 6.78 22.5 % 8.82 6.84 28.9 %
Passenger revenue per ASK (EUR cents) 6.46 3.34 93.6 % 7.21 3.54 nm
Cargo revenue per CTK (EUR cents) 43.48 41.50 4.8 % 43.31 41.94 3.3 %
Fuel cost per ASK (EUR cents) 2.18 1.87 16.5 % 2.40 1.81 32.4 %
Non-fuel costs per ASK (EUR cents) 6.16 11.02 (44.1)% 5.80 10.08 (42.5)%
Total cost per ASK (EUR cents) 8.34 12.89 (35.3)% 8.20 11.89 (31.0)%
----------------------------------------------------- -------- -------- -------- -------- -------- --------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond. Further information is given in note 1.
(2) Financial ratios are before exceptional items. Refer to Alternative performance measures
section for detail.
(3) Included in the average manpower equivalent are staff on furlough, wage support and equivalent
schemes, including the Temporary Redundancy Plan arrangements in Spain. Further information
is given in note 19.
FINANCIAL REVIEW
Developments since last report (May 6, 2022)
In line with the Group's strategy to return fleet capacity to
2019 levels and replace end of life aircraft, a number of new
aircraft orders have been announced in the period. These orders for
modern, more fuel-efficient aircraft can be used for any airline in
the Group and will bring both cost efficiencies and environmental
benefits to IAG's airlines.
On May 19, the Group announced it had reached agreement with
Boeing to order 25 737-8200 and 25 737-10 aircraft, plus 100
options. The aircraft will be delivered between 2023 and 2027 and
will be used for shorthaul fleet renewal. The fleet order is
subject to approval by IAG shareholders.
On June 30, the Group announced that it had converted 22 Airbus
A320 Neo family options into firm orders for 17 A320 Neos and 5
A321 Neos for delivery in 2024 and 2025. The aircraft will be used
to replace A320 Ceo family aircraft in the Group's shorthaul
fleet.
On July 28, the Group announced that it is converting 12 A320
Neo family options into firm orders and is ordering a further 25
A320 Neo family aircraft, with the option to purchase 50 additional
aircraft. The firm orders will replace existing Airbus A320 Ceo
family aircraft and are for delivery between 2025 and 2028; the
split between A320 Neos and A321 Neos will be determined nearer to
delivery. The order is subject to approval by IAG shareholders.
Basis of preparation
At June 30, 2022, the Group had total liquidity of EUR13,489
million, comprising cash and interest-bearing deposits of EUR9,190
million, EUR3,171 million of committed and undrawn general
facilities and a further EUR1,128 million of committed and undrawn
aircraft specific facilities. The Group has been successful in
raising financing since the outbreak of COVID-19, having financed
all aircraft deliveries in 2020 and 2021 and all those it has
sought to finance in the six months to June 30, 2022; the Group
continues to secure aircraft financing on long-term
arrangements.
In its assessment of going concern over the period to December
31, 2023 (the 'going concern period'), the Group has prepared
extensive modelling, including considering a plausible but severe
downside scenario and further sensitivities to the downside
scenario. Having reviewed these scenarios and sensitivities, the
Directors have a reasonable expectation that the Group has
sufficient liquidity to continue in operational existence over the
going concern period and hence continue to adopt the going concern
basis in preparing the condensed consolidated interim financial
statements for the six months to June 30, 2022. In adopting the
going concern basis of accounting, the condensed consolidated
interim financial statements have been prepared without the
inclusion of a material uncertainty, which has been removed since
the 2021 Annual Report and Accounts. The removal of the material
uncertainty arises from the reduction in uncertainty over the going
concern period due to both the continued recovery subsequent to the
COVID-19 pandemic and the strength of the Group's liquidity at June
30, 2022.
Principal risks and uncertainties
The Group has continued to maintain its framework and processes
to identify, assess and manage risks. The principal risks and
uncertainties affecting the Group, detailed on pages 100 to 121 of
the 2021 Annual Report and Accounts, remain relevant. The Board has
continued to monitor and assess risks across the Group in the light
of changes that influence the Group and the aviation industry.
As the sector and markets more widely come out of pandemic
restrictions, the Group continues to carefully assess how its
principal risks have evolved and how the severity or likelihood of
occurrence of certain risks has changed, as well as identifying
emerging risks related to competitive and market risk changes,
particularly those that could impact operational resilience. Where
further action has been required, the Board has assessed potential
mitigations and, where appropriate or feasible, the Group has
implemented or confirmed plans that would address those risks.
From the risks identified in the 2021 Annual Report and
Accounts, the main risks that continue to be a key area of focus
are outlined below. Business responses implemented by management
that effectively mitigate or reduce the risk are reflected in the
Group's latest business plan and scenarios. No new principal risks
were identified through the risk management assessment discussions
across the business in the six months to June 30, 2022.
-- Brand and customer trust . The challenging operational
environment for the Group's airlines and its reliance on the
resilience of third parties has significantly impacted on our
customers and their journeys. The Group is pro-actively addressing
its customer service processes and systems to help build customer
trust in our brands and to help ensure that our customers choose to
fly with the Group's airlines.
-- Critical third parties in the supply chain . Operational
staffing shortages at hubs and airports have required capacity
adjustments, including managing the impact on British Airways'
customers and operations of the decision by Heathrow airport to cap
passenger numbers from mid-July until the end of October. The Group
has pro-actively assessed its schedules to ensure that our
customers have sufficient notice of any changes to their flight
plans wherever possible and within our control. Operational
bottlenecks such as immigration and security resource at airports
remain outside of the Group's control although management continues
to liaise with the relevant providers to identify potential
solutions. The Group continues to work with all critical suppliers
to understand any potential disruption within their supply chains
from either a shortage of available resource or production delays
which could delay the availability of new fleet, engines or
critical goods or services.
-- Cyber attack and data security . The threat of ransomware
attacks on critical infrastructure and services has increased as a
result of the war in Ukraine and the potential for state sponsored
cyber attacks. The Group continues to focus its efforts on
appropriate monitoring to mitigate the risk.
-- Debt funding . Access to the unsecured debt markets is
currently very limited for sub investment grade organisations which
reduces the options or increases the cost for the Group to
re-finance upcoming maturities due in the next year. The Group
continues to successfully secure aircraft financing.
-- Economic, political and regulatory environment . The economic
impact of the cost of pandemic combined with energy shortages and
increases in commodity and wage costs has driven significant
inflation and uncertainty over the economic outlook. This
uncertainty in the economic outlook could have an impact on the
Group's cost base and the demand for travel. The Group will
continue to adjust its future capacity plans accordingly, retaining
flexibility to adapt as required and where possible.
-- Event causing significant network disruption . Ongoing labour
shortages, threat of strike action and staff sickness from COVID
infections have impacted the operational environment of the Group's
airlines as well as the operations of the businesses on which the
Group relies. Many of these events can occur within a close
timeframe and challenge operational resilience. In addition, the
Group has significant IT infrastructure changes to complete which
could impact operations. The Group is focussed on minimising any
unplanned outages or disruption to customers with additional
resilience built into the airline's networks.
-- Financial and treasury related risk . A significant increase
in fuel costs has been partly mitigated by the Group's fuel hedging
policy. Access to fuel hedging instruments or the ability to pass
increased fuel costs on to consumers could impact the Group's
profits. The Group continues to assess the strengthening of the US
dollar against the euro and pound sterling and the potential
impacts on the Group's operating results.
-- IT systems and IT infrastructure . The Group is reliant upon
the resilience of its systems for key customer and business
processes and is exposed to risks that relate to poor performance,
obsolescence or failure of these systems. The Group is currently
engaged in a number of major programmes to modernise its IT systems
and upgrade its digital capability, customer propositions and core
IT infrastructure and network where required. Mitigating actions
that prioritise operational stability and resilience have been
built into all cutover plans.
-- People, culture and employee relations . The Group recognises
the efforts of our staff and their resilience and commitment
supporting the ramp up of operations and continues to prioritise
engagement, morale and staff wellbeing initiatives. Additional
resource has been allocated to address the recruitment need for
flight crew and operations staff. Across the Group, collective
bargaining is in place with various unions. The Group is exposed to
the risk of the industrial relations action and the operating
companies continue to engage in discussions with unions to address
and resolve disputes arising within the negotiations.
The Board and its sub committees have been apprised of
regulatory, competitor and governmental developments on an ongoing
basis.
Impact of commodity prices and foreign exchange movements
Average commodity fuel prices for the six months were
significantly higher than in the previous year, with the spot fuel
price rising significantly within the period, from $700 per metric
tonne at the start of January to $1,236 at the end of June,
compared with an average of approximately $510 per metric tonne in
the first half of 2021.
The US dollar was 9 per cent stronger against the euro and 5 per
cent stronger against the pound sterling, compared with the first
six months of 2021.
The net impact of transaction and translation exchange for the
Group for the six months was EUR196 million adverse (EUR90 million
adverse in quarter 1 and EUR106 million adverse in quarter 2).
From a transactional perspective, the Group's financial
performance is impacted by fluctuations in exchange rates,
primarily from the US dollar, euro and pound sterling. The Group
generates a surplus in most currencies in which it does business,
except for the US dollar, as capital expenditure, debt repayments
and fuel purchases typically create a deficit. The Group hedges a
portion of its transaction exposures. The net transaction impact on
the operating result was adverse by EUR172 million for the period,
increasing revenues by EUR141 million and costs by EUR313
million.
IAG's results are impacted by exchange rates used for the
translation of British Airways' and IAG Loyalty's financial results
from sterling to the Group's reporting currency of euro. For the
six months, the net impact of translation was EUR24 million
adverse.
Capacity
In the first six months of 2022, IAG capacity, measured in
available seat kilometres (ASKs) reached 72.0 per cent of that
operated in the first half of 2019, a significant increase on the
20.8 per cent of 2019 operated in the first half of 2021. Capacity
was steadily increased through the period, with quarter 1 at 65.1
per cent of 2019 and quarter 2 at 78.0 per cent of 2019.
The impact of COVID-19 and related travel restrictions was
significantly less than in the first half of 2021, when many
countries were in lockdown or had severe travel restrictions in
place. The passenger load factor reached 77.8 per cent in the first
half of 2022, again increasing across the period, with the
passenger load factor in quarter 1 72.2 per cent and in quarter 2
81.8 per cent, which was just 3.2 points lower than in quarter 2 of
2019. There was some impact from the Omicron variant of COVID-19
early in the year, mainly in January and February. Capacity
operated out of London Heathrow airport was lower than originally
planned at the start of the year and British Airways' capacity was
limited to 69.1 per cent of 2019 in quarter 2, up from 57.4 per
cent in quarter 1.
Unless stated otherwise, all variances quoted below compare the
first six months of 2022 with the first six months of 2021.
Revenue
Passenger revenue rose EUR6,463 million to EUR7,604 million,
reflecting the significant increase in capacity operated, together
with the positive impact of a 28.6 percentage point increase in the
passenger load factor and passenger yields per revenue passenger
kilometre (RPK) up 22.5 per cent. The resulting passenger unit
revenue (passenger revenue per ASK) was 93.6 per cent higher than
the previous year and was up to 99.7 per cent of that seen in the
first half of 2019, with passenger unit revenue 11.7 per cent lower
than 2019 in the first quarter and 6.4 per cent higher than 2019 in
the second quarter.
Cargo revenue was up EUR74 million to EUR843 million, 9.6 per
cent higher than in the first six months of 2021, despite only 395
cargo flights operated in the period, down from 2,677 from the
first six months of 2021, due to the significant increase in the
passenger capacity operated. Yields increased 4.8 per cent on 2021,
supported by continued global supply chain disruption. Cargo
carried, measured in cargo tonne kilometres (CTKs), rose by 4.6 per
cent. Compared with 2019, Cargo revenue increased by EUR287
million, or 51.6 per cent.
Other revenue increased by EUR602 million to EUR904 million,
reflecting the recovery in the Group's non-airline businesses,
including BA Holidays, Iberia's maintenance and third party
handling businesses and IAG Loyalty. Other revenue was 2.3 per cent
higher than in the first half of 2019.
Costs
Costs were impacted by the significant increase in capacity
versus 2021, together with the need to complete training and
maintenance activities ahead of the Group airlines' Summer flying
programmes.
Employee costs increased by EUR879 million to EUR2,167 million,
with only minimal use of government wage support and related
schemes in the period, as staff were required to resource the
significantly increased flying programme, as well as for training
and preparation ahead of the Summer flying season.
Fuel costs increased by EUR2,069 million to EUR2,566 million.
The impact of the increase in commodity fuel price was mainly seen
from March and the impact was reduced by the Group's hedging
programme. Fuel costs also benefitted from the reduced volume of
cargo flights versus the previous year.
Supplier costs increased by EUR2,499 million to EUR4,041
million, mainly linked to the significant increase in capacity
operated, together with inflationary increases, which were partly
offset by the Group's procurement initiatives.
Depreciation, amortisation and impairment costs increased to
EUR1,015 million, partly driven by aircraft deliveries during 2021
and the first half of 2022.
Operating result
The Group's operating loss for the period was EUR438 million, an
improvement of EUR1,597 million versus 2021. Excluding exceptional
items, the operating loss improved by EUR1,713 million versus the
previous year, to EUR467 million.
Exceptional items
In the six-month period, the Group recorded an exceptional
credit of EUR23 million relating to the partial reversal of the
fine previously issued by the European Commission, in 2010, to
British Airways. There was also an exceptional credit of EUR6
million, reflecting the partial reversal of an aircraft impairment
made in 2020, as four shorthaul aircraft previously assumed
permanently stood down have now been added back to the Group's
fleet plans. In the first six months of 2021, exceptional items
included gains on those fuel and foreign exchange hedges
de-recognised in 2020, totalling EUR145 million. See Reconciliation
of Alternative performance measures for further information.
Net non-operating costs, taxation and loss after tax
The Group's net non-operating costs for the six months were
EUR405 million in 2022, compared with EUR301 million in 2021. The
net change in the fair value of financial instruments of EUR130
million reflects fair value adjustments as at June 30, 2022 of
IAG's convertible bond maturing in 2028 and its convertible loan to
Globalia, which was made during quarter 2 and matures in 2029. Net
currency retranslation charges of EUR197 million reflected the
weakening of the euro and pound sterling against the US dollar
since the start of the year.
The tax credit for the period was EUR189 million, with an
effective tax rate for the Group of 22 per cent (2021: 12 per
cent). The substantial majority of the Group's activities are taxed
where the main operations are based, in the UK, Spain and Ireland,
with corporation tax rates during 2022 of 19 per cent, 25 per cent
and 12.5 per cent respectively; these result in an expected
effective tax rate of 19 per cent. The difference between the
actual effective tax rate of 22 per cent and the expected effective
tax rate of 19 per cent is primarily due to the partial recognition
of losses in Iberia and Vueling and the net impact of the increase
in the UK rate from 19 to 25 per cent from April 2023.
The loss after tax for the six months was EUR654 million (2021:
EUR2,048 million).
Cash, liquidity and leverage
The Group's cash balance of EUR9,190 million at June 30, 2022
was up EUR1,247 million on December 31, 2021, with positive net
cash flow from operating activities of EUR3,212 million mainly
reflecting the strength of new bookings for future travel. Thirteen
Airbus aircraft were delivered in the six months (four A350-1000s,
three A350-900s, five A320 Neos and one A321 Neo) and capital
expenditure was EUR2,100 million. Of the aircraft delivered in the
period, nine were financed by the end of June, raising
approximately EUR800 million, with three A350-1000s and one A320
Neo to be financed during the remainder of 2022.
Total liquidity at June 30, 2022 was EUR13,489 million, up from
EUR11,986 million at December 31, 2021. Committed and undrawn
general facilities were EUR3,171 million (December 31, 2021:
EUR2,917 million) and committed and undrawn aircraft facilities
EUR1,128 million (December 31, 2021: EUR1,126 million).
Net debt at the end of the six months was EUR10,979 million,
down EUR688 million from December 31, 2021. The Group has seen a
return to the normal seasonality experience before the COVID-19
pandemic; this seasonality typically results in deferred revenues
rising strongly in the first half of the year in advance of peak
summer travel, with deferred revenues then falling in the second
half of the year and reaching a natural trough in December. This
pattern of seasonality would normally result in lower cash and cash
equivalents at December and an increase in Net debt.
INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial
Statements
January 1, 2022 - June 30, 2022
CONSOLIDATED INCOME STATEMENT
Six months to June 30
-----------------------
Total Total
EUR million 2022 2021(1)
-------------------------------------------------------------------------- ---------- -----------
Passenger revenue 7,604 1,141
Cargo revenue 843 769
Other revenue 904 302
-------------------------------------------------------------------------- ---------- -----------
Total revenue 9,351 2,212
-------------------------------------------------------------------------- ---------- -----------
Employee costs 2,167 1,288
Fuel, oil costs and emissions charges 2,566 497
Handling, catering and other operating costs 1,322 367
Landing fees and en-route charges 847 287
Engineering and other aircraft costs 928 419
Property, IT and other costs 435 353
Selling costs 442 159
Depreciation, amortisation and impairment 1,015 920
Currency differences 67 (43)
-------------------------------------------------------------------------- ---------- -----------
Total expenditure on operations 9,789 4,247
-------------------------------------------------------------------------- ---------- -----------
Operating loss (438) (2,035)
Finance costs (480) (401)
Finance income 3 4
Net change in fair value of financial instruments 130 38
Net financing credit relating to pensions 13 1
Net currency retranslation charges (197) (13)
Other non-operating credits 126 70
-------------------------------------------------------------------------- ---------- -----------
Total net non-operating costs (405) (301)
-------------------------------------------------------------------------- ---------- -----------
Loss before tax (843) (2,336)
Tax 189 288
-------------------------------------------------------------------------- ---------- -----------
Loss after tax for the period (654) (2,048)
-------------------------------------------------------------------------- ---------- -----------
Attributable to:
Equity holders of the parent (654) (2,048)
Non-controlling interest - -
-------------------------------------------------------------------------- ---------- -----------
(654) (2,048)
-------------------------------------------------------------------------- ---------- -----------
Basic loss per share (EUR cents) (13.2) (41.2)
-------------------------------------------------------------------------- ---------- -----------
Diluted loss per share (EUR cents) (13.2) (41.2)
-------------------------------------------------------------------------- ---------- -----------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond. Further information is given in note 1.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June 30
-----------------------
EUR million 2022 2021
------------------------------------------------------------------------------ --------- ------------
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity 1,352 571
Reclassified and reported in net profit (373) 18
Fair value movements on cost of hedging (48) 34
Cost of hedging reclassified and reported in net profit 4 14
Currency translation differences (15) (8)
Items that will not be reclassified to net profit
Fair value movements on liabilities attributable to credit risk changes 19 (5)
Fair value movements on cash flow hedges 150 11
Fair value movements on cost of hedging (15) 1
Remeasurements of post-employment benefit obligations 547 729
------------------------------------------------------------------------------ --------- ------------
Total other comprehensive income for the period, net of tax 1,621 1,365
------------------------------------------------------------------------------ --------- ------------
Loss after tax for the period (654) (2,048)
Total comprehensive income/(loss) for the period 967 (683)
------------------------------------------------------------------------------ --------- ------------
Total comprehensive income/(loss) is attributable to:
Equity holders of the parent 967 (683)
Non-controlling interest - -
------------------------------------------------------------------------------ --------- ------------
967 (683)
------------------------------------------------------------------------------ --------- ------------
Items in the consolidated Statement of other comprehensive income above are disclosed net
of tax.
CONSOLIDATED BALANCE SHEET
June 30, December 31,
EUR million 2022 2021
------------------------------------------------- --------- ------------
Non-current assets
Property, plant and equipment 18,164 17,161
Intangible assets 3,288 3,239
Investment accounted for using the equity method 41 40
Other equity investments 33 31
Non-current financial assets 59 -
Employee benefit assets 2,298 1,775
Derivative financial instruments 313 77
Deferred tax assets 1,185 1,282
Other non-current assets 313 250
------------------------------------------------- --------- ------------
25,694 23,855
------------------------------------------------- --------- ------------
Current Assets
Non-current assets held for sale - 20
Inventories 329 334
Trade receivables 1,526 735
Other current assets 1,094 960
Current tax receivable 15 16
Derivative financial instruments 1,983 543
Other current interest-bearing deposits 186 51
Cash and cash equivalents 9,004 7,892
------------------------------------------------- --------- ------------
14,137 10,551
------------------------------------------------- --------- ------------
Total assets 39,831 34,406
------------------------------------------------- --------- ------------
Shareholders' equity
Issued share capital 497 497
Share premium 7,770 7,770
Treasury shares (30) (24)
Other reserves (6,448) (7,403)
------------------------------------------------- --------- ------------
Total shareholders' equity 1,789 840
------------------------------------------------- --------- ------------
Non-controlling interest 6 6
------------------------------------------------- --------- ------------
Total equity 1,795 846
------------------------------------------------- --------- ------------
Non-current liabilities
Borrowings 17,671 17,084
Employee benefit obligations 277 285
Provisions 2,475 2,267
Deferred revenue on ticket sales 353 391
Derivative financial instruments 14 47
Other long-term liabilities 229 208
------------------------------------------------- --------- ------------
21,019 20,282
------------------------------------------------- --------- ------------
Current liabilities
Borrowings 2,498 2,526
Trade and other payables 4,957 3,712
Deferred revenue on ticket sales 8,533 6,161
Derivative financial instruments 53 126
Current tax payable 44 21
Provisions 932 732
------------------------------------------------- --------- ------------
17,017 13,278
------------------------------------------------- --------- ------------
Total liabilities 38,036 33,560
------------------------------------------------- --------- ------------
Total equity and liabilities 39,831 34,406
------------------------------------------------- --------- ------------
CONSOLIDATED CASH FLOW STATEMENT
Six months to June 30
-----------------------
EUR million 2022 2021
---------------------------------------------------------------------------- ----------- ----------
Cash flows from operating activities
Operating loss (438) (2,035)
Depreciation, amortisation and impairment 1,015 920
Movement in working capital 2,738 520
Increase in trade receivables, inventories and other current assets (996) (254)
Increase in trade and other payables and deferred revenue on ticket sales 3,734 774
Payments related to restructuring (41) (77)
Employer contributions to pension schemes (10) (32)
Pension scheme service costs 1 1
Provision and other non-cash movements 349 147
Settlement of derivatives where hedge accounting has been discontinued - (342)
Interest paid (403) (298)
Interest received 3 4
Tax (paid)/received (2) 62
---------------------------------------------------------------------------- ----------- ----------
Net cash flows from operating activities 3,212 (1,130)
---------------------------------------------------------------------------- ----------- ----------
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (2,100) (300)
Sale of property, plant and equipment and intangible assets 173 188
Proceeds from sale of investments 20 -
(Increase)/decrease in other current interest-bearing deposits (134) 90
Other investing movements 41 (10)
---------------------------------------------------------------------------- ----------- ----------
Net cash flows from investing activities (2,000) (32)
---------------------------------------------------------------------------- ----------- ----------
Cash flows from financing activities
Proceeds from borrowings 641 4,455
Repayment of borrowings (275) (517)
Repayment of lease liabilities (726) (685)
Provision of loan to Globalia (100) -
Acquisition of treasury shares (23) (24)
Settlement of derivative financial instruments 364 (382)
---------------------------------------------------------------------------- ----------- ----------
Net cash flows from financing activities (119) 2,847
---------------------------------------------------------------------------- ----------- ----------
Net increase in cash and cash equivalents 1,093 1,685
Net foreign exchange differences 19 152
Cash and cash equivalents at 1 January 7,892 5,774
---------------------------------------------------------------------------- ----------- ----------
Cash and cash equivalents at period end 9,004 7,611
---------------------------------------------------------------------------- ----------- ----------
Interest-bearing deposits maturing after more than three months 186 53
---------------------------------------------------------------------------- ----------- ----------
Cash, cash equivalents and other interest-bearing deposits 9,190 7,664
---------------------------------------------------------------------------- ----------- ----------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2022
Total
Issued share Treasury Other shareholders' Non-controlling
EUR million capital Share premium shares reserves equity interest Total equity
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
January 1,
2022 497 7,770 (24) (7,403) 840 6 846
Total
comprehensive
income for
the period
(net of tax) - - - 967 967 - 967
Hedges
reclassified
and reported
in the
Balance sheet - - - (10) (10) - (10)
Cost of
share-based
payments - - - 18 18 - 18
Vesting of
share-based
payment
schemes - - 17 (20) (3) - (3)
Acquisition of
treasury
shares - - (23) - (23) - (23)
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
June 30, 2022 497 7,770 (30) (6,448) 1,789 6 1,795
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
For the six months to June 30, 2021
Total
Issued share Treasury Other shareholders' Non-controlling
EUR million capital Share premium shares reserves equity interest Total equity
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
January 1,
2021 497 7,770 (40) (6,623) 1,604 6 1,610
Total
comprehensive
loss for the
period (net
of tax) - - - (683) (683) - (683)
Hedges
reclassified
and reported
in the
Balance sheet - - - 9 9 - 9
Cost of
share-based
payments - - - 5 5 - 5
Vesting of
share-based
payment
schemes - - 38 (41) (3) - (3)
Acquisition of
treasury
shares - - (24) - (24) - (24)
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
June 30, 2021 497 7,770 (26) (7,333) 908 6 914
-------------- ------------ ------------- ------------ ------------- ------------- --------------- ------------
NOTES TO THE ACCOUNTS
For the six months to June 30, 2022
1. CORPORATE INFORMATION AND BASIS OF PREPARATION
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.
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).
The condensed consolidated interim financial statements were
prepared in accordance with IAS 34 (as adopted by the EU) and
authorised for issue by the Board of Directors on July 28, 2022.
The condensed consolidated interim financial statements herein are
not the Company's statutory accounts and are unaudited.
The same basis of preparation and accounting policies set out in
the IAG Annual Report and Accounts for the year to December 31,
2021 have been applied in the preparation of these condensed
consolidated interim financial statements, other than for those
matters described in note 2. IAG's financial statements for the
year to December 31, 2021 have been filed with the Registro
Mercantil de Madrid, and are in accordance with the International
Financial Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU) and with those of the Standing
Interpretations issued by the IFRS Interpretations Committee of the
International Accounting Standards Board (IASB). The report of the
auditors on those financial statements was unqualified.
Presentation of results
The prior period Income statement includes reclassifications
that were made to conform to the current period presentation
regarding the Net change in the fair value of the convertible bond
presented in Net changes in fair value of financial instruments in
the Income statement, which had previously been incorporated within
Finance costs. Accordingly, the Group reclassified the results for
the six month period ended June 30, 2021 to recognise EUR38 million
within Net changes in fair value of financial instruments with a
corresponding increase in Finance costs. There is no impact on loss
after tax.
Going concern
At June 30, 2022, the Group had total liquidity of EUR13,489
million (December 31, 2021: total liquidity of EUR11,986 million),
comprising cash and interest-bearing deposits of EUR9,190 million,
EUR3,171 million of committed and undrawn general facilities and a
further EUR1,128 million of committed and undrawn aircraft specific
facilities. At June 30, 2022, the Group has no financial covenants
associated with its loans and borrowings.
In its assessment of going concern over the period to December
31, 2023 (the 'going concern period'), the Group has modelled two
scenarios referred to below as the Base Case and the Downside Case.
The Group's three-year business plan, prepared and approved by the
Board in December 2021, was subsequently refreshed with the latest
available internal and external information in mid-July 2022. This
refreshed business plan supports the Base Case, which takes into
account the Board's and management's views on the anticipated
recovery from the COVID-19 pandemic and the wider economic and
geopolitical environments on the Group's businesses across the
going concern period. The key inputs and assumptions underlying the
Base Case include:
-- Capacity recovery modelled by geographical region (and in
certain regions, by key destinations) with capacity gradually
increasing from 82 per cent in quarter 3 2022 (compared to the
equivalent period in 2019) to pre-pandemic levels by the end of the
going concern period with the average over the going concern period
being 95 per cent of 2019 levels;
-- Passenger unit revenue per ASK is forecast to continue to
recover back to the levels of 2019 by the end of the going concern
period, which is based on, amongst other assumptions, a greater
weighting of leisure versus business compared to 2019;
-- The Group has assumed that the committed and undrawn general
facilities of EUR3.2 billion will not be drawn over the going
concern period. The availability of certain of these facilities
reduces over time, with EUR3.1 billion being available to the Group
at the end of the going concern period;
-- The Group has assumed that all of the committed and undrawn
aircraft specific facilities of EUR1.1 billion would be available
to be drawn over the going concern period if required, of which
EUR0.5 billion is not expected to be utilised;
-- Of the capital commitments detailed in note 9, EUR4.2 billion
is due to be paid over the going concern period of which the Group
has committed aircraft financing of EUR0.6 billion, under the EETC
financing structures, and the Group has further forecast securing
approximately 100 per cent, or EUR3.5 billion, of the aircraft
financing required that is currently uncommitted, to align with the
timing and payments for these aircraft deliveries. This loan to
value assumption is consistent with the level of financing the
Group has been able to achieve recently; and
-- The Group has assumed that the EUR0.5 billion convertible
bond that matures in November 2022 and the EUR0.5 billion bond that
matures in July 2023 will be refinanced, based the Group's ability
to access capital markets to raise finance historically.
The Downside Case applies stress to the Base Case to model
adverse commercial and operational impacts as the Group's capacity
recovers over the going concern period, represented by: reduced
levels of capacity operated in each month, including reductions of
at least 25 per cent for three months during the going concern
period to reflect the risk of more severe operational disruption;
reduced passenger unit revenue per ASK reflective of general
pricing pressure due to current economic backdrop; increased
operational costs reflective of inflationary pressures and reduced
loan to value of 80 per cent of the uncommitted aircraft financing.
In the Downside Case, over the going concern period capacity would
be 9 per cent down when compared to the Base Case. The Downside
Case assumes that all available general credit facilities are drawn
and that the EUR1.0 billion of bonds maturing over the going
concern period will be refinanced. The Directors consider the
Downside Case to be a severe but plausible scenario.
The Group has modelled the impact of further deteriorations in
capacity operated and yield, as well as increases in the price of
jet fuel and the inability to refinance the bonds maturing over the
going concern period, but also considered further mitigating
actions, such as reducing operating and capital expenditure and
deferring currently forecast early repayments of loans and
borrowings. The Group expects to be able to continue to secure
financing for future aircraft deliveries and in addition has
further potential mitigating actions, including asset disposals, it
would pursue in the event of adverse liquidity experience.
Having reviewed the Base Case, the Downside Case and additional
sensitivities, the Directors have a reasonable expectation that the
Group has sufficient liquidity to continue in operational existence
over the going concern period and hence continue to adopt the going
concern basis in preparing the condensed consolidated interim
financial statements for the six months to June 30, 2022. In
adopting the going concern basis of accounting, the condensed
consolidated interim financial statements have been prepared
without the inclusion of a material uncertainty, which has been
removed since the 2021 Annual Report and Accounts. The removal of
the material uncertainty arises from the reduction in uncertainty
over the going concern period due to both the continued recovery
subsequent to the COVID-19 pandemic and the strength of the Group's
liquidity at June 30, 2022.
2. ACCOUNTING POLICIES
Critical judgement and estimates
Except as described below, the accounting policies adopted in
the presentation of the condensed consolidated interim financial
statements for the six months to June 30, 2022 are consistent with
those followed in the preparation of the Group's annual
consolidated financial statements for the year to December 31,
2021.
In preparing the condensed consolidated interim financial
statements for the six months to June 30, 2022, management has made
judgements and estimates that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. The significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty are summarised below, including
consideration of the impact on COVID-19 on financial reporting.
New accounting policies
Financial assets
Financial assets are classified, upon initial recognition,
measured either at amortised cost, fair value through other
comprehensive income (OCI), or fair value through profit or
loss.
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
In order for a financial asset to be classified and measured at
amortised cost or fair value through OCI, it needs to give rise to
cash flows that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. Those financial assets
that are not SPPI are classified and measured at fair value through
profit or loss. This assessment is performed on an instrument by
instrument basis.
New standards, interpretations and amendments adopted by the
Group
The following amendments and interpretations apply for the first
time in the six months to June 30, 2022, but do not have a material
impact on the condensed consolidated interim financial statements
of the Group:
-- Property, plant and equipment: proceeds before intended use -
amendments to IAS 16 effective for periods beginning on or after
January 1, 2022;
-- Reference to the Conceptual Framework - amendments to IFRS 3
effective for periods beginning on or after January 1, 2022;
-- Onerous contracts - cost of fulfilling a contract -
amendments to IAS 37 effective for periods beginning on or after
January 1, 2022; and
-- Annual improvements to IFRS standards 2018-2020 - effective
for periods beginning on or after January 1, 2022.
The IASB and IFRIC have issued the following standards,
amendments and interpretations with an effective date after the
period 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:
-- Classification of liabilities as current or non-current -
amendments to IAS 1 effective for periods beginning on or after
January 1, 2023;
-- Definition of accounting estimate - amendments to IAS 8
effective for periods beginning on or after January 1, 2023;
-- Disclosure of accounting policies - amendments to IAS 1 and
IFRS Practice statement 2 effective for periods beginning on or
after January 1, 2023; and
-- Deferred tax related to assets and liabilities arising from a
single transaction - amendments to IAS 12 effective for periods
beginning on or after January 1, 2023.
Significant changes and transactions in the current reporting
period
The financial performance and position of the Group was affected
by the following significant events and transactions in the six
month period to June 30, 2022 and subsequently to the date of this
report:
-- On March 4, 2022 Aer Lingus entered into a financing
arrangement with the Ireland Strategic Investment Fund (ISIF) for
EUR200 million and is repayable in March 2025. This facility is in
addition to the existing EUR150 million financing arrangement
already in place with the ISIF, which also matures in 2025;
-- In April 2022, the Group entered into an asset-financing
structure, under which five aircraft were financed. These
transactions mature between 2032 and 2036. This arrangement was
transacted through an unconsolidated structured entity, which in
turn issued the Iberia Pass Through Certificates, Series 2022-1,
commonly referred to as Enhanced Equipment Trust Certificates
(EETCs). In doing so, the asset financing structure provides
committed aircraft financing of EUR680 million;
-- On May 19, 2022, the Group entered into an agreement with
Boeing to purchase 25 737-8200 and 25 737-10 aircraft, plus 100
options. The aircraft will be delivered between 2023 and 2027 and
will be used for shorthaul fleet renewal. The fleet order is
subject to approval by IAG shareholders in the remainder of 2022.
The capital commitments detailed in note 9 exclude the addition of
these aircraft until such shareholder approval is obtained;
-- On June 15, 2022, following approval from Sociedad Estatal de
Participaciones Industriales or (SEPI) (the Spanish state holding
company that has a direct participation in Air Europa Holdings,
S.L.U. ('Air Europa')) and the Instituto de Crédito Oficial (ICO)
in Spain, the Group entered into a financing arrangement with
Globalia Corporación Empresarial, S,A, ('Globalia'), whereby, the
Group has provided a EUR100 million seven-year unsecured loan. The
loan is convertible for a period of two years from inception into a
fixed number of the shares of Air Europa. See note 11 for further
details;
-- During the six months to June 30, 2022, the Group converted
22 Airbus A320 Neo options into firm orders for 17 Airbus A320 Neos
and five Airbus A321 Neos; and
-- On July 28, IAG announced a further order for more
fuel-efficient A320 Neo family aircraft, as part of its plan to
meet climate commitments. The Group is converting 12 A320 Neo
family options into firm orders and is ordering a further 25 A320
Neo family aircraft, with the option to purchase 50 additional
aircraft. The firm orders will replace existing Airbus A320 Ceo
family aircraft and are for delivery between 2025 and 2028; the
split between A320 Neos and A321 Neos will be determined nearer to
delivery. The order is subject to approval by IAG shareholders.
3. Seasonality
Except for the impact of COVID-19, the Group's business is
highly seasonal with demand strongest during the summer months.
Accordingly higher revenues and operating profits are usually
expected in the latter six months of the financial year than in the
first six months.
4. 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. IAG Loyalty 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 six months to June 30, 2022
2022
------------------------------------------------------------------------------
Aer
EUR million British Airways Iberia Vueling Lingus Other Group companies(1) Total
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Revenue
Passenger revenue 4,137 1,601 973 610 283 7,604
Cargo revenue 654 144 - 40 5 843
Other revenue 378 364 4 7 151 904
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
External revenue 5,169 2,109 977 657 439 9,351
Inter-segment revenue 128 188 - 9 287 612
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Segment revenue 5,297 2,297 977 666 726 9,963
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Depreciation and amortisation charge (644) (178) (97) (70) (32) (1,021)
Impairment reversal - - 6 - - 6
Operating (loss)/profit (424) 4 (52) (95) 129 (438)
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Exceptional items 23 - 6 - - 29
Operating (loss)/profit before
exceptional items (447) 4 (58) (95) 129 (467)
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Net non-operating costs (405)
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Loss before tax (843)
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
Total assets 23,956 8,698 3,290 2,161 1,726 39,831
Total liabilities (21,114) (8,778) (3,944) (2,150) (2,050) (38,036)
-------------------------------------- --------------- ------- ------- ------- ------------------------ --------
(1) Includes eliminations on total assets of EUR16,189 million and total liabilities of EUR5,902
million.
For the six months to June 30, 2021
2021(1)
------------------------------------------------------------------------------
EUR million British Airways Iberia Vueling Aer Lingus Other Group companies Total
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Revenue
Passenger revenue 424 470 193 33 21 1,141
Cargo revenue 581 155 - 31 2 769
Other revenue 38 182 3 1 78 302
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
External revenue 1,043 807 196 65 101 2,212
Inter-segment revenue 17 122 - - 156 295
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Segment revenue 1,060 929 196 65 257 2,507
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Depreciation and amortisation charge (514) (177) (124) (68) (37) (920)
Operating (loss)/profit (1,325) (330) (195) (192) 7 (2,035)
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Exceptional items 120 7 9 7 2 145
Operating (loss)/profit before
exceptional items (1,445) (337) (204) (199) 5 (2,180)
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Net non-operating costs (301)
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Loss before tax (2,336)
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
Total assets 20,001 6,529 2,685 1,818 2,429 33,462
Total liabilities (17,945) (6,858) (3,299) (1,649) (2,797) (32,548)
-------------------------------------- --------------- ------- ------- ---------- --------------------- --------
(1) Includes eliminations on total assets of EUR15,745 million and total liabilities of EUR5,645
million.
b Geographical analysis
Revenue by area of original sale
Six months to June 30
-----------------------
EUR million 2022 2021
-------------- ----------- ----------
UK 3,390 480
Spain 1,779 657
USA 1,383 175
Rest of world 2,799 900
-------------- ----------- ----------
9,351 2,212
-------------- ----------- ----------
Assets by area
June 30, 2022
Property, plant Intangible
EUR million and equipment assets
-------------- --------------- ----------
UK 11,894 1,317
Spain 5,076 1,384
USA 52 11
Rest of world 1,142 576
-------------- --------------- ----------
18,164 3,288
-------------- --------------- ----------
December 31, 2021
Property, plant Intangible
EUR million and equipment assets
------------------ --------------- ----------
UK 11,544 1,317
Spain 4,404 1,333
USA 76 13
Rest of world 1,137 576
------------------ --------------- ----------
17,161 3,239
------------------ --------------- ----------
5. FINANCE COSTS, INCOME, CHANGES IN FAIR VALUES AND OTHER NON-OPERATING CREDITS
Six months to June 30
-----------------------
EUR million 2022 2021(1,2)
-------------------------------------------------------------------------------- -------- -------------
Finance costs
Interest expense on:
Bank borrowings (94) (57)
Asset financed liabilities (46) (40)
Lease liabilities (217) (195)
Provisions unwinding of discount (5) (5)
Bonds(2) (45) (26)
Other borrowings(2) (46) (20)
Capitalised interest on progress payments 2 1
Other finance costs(1) (29) (59)
-------------------------------------------------------------------------------- -------- -------------
Total finance costs (480) (401)
-------------------------------------------------------------------------------- -------- -------------
Finance income
Interest on other interest-bearing deposits 2 -
Other finance income 1 4
-------------------------------------------------------------------------------- -------- -------------
Total finance income 3 4
-------------------------------------------------------------------------------- -------- -------------
Net change in fair value of financial instruments
Net change in the fair value of convertible bond(1) 171 38
Net fair value losses on financial assets at fair value through profit or loss (41) -
-------------------------------------------------------------------------------- -------- -------------
130 38
-------------------------------------------------------------------------------- -------- -------------
Net credit relating to pensions
-------------------------------------------------------------------------------- -------- -------------
Net financing credit relating to pensions 13 1
-------------------------------------------------------------------------------- -------- -------------
Other non-operating credits
Gains on sale of property, plant and equipment and investments 21 41
Credit related to equity investments - 1
Share of profits/(losses) in investments accounted for using the equity method 1 (1)
Realised gains/(losses) on derivatives not qualifying for hedge accounting 83 (1)
Unrealised gains on derivatives not qualifying for hedge accounting 21 30
-------------------------------------------------------------------------------- -------- -------------
126 70
-------------------------------------------------------------------------------- -------- -------------
(1) The 2021 results include a reclassification to conform with the presentation adopted
in the 2021 Annual Report and Accounts regarding the fair value movements of the convertible
bond. Further information is given in note 1.
(2) The 2021 total finance costs include a re-presentation of results to conform with the
current basis of presentation. There is no change to total finance costs.
6. TAX
The tax credit in the Income statement was as follows:
Six months to June 30
-----------------------
EUR million 2022 2021
------------- ----------- ----------
Current tax (21) (22)
Deferred tax 210 310
------------- ----------- ----------
Total tax 189 288
------------- ----------- ----------
The effective tax rate for the six months to June 30, 2022 was
22 per cent (2021: 12 per cent). The substantial majority of the
Group's activities are taxed where the main operations are based,
in the UK, Spain and Ireland, with corporation tax rates during
2022 and 2021 of 19 per cent, 25 per cent and 12.5 per cent
respectively. These result in an expected effective tax rate of 19
per cent.
The difference between the actual effective tax rate of 22 per
cent and the expected effective tax rate of 19 per cent was
primarily due to partial recognition of losses in Iberia and
Vueling, and the net impact of the increase in the UK rate from 19
to 25 per cent.
The details of the unrecognised temporary differences and losses
are given in the table below:
June 30, December 31,
EUR million 2022 2021
----------------------------------------- --------- ------------
Income tax losses
Spanish corporate income tax losses 2,206 1,993
Openskies SASU trading losses 405 390
UK trading losses 74 72
Other tax losses 4 3
----------------------------------------- --------- ------------
2,689 2,458
Other losses and temporary differences
Spanish deductible temporary differences 619 648
UK capital losses 357 361
Irish capital losses 17 17
----------------------------------------- --------- ------------
993 1,026
----------------------------------------- --------- ------------
None of the unrecognised temporary differences or losses have an
expiry date.
At June 30, 2022, the Group had unrecognised deferred tax assets
of EUR2,689 million relating to tax losses the Group does not
reasonably expect to utilise. In applying the aforementioned
judgement, had the Group extended the period of future cash flow
projections indefinitely, then the amount of unrecognised deferred
tax assets would have reduced by EUR2,284 million.
On March 3, 2021 the UK Chancellor announced that legislation
would be introduced in the Finance Bill 2021 to set the main rate
of corporation tax at 25 per cent from April 2023. On May 24, 2021
the Finance Bill was substantively enacted, which has led to the
remeasurement of deferred tax balances at June 30, 2022 and will
increase the Group's future current tax charge accordingly. As a
result of the remeasurement of deferred tax balances in UK
entities, a credit of EUR66 million (June 30, 2021: EUR46 million
credit) is recorded in the Income statement and a charge of EUR17
million (June 30, 2021: EUR32 million credit) is recorded in Other
comprehensive income.
On October 8, 2021 Ireland announced that it would increase the
rate of corporation tax for certain multinational businesses to 15
per cent with effect from 2023. This expected tax rate change has
not been reflected in these results because it has not yet been
substantively enacted. The effect of this proposed rate change is
not expected to be material over the period of the management
approved business plan.
Tax related contingent liabilities
The Group has certain contingent liabilities that it can
reliably estimate, across all taxes, which at June 30, 2022
amounted to EUR106 million (December 31, 2021: EUR106 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 are 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 maximum exposure in this case is EUR96 million
(December 31, 2021: EUR95 million), being the amount in the tax
assessment with an estimate of the interest accrued on that
assessment through to June 30, 2022.
The Company 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, and on July 24, 2020 filed submissions in support of its
case. The Group does not expect a hearing at the National High
Court until 2023 at the earliest.
The Group 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 Group believes that it has
strong arguments to support its appeals. The Group does not
consider it appropriate to make a provision for these amounts and
accordingly has classified this matter as a contingent
liability.
IAG Loyalty VAT
In the six month period ended June 30, 2022 HMRC issued notices
of VAT assessments for the seven months ended September 2018 to
Avios Group (AGL) Limited, a controlled undertaking of the Group
trading as IAG Loyalty. At June 30, 2022 and through to the date of
these interim financial statements HMRC's enquiries into IAG
Loyalty's VAT position remain at an early stage. The Group has
reviewed the position with its advisors and considers it has strong
arguments to support its VAT accounting position, including having
received rulings previously from HMRC on the matter, and therefore
does not consider it probable that an adverse ruling will
eventuate. Given the above the Group does not consider it
appropriate to record any provision. It is further not possible to
reliably estimate any exposure that may arise from this matter
until HMRC's enquiries are further progressed.
7. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June 30
-----------------------
Millions 2022 2021
------------------------------------------------------- ----------- ----------
Weighted average number of ordinary shares in issue 4,963 4,967
Weighted average number for diluted earnings per share 4,963 4,967
------------------------------------------------------- ----------- ----------
Six months to June 30
-----------------------
EUR cents 2022 2021
------------------------------------------------------- ----------- ----------
Basic loss per share (13.2) (41.2)
Diluted loss per share (13.2) (41.2)
------------------------------------------------------- ----------- ----------
The effect of the assumed conversion of the IAG EUR500 million
convertible bond 2022, the IAG EUR825 million convertible bond 2028
and outstanding employee share schemes is antidilutive for the six
months to June 30, 2022 and 2021 due to the reported loss after tax
for each period, and therefore has not been included in the diluted
earnings per share calculation.
The number of shares in issue at June 30, 2022 was 4,971,476,000
(December 31, 2021: 4,971,476,000) ordinary shares with a par value
of EUR0.10 each.
8. Dividends
The Directors propose that no dividend be paid for the six
months to June 30, 2022 (June 30, 2021: nil).
The future dividend capacity of the Group is dependent on the
liquidity requirements and the distributable reserves of the
Group's main operating companies and their capacity to pay
dividends to the Company, together with the Company's distributable
reserves and liquidity.
Certain debt obligations place restrictions or conditions on the
payment of dividends from the Group's main operating companies to
the Company, including a loan to British Airways partially
guaranteed by UKEF and loans to Iberia and Vueling partially
guaranteed by the Instituto de Crédito Oficial (ICO) in Spain;
these loans can be repaid early without penalty at the election of
each company. British Airways agreed with the Trustee of its main
UK defined benefit pension scheme (NAPS) as part of an agreement to
defer GBP450 million of contributions that no dividends will be
paid to IAG before 2024 and that any dividends paid to IAG from
2024 will trigger a pension contribution of 50 per cent of the
amount of the dividend, until the deferred pension contributions
have been paid.
9. property, plant and equipment, right of use assets and intaNgible assets
Other Total
Property, plant Property, plant
EUR million and equipment Right of use assets and equipment Intangible assets
---------------------------------------- ---------------- ------------------- ---------------- -----------------
Net book value at January 1, 2022 7,858 9,303 17,161 3,239
Additions 1,962 109 2,071 171
Modifications - 225 225 -
Disposals (198) (1) (199) (10)
Reclassifications(1) 237 (237) - -
Depreciation and amortisation charge(2) (418) (538) (956) (94)
Impairment reversal - 6 6 -
Exchange movements (83) (61) (144) (18)
---------------------------------------- ---------------- ------------------- ---------------- -----------------
Net book value at June 30, 2022 9,358 8,806 18,164 3,288
---------------------------------------- ---------------- ------------------- ---------------- -----------------
(1) Amounts with a net book value of EUR237 million (six months to June 30, 2021: EUR126
million) were reclassified from ROU assets to Owned Property, plant and equipment at the cessation
of the respective leases. The assets reclassified relate to leases with purchase options that
were grandfathered as ROU assets upon transition to IFRS 16, for which the Group had been
depreciating over the expected useful life of the aircraft, incorporating the purchase option.
(2) Included in the Depreciation, amortisation and impairment charge in the Income statement,
not included within above reconciliation, is a credit of EUR29 million relating to the de-designation
of hedge accounting that had been applied to mitigate the foreign currency exposure on aircraft
purchases.
Other Total
Property, plant Property, plant
EUR million and equipment Right of use assets and equipment Intangible assets
------------------------------------- ---------------- ------------------- ---------------- -----------------
Net book value at January 1, 2021 7,656 9,875 17,531 3,208
Additions 213 192 405 64
Modifications - 119 119 -
Disposals (161) - (161) (49)
Reclassifications 126 (163) (37) -
Depreciation and amortisation charge (316) (518) (834) (86)
Exchange movements 323 354 677 75
------------------------------------- ---------------- ------------------- ---------------- -----------------
Net book value at June 30, 2021 7,841 9,859 17,700 3,212
------------------------------------- ---------------- ------------------- ---------------- -----------------
At June 30, 2022, long-term borrowings of the Group are secured
on owned fleet assets with a net book value of EUR2,812 million
(December 31, 2021: EUR3,081 million).
Capital expenditure authorised and contracted for but not
provided for in the accounts amounts to EUR10,843 million (December
31, 2021: EUR10,911 million). The majority of capital expenditure
commitments are for fleet and are denominated in US dollars, and as
such are subject to changes in exchange rates. Aircraft orders that
remain subject to shareholder approval are excluded from this
figure.
10. IMPAIRMENT REVIEW
Basis for calculating recoverable amount
At each reporting date, the Group considers the existence of
indicators of potential impairment. At June 30, 2022, while the
Group continues to recover from the COVID-19 pandemic, there
remains uncertainty regarding both the economic and geopolitical
environments over the short and medium term. As a result, a full
impairment test at June 30, 2022 has been conducted for each
CGU.
The recoverable amounts of Group's CGUs have been measured based
on their value-in-use, which utilises a weighted average
multi-scenario discounted cash flow model. The details of these
scenarios are given in the going concern section of note 1, with a
weighting of 70 per cent to the Base Case and 30 per cent to the
Downside Case. Cash flow projections are based on the business
plans approved by the relevant operating companies covering a
three-year period. Cash flows extrapolated beyond the three-year
period are projected to increase based on long-term growth rates.
Cash flow projections are discounted using each CGU's pre-tax
discount rate.
Annually the relevant operating companies prepare and approve
three-year business plans, and the Board approves the Group
three-year business plan in the fourth quarter of the year. The
Group adjusts the final year of the three-year business plan to
incorporate the impacts of climate change that the Group can
reliably estimate at the reporting date. However, given the
long-term nature of the Group's sustainability commitments, there
are other aspects of these commitments that cannot be reliably
estimated at the reporting date and have been excluded from these
adjustments. These adjustments incorporate the increased
utilisation of sustainable aviation fuel as well as price
assumptions relating to sustainable aviation fuels and the price of
carbon (both ETS and CORSIA), which are derived from externally
sourced market data. Where the Group considers such costs will be
recovered through increased passenger ticket fares, then a
corresponding adjustment is made to increase passenger revenue.
Further, in preparing the impairment models, the Group cash flow
projections are prepared on the basis of using the current fleet in
its current condition. The Group excludes the estimated cash flows
expected to arise from future restructuring, assets not currently
in use by the Group and expected technological advancements in
aircraft and other technologies not available at the reporting
date. The Group excludes potential future legislation/regulation
regarding carbon pricing and/or alternative schemes not currently
enacted, such as the implementation of kerosene taxes.
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
The value-in-use calculations for each CGU reflect the
uncertainty from the recovery from COVID-19 and the wider economic
and geopolitical environments, including updated projected cash
flows for the decreased activity for the remaining six months of
2022 through to the end of 2024. For each of the Group's CGUs the
key assumptions, derived from the weighting of the Base and
Downside Cases, utilised over the forecast period in the
value-in-use calculations are as follows:
June 30, 2022
--------------------------------------------------------------
Per cent British Airways Iberia Vueling Aer Lingus IAG Loyalty
--------------------------------------- ----------------- ------- ------- ----------- ------------
Operating margin(1) 7-10 5-9 4-6 7-11 18-23
ASKs as a proportion of 2019(1,2) 69-101 80-108 97-122 86-118 n/a
Long-term growth rate 1.9 1.7 1.6 1.7 1.6
Pre-tax discount rate 9.7 10.9 10.7 10.0 10.3
--------------------------------------- ----------------- ------- ------- ----------- ------------
December 31, 2021
--------------------------------------------------------------
Per cent British Airways Iberia Vueling Aer Lingus IAG Loyalty
--------------------------------------- ----------------- ------- ------- ----------- ------------
Operating margin(1) 3-13 2-12 2-11 0-14 22-24
ASK as a proportion of 2019(1,2) 75-103 77-100 97-119 84-115 n/a
Long-term growth rate 1.9 1.7 1.6 1.7 1.6
Pre-tax discount rate 11.8 11.4 11.1 10.1 12.0
--------------------------------------- ----------------- ------- ------- ----------- ------------
(1) Operating margin and ASKs as a proportion of 2019 are the weighted average of the Base
Case and Downside Case scenarios.
(2) In prior periods the Group applied the average ASK growth per annum as a key assumption.
Given the impact of COVID-19, the Group has presented ASKs as a proportion of the level of
ASKs achieved in 2019, prior to the application of the terminal value calculation.
Jet fuel price ($ per MT) To December 31, 2022 To December 31, 2023 To December 31, 2024 2025 and thereafter
-------------------------- -------------------- -------------------- -------------------- -------------------
June 30, 2022 1,229 1,014 917 917
December 31, 2021 690 673 659 659
-------------------------- -------------------- -------------------- -------------------- -------------------
Forecast ASKs reflect the range of ASKs as a percentage of the
2019 actual ASKs over the forecast period, 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 forecast weighted average exposure in each primary market using
gross domestic product (GDP) (source: Oxford Economics). The
terminal value cash flows and long-term growth rate incorporate the
impacts of climate change, insofar as they can be determined, by
including a specific adjustment to reduce the rate to reflect the
Group's assumptions regarding the reduced demand impact arising
from climate change. This demand impact is derived with reference
to external market data. The airlines' 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 derived from both market
data and the Group's existing debt structure. 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.
Jet fuel price assumptions are derived from forward price curves
at the balance sheet date and sourced externally. The cash flow
forecasts reflect these price increases after taking into
consideration of level of fuel derivatives and their associated
prices that the Group has in place.
Summary of results
At June 30, 2022, management reviewed the recoverable amount of
each of the CGUs and concluded the recoverable amounts exceeded the
carrying values.
Reasonable possible changes in key assumptions, both
individually and in combination, have been considered for each CGU,
where applicable, which include reducing the operating margin by 2
percentage points in each year, ASKs by 5 per cent in each year,
long-term growth rates in the terminal value calculation to zero,
increasing pre-tax discount rates by 2.5 percentage points,
changing the weighting of the Base Case and the Downside Case to be
100 per cent weighted towards the Downside Case, and increasing the
fuel price by 40 per cent with no assumed cost recovery. Given the
inherent uncertainty associated with the impact of climate change,
these sensitivities represent a reasonably possible greater impact
of climate change on the CGUs than that included in the impairment
models.
For the British Airways, Iberia, Vueling and Aer Lingus CGUs,
while the recoverable amounts are estimated to exceed the carrying
amounts by EUR5,617 million, EUR1,489 million, EUR676 million and
EUR1,181 million, respectively, the recoverable amounts would be
below the carrying amounts when applying the following reasonable
possible changes in assumptions:
-- British Airways : (i) if operating margin had been two
percentage points lower combined with a reduction of the long-term
growth rate of 0.8 percentage points; (ii) if ASKs had been five
per cent lower combined with a reduction of the long-term growth
rate of 1.8 percentage points; (iii) if ASKs had been five per cent
lower combined with a fuel price increase without cost recovery of
5 per cent; and (iv) if the fuel price had been 10 per cent higher
without cost recovery;
-- Iberia : (i) if operating margin had been two percentage
points lower combined with a reduction of the long-term growth rate
of 0.2 percentage points; (ii) if ASKs had been five per cent lower
combined with a fuel price increase without cost recovery of 5 per
cent; and (iii) if the fuel price had been 9 per cent higher
without cost recovery;
-- Vueling : (i) if operating margin had been 1.8 percentage
points lower; (ii) if ASKs had been five per cent lower combined
with a fuel price increase without cost recovery of 2 per cent; and
(ii) if the fuel price had been 8 per cent higher without cost
recovery; and
-- Aer Lingus : (i) if ASKs had been five per cent lower
combined with a fuel price increase without cost recovery of 9 per
cent; and (ii) if the fuel price had been 14 per cent higher
without cost recovery.
For the remainder of the reasonable possible changes in key
assumptions applied to the British Airways, Iberia, Vueling and Aer
Lingus CGUs and for all the reasonable possible changes in key
assumptions applied to the IAG Loyalty CGU, no impairment
arises.
In addition, at June 30, 2022, the directors have considered the
existence of indicators of impairment for individual assets,
including but not limited to, landing rights and fleet assets, and
concluded no impairment charge is deemed necessary.
11. NON-CURRENT FINANCIAL ASSETS
Other investments include the following:
EUR million June 30, 2022 December 31, 2021
---------------------------------------------------------- ------------- -----------------
Debt instrument held at fair value through profit or loss 59 -
---------------------------------------------------------- ------------- -----------------
59 -
---------------------------------------------------------- ------------- -----------------
On June 15, 2022, the Group entered into a financing arrangement
with Globalia Corporación Empresarial, S,A, ('Globalia'), whereby,
the Group provided a EUR100 million seven-year unsecured loan,
which is convertible for a period of two years from inception into
a fixed number of the shares of Air Europa. The loan is accounted
for at fair value through profit or loss.
The valuation of the financing arrangement utilises the income
approach, whereby, the financing arrangement is valued using
observable market inputs by which to determine an interest rate
that a market participant would require to provide a loan with the
same tenor and amount. This interest rate is then used to discount
back the existing contractual cash flows to derive the fair value
at the reporting date.
At June 30, 2022, the fair value of the financing arrangement
was EUR59 million, representing a decrease of EUR41 million since
inception. A corresponding charge has been recorded within Net
change in fair value of financial instruments in the Income
statement.
12. FINANCIAL INSTRUMENTS
a Financial assets and liabilities by category
The detail of the Group's nancial instruments at June 30, 2022
and December 31, 2021 by nature and classi cation for measurement
purposes is as follows:
June 30, 2022
Financial assets
--------------------------------------------------------------
Total carrying
Fair value through amount by
Other comprehensive Fair value through Non-financial balance sheet
EUR million Amortised cost income Income statement assets item
----------------------- -------------- ---------------------- ---------------------- ------------- --------------
Non-current assets
Other equity
investments - 33 - - 33
Non-current financial
assets - - 59 - 59
Derivative financial
instruments - - 313 - 313
Other non-current
assets 145 - - 168 313
----------------------- -------------- ---------------------- ---------------------- ------------- --------------
Current assets
Trade receivables 1,526 - - - 1,526
Other current assets 362 - - 732 1,094
Derivative financial
instruments - - 1,983 - 1,983
Other current
interest-bearing
deposits 186 - - - 186
Cash and cash
equivalents 9,004 - - - 9,004
----------------------- -------------- ---------------------- ---------------------- ------------- --------------
Financial liabilities
---------------------------------------------------------------
Total carrying
Fair value through Non- amount by
Other comprehensive Fair value through financial balance sheet
EUR million Amortised cost income income statement liabilities item
----------------------- --------------- ---------------------- ---------------------- ------------ --------------
Non-current liabilities
Lease liabilities 8,225 - - - 8,225
Interest-bearing
long-term borrowings 8,896 - 550 - 9,446
Derivative financial
instruments - - 14 - 14
Other long-term
liabilities 159 - - 70 229
----------------------- --------------- ---------------------- ---------------------- ------------ --------------
Current liabilities
Lease liabilities 1,600 - - - 1,600
Current portion of
long-term borrowings 889 - 9 - 898
Trade and other
payables 4,672 - - 285 4,957
Derivative financial
instruments - - 53 - 53
----------------------- --------------- ---------------------- ---------------------- ------------ --------------
December 31, 2021
Financial assets
-------------------------------------------------------
Fair value through
Other Total carrying
comprehensive Fair value through Non-financial amount by balance
EUR million Amortised cost income income statement assets sheet item
-------------------- -------------- ------------------ ------------------- ------------------- ------------------
Non-current assets
Other equity
investments - 31 - - 31
Derivative financial
instruments - - 77 - 77
Other non-current
assets 126 10 - 114 250
-------------------- -------------- ------------------ ------------------- ------------------- ------------------
Current assets
Trade receivables 735 - - - 735
Other current assets 363 - - 597 960
Derivative financial
instruments - - 543 - 543
Other current
interest-bearing
deposits 51 - - - 51
Cash and cash
equivalents 7,892 - - - 7,892
-------------------- -------------- ------------------ ------------------- ------------------- ------------------
Financial liabilities
---------------------------------------------------------------
Total carrying
Fair value through Non- amount by
Other comprehensive Fair value through financial balance sheet
EUR million Amortised cost income Income statement liabilities item
----------------------- -------------- ---------------------- ----------------------- ------------ --------------
Non-current liabilities
Lease liabilities 8,116 - - - 8,116
Interest-bearing
long-term borrowings 8,220 - 748 - 8,968
Derivative financial
instruments - - 47 - 47
Other long-term
liabilities 132 - - 76 208
----------------------- -------------- ---------------------- ----------------------- ------------ --------------
Current liabilities
Lease liabilities 1,521 - - - 1,521
Current portion of
long-term borrowings 996 - 9 - 1,005
Trade and other
payables 3,506 - - 206 3,712
Derivative financial
instruments - - 126 - 126
----------------------- -------------- ---------------------- ----------------------- ------------ --------------
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. The fair value
of financial liabilities and financial assets incorporates own
credit risk and counterparty credit risk, respectively.
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, which include forward exchange
rates, forward interest rates and forward fuel curves at the
reporting date. The fair value of derivative financial liabilities
and derivative financial assets are adjusted for own credit risk
and counterparty credit risk, respectively.
The fair value of the Group's interest-bearing borrowings,
excluding leases, is determined by discounting the remaining
contractual cash flows at the relevant market interest rates at the
balance sheet date. The fair value of the Group's interest-bearing
borrowings are adjusted for own credit risk.
Level 3: Inputs for the asset or liability that are not based on
observable market data. The principal methods of such valuations
are performed using option pricing models and valuation models that
consider the present value of the dividend cash flows expected to
be generated by the associated assets. The fair value of financial
liabilities and financial assets incorporates own credit risk and
counterparty credit risk, respectively.
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 June 30, 2022 are as follows:
Carrying
Fair value value
--------------------------------- --------
EUR million Level 1 Level 2 Level 3 Total Total
--------------------------------------- ------- ------- ------- ------ --------
Financial assets
Other equity investments - - 33 33 33
Non-current financial assets - 59 - 59 59
Derivative financial assets(1) - 2,296 - 2,296 2,296
Financial liabilities
Interest-bearing loans and borrowings 2,842 7,171 - 10,013 10,344
Derivative financial liabilities(2) - 67 - 67 67
--------------------------------------- ------- ------- ------- ------ --------
(1) Current portion of derivative financial assets is EUR1,983 million.
(2) Current portion of derivative financial liabilities is EUR53 million.
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2021 are set out below:
Fair value Carrying value
--------------------------------- --------------
EUR million Level 1 Level 2 Level 3 Total Total
-------------------------------------- ------- ------- ------- ------ --------------
Financial assets
Other equity investments - - 31 31 31
Derivative financial assets(1) - 620 - 620 620
Financial liabilities
Interest-bearing loans and borrowings 3,492 6,543 - 10,035 9,973
Derivative financial liabilities(2) - 173 - 173 173
(1) Current portion of derivative financial assets is EUR543 million.
(2) Current portion of derivative financial liabilities is EUR126 million.
There have been no transfers between levels of fair value
hierarchy during the period.
Financial assets, other equity instruments, financial
liabilities and derivative financial assets and liabilities are all
measured at fair value in the consolidated financial statements.
Interest-bearing borrowings, with the exception of the IAG EUR825
million convertible bond due 2028 which is measured at fair value,
are measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3
financial assets:
EUR million June 30, 2022 December 31, 2021
------------------------------- ------------- -----------------
Opening balance for the period 31 29
Additions 2 2
------------------------------- ------------- -----------------
33 31
------------------------------- ------------- -----------------
13. borrowings
June 30, 2022 December 31, 2021
---------------------------- ----------------------------
EUR million Current Non-current Total Current Non-current Total
-------------------------------------- ------- ----------- ------ ------- ----------- ------
Bank and other loans 687 6,473 7,160 761 6,724 7,485
Asset financed liabilities 211 2,973 3,184 171 2,244 2,415
Other financing liabilities - - - 73 - 73
Lease liabilities 1,600 8,225 9,825 1,521 8,116 9,637
-------------------------------------- ------- ----------- ------ ------- ----------- ------
Interest-bearing long-term borrowings 2,498 17,671 20,169 2,526 17,084 19,610
-------------------------------------- ------- ----------- ------ ------- ----------- ------
Banks and other loans are repayable up to the year 2029.
Long-term borrowings of the Group amounting to EUR2,450 million
(December 31, 2021: EUR2,434 million) are secured on owned fleet
assets with a net book value of EUR2,722 million (December 31,
2021: EUR2,938 million). Asset financed liabilities are all secured
on the associated aircraft or other property, plant and
equipment.
On March 4, 2022 Aer Lingus entered into a financing arrangement
with the Ireland Strategic Investment Fund (ISIF) for EUR200
million, repayable in March 2025. This facility is in addition to
the existing EUR150 million financing arrangement already in place
with the ISIF.
Details of the 2028 convertible bond
The convertible bond provides bondholders with dividend
protection and includes a total of 244,850,715 options at inception
and at June 30, 2022 to convert into ordinary shares of IAG. 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 Group also holds an
option to redeem the convertible bond, in full or in part, in cash
in the event that bondholders exercise their right to convert the
bond into ordinary shares of IAG.
The convertible bond is recorded at its fair value, which at
June 30, 2022 was EUR560 million (December 31, 2021: EUR756
million), representing a decrease of EUR196 million since January
1, 2022. Of this decrease, the amount recorded in Other
comprehensive income arising from credit risk of the convertible
bonds was EUR26 million and a credit recorded as Net change in fair
value of convertible bond in the Income statement attributable to
changes in market conditions of EUR171 million.
Transactions with unconsolidated entities
In April 2022, the Group entered into an asset-financing
structure, under which five aircraft were financed. These
transactions mature between 2032 and 2036. This arrangement was
transacted through an unconsolidated structured entity, which in
turn issued the Iberia Pass Through Certificates, Series 2022-1,
commonly referred to as Enhanced Equipment Trust Certificates
(EETCs). In doing so, the asset financing structure provides
committed aircraft financing of EUR680 million, of which EUR490
million was drawn at June 30, 2022 with the associated liability
recognised as an Asset financed liability.
14. SHARE BASED PAYMENTS
During the period 25,907,252 awards were made under the Group's
Executive Share Plan to key senior executives and selected members
of the wider management team. The fair value of equity-settled
share awards granted is the share price at the date of the grant.
The Group settles the employees' tax obligations arising from the
issue of the shares directly with the relevant tax authority in
cash and an equivalent number of shares is withheld by the Group
upon vesting.
15. EMPLOYEE BENEFIT OBLIGATIONS
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 British Airways schemes in
the UK and are closed to new members.
APS has been closed to new members since 1984, but remains open
to future accrual. 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.
NAPS has been closed to new members since 2003 and closed to
future accrual since 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).
Triennially, the Trustees of APS and NAPS undertake actuarial
valuations, which are subsequently agreed with British Airways to
determine the cash contributions and any deficit payments plans
through to the next valuation date, as well as ensuring that the
schemes have sufficient funds available to meet future benefit
payments to members. These actuarial valuations are prepared using
the principles set out in UK Pension legislation. This differs from
the IAS 19 'Employee benefits' valuation, which is used for
deriving the Income statement and Balance sheet positions, and uses
a best-estimate approach overall. The different purpose and
principles lead to different assumptions being used, and therefore
a different estimate for the liabilities and deficit.
In June 2022, the triennial valuation, as at March 31, 2021, was
finalised for APS which resulted in a surplus of EUR343 million. At
June 30, 2022, the triennial valuation as at March 31, 2021 for
NAPS was not finalised and accordingly the latest actuarial
valuation of NAPS was performed as at March 31, 2018, which
resulted in a deficit of EUR2,736 million. The actuarial valuations
performed for APS and NAPS are different to the valuation performed
as at June 30, 2022 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.
Cash payments and funding arrangements
Cash payments in respect to pension obligations comprise normal
employer contributions by the Group and deficit contributions based
on the agreed deficit payment plan with APS and NAPS. Total
payments for the six months to June 30, 2022 net of service costs
made by the Group were EUR8 million (six months to June 30, 2021:
EUR31 million). The Group expects to pay EUR9 million in employer
contributions to APS and NAPS over the six month period to December
31, 2022.
Deficit contributions and deferred deficit contributions
At the date of the actuarial valuation, being March 31, 2018,
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 deficit contribution payments through to the end of
the first quarter of 2023 amounting to approximately EUR130 million
per quarter. The deficit contribution plan includes an over-funding
protection mechanism, based on the triennial valuation methodology
for measuring the deficit, whereby deficit contributions are paid
into an escrow account if the scheme funding position reaches 97
per cent, and are suspended if the funding position reaches 100 per
cent, with a mechanism for contributions to resume if the
contribution level subsequently falls below 100 per cent, which
includes additional contributions equivalent to those months where
contributions had been suspended, or until such point as the scheme
funding level reaches 97 per cent.
During the six months to June 30, 2022, the NAPS funding
position exceeded 100 per cent and accordingly deficit
contributions were suspended. At June 30, 2022, the valuation of
the funding level incorporates significant forward-looking
assumptions, such that the Group currently does not expect to make
further deficit contributions. Given the long-term nature of the
NAPS scheme, these assumptions are subject to uncertainty and there
can be no guarantee that deficit contributions will not resume in
the future or that additional deficit contributions will be
incorporated into future triennial actuarial valuations.
June 30, 2022
----------------------------------
EUR million APS NAPS Other Total
------------------------------------ ------- -------- ----- --------
Scheme assets at fair value (3) 7,133 20,143 450 27,726
Present value of scheme liabilities (6,829) (16,636) (701) (24,166)
------------------------------------ ------- -------- ----- --------
Net pension asset/(liability) 304 3,507 (251) 3,560
Effect of the asset ceiling(1) (105) (1,422) - (1,527)
Other employee benefit obligations - - (12) (12)
------------------------------------ ------- -------- ----- --------
June 30, 2022 199 2,085 (263) 2,021
------------------------------------ ------- -------- ----- --------
Represented by:
Employee benefit assets 2,298
Employee benefit obligations (277)
------------------------------------ ------- -------- ----- --------
Net employee benefit asset(2) 2,021
------------------------------------ ------- -------- ----- --------
December 31, 2021
----------------------------------
EUR million APS NAPS Other Total
------------------------------------ ------- -------- ----- --------
Scheme assets at fair value 8,869 25,055 446 34,370
Present value of scheme liabilities (8,333) (22,583) (706) (31,622)
------------------------------------ ------- -------- ----- --------
Net pension asset/(liability) 536 2,472 (260) 2,748
Effect of the asset ceiling(1) (186) (1,061) - (1,247)
Other employee benefit obligations - - (11) (11)
------------------------------------ ------- -------- ----- --------
December 31, 2021 350 1,411 (271) 1,490
------------------------------------ ------- -------- ----- --------
Represented by:
Employee benefit assets 1,775
Employee benefit obligations (285)
------------------------------------ ------- -------- ----- --------
Net employee benefit asset(2) 1,490
------------------------------------ ------- -------- ----- --------
(1) Both APS and NAPS are in an IAS 19 accounting surplus, which
would be available to the Group as a refund upon wind up of the
scheme. This refund is restricted due to the withholding taxes that
would be payable by the Trustee arising on both the net pension
asset and the future contractual minimum funding requirements.
(2) Includes Additional Voluntary Contributions (AVCs), which
the Trustees hold as assets to secure additional benefits on a
defined contribution basis for those members who elect to make such
AVCs. At June 30, 2022, such assets were EUR343 million (December
31, 2021: EUR391 million) with a corresponding amount recorded in
the scheme liabilities.
(3) Included within the fair value of scheme assets are EUR2.7
billion of private equities and alternatives at June 30, 2022,
where the fair value has been determined based on the most recent
third-party valuations. The dates of these valuations typically
precede the reporting date and have been adjusted for any cash
movements between the date of the valuation and the reporting date.
Typically, the valuation approach and inputs for these investments
are not through to the reporting date unless there are indications
of significant market movements.
Scheme liability assumptions
At June 30, 2022, the assumptions used to determine the
obligations under the APS and NAPS were reviewed and updated to
reflect the market condition at that date. Principal assumptions
were as follows:
June 30, 2022 December 31, 2021
--------------- -------------------
Per cent per annum APS NAPS APS NAPS
---------------------------------------- ------- ------ --------- --------
Discount rate 3.70 3.75 1.80 1.90
Rate of increase in pensionable pay 3.45 - 3.55 -
Rate of increase of pensions in payment 3.45 2.80 3.55 2.85
RPI rate of inflation 3.45 3.20 3.55 3.30
CPI rate of inflation 2.85 2.80 2.95 2.85
---------------------------------------- ------- ------ --------- --------
Further information on the basis of the assumptions is included
in note 32 of the Annual Report and Accounts for the year to
December 31, 2021.
16. pROVISIONS
Employee leaving
indemnities and Legal claims and
Restoration and other employee contractual
handback Restructuring related disputes
EUR million provisions provisions provisions provisions Other provisions Total
------------------- ------------------ ------------- ----------------- ------------------ ---------------- -----
Net book value
January 1, 2022 1,832 274 720 90 83 2,999
Reclassifications (11) - - - - (11)
Provisions recorded
during the period 320 10 31 6 86 453
Utilised during the
period (45) (41) (16) (1) (24) (127)
Release of unused
amounts (39) - (1) (5) - (45)
Unwinding of
discount 3 - 2 - - 5
Exchange
differences 131 - - 2 - 133
------------------- ------------------ ------------- ----------------- ------------------ ---------------- -----
Net book value June
30, 2022 2,191 243 736 92 145 3,407
------------------- ------------------ ------------- ----------------- ------------------ ---------------- -----
Analysis:
Current 558 131 82 70 91 932
Non-current 1,633 112 654 22 54 2,475
------------------- ------------------ ------------- ----------------- ------------------ ---------------- -----
2,191 243 736 92 145 3,407
------------------- ------------------ ------------- ----------------- ------------------ ---------------- -----
17. FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: market
risk (including commodity risk, foreign currency risk and interest
rate risk), credit risk and liquidity risk. The principal impact of
these on the interim financial statements are discussed below:
Fuel price risk
The Group is exposed to fuel price risk. In order to mitigate
such risk, under the Group's fuel price risk management strategy a
variety of over the counter derivative instruments are entered
into. The Group strategy is to hedge a proportion of anticipated
fuel consumption for the coming two years within the approved
hedging profile.
During the six months to June 30, 2022, following a substantial
rise in the global price of both crude oil and distillates, the
fair value of such net asset derivative instruments was EUR1,200
million at June 30, 2022, representing an increase of EUR912
million since January 1, 2022.
Foreign currency risk
The Group is exposed to foreign currency risk on revenue,
purchases and borrowings that are denominated in a currency other
than the functional currency of the Group. The currencies in which
these transactions are denominated are primarily euro, US dollar
and pound sterling. The Group has a number of strategies to hedge
foreign currency risk. The Group strategy is to hedge a proportion
of its foreign currency sales and purchases for the coming three
years.
At June 30, 2022, the fair value of foreign currency net asset
derivatives instruments was EUR999 million, representing an
increase of EUR815 million since January 1, 2022.
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.
Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other
financial instruments. The Group has policies and procedures to
monitor the risk by assigning limits to each counterparty by
underlying exposure and by operating company and by only entering
into transactions with counterparties with an acceptable level of
credit risk.
At each period end, the Group assesses the effect of
counterparties' and the Group's own credit risk on the fair value
of derivatives and any ineffectiveness arising is immediately
recycled from Other comprehensive income to the Income statement
with Other non-operating expenses.
18. CONTINGENT LIABILITIES
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.
For those contingencies relating to tax, refer to note 6.
Legal and regulatory proceedings
There are a number of legal and regulatory proceedings against
the Group in a number of jurisdictions which at June 30, 2022,
where they could be reliably estimated, amounted to EUR12 million
(December 31, 2021: EUR22 million).
Guarantees and indemnities
The Group has guarantees and indemnities entered into as part of
the normal course of business, which at June 30, 2022 are not
expected to result in material losses for the Group.
19. GOVERNMENT GRANTS AND ASSISTANCE
The Group has availed itself of government grants and assistance
as follows:
The Coronavirus Job Retention Scheme (CJRS) - recognised net
within Employee costs
The CJRS was implemented by the government of the United Kingdom
from March 1, 2020 to August 30, 2020, where those employees
designated as being 'furloughed workers' were eligible to have 80
per cent of their wage costs paid up to a maximum of GBP2,500 per
month.
From September 1, 2020 to September 30, 2020, the level
eligibility reduced to 70 per cent of wage costs and up to a
maximum of GBP2,197.50 per month. From October 1, 2020 to October
31, 2020, the level of eligibility reduced to 60 per cent of wage
costs and up to a maximum of GBP1,875 per month. Following the
introduction of further lockdown restrictions in the United Kingdom
in November 2020, the CJRS was extended from November 1, 2020 to
November 30, 2020 and then further to March 31, 2021 and then
further again to September 30, 2021 with the level of eligibility
increased to 80 per cent of wage costs and a maximum of GBP2,500
per month through to the end of June 2021. From July 1, 2021 the
eligibility decreased down each month to 60 per cent of wage costs
and a maximum of GBP1,875 per month by September 30, 2021, at which
time the CJRS ended.
Such costs are paid by the government to the Group in arrears.
The Group is obliged to continue to pay the associated social
security costs and employer pension contributions.
The Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage
Subsidy Scheme (EWSS) - recognised net within Employee costs
The TWSS was implemented by the government of Ireland from March
1, 2020 to August 30, 2020, where those employees designated as
being furloughed workers are eligible to have 85 per cent of their
wage costs paid up to a maximum of EUR410 per week. This scheme was
replaced with the EWSS from September 1, 2020 and ran through to
April 30, 2022. For those qualifying employees (earning less than
EUR1,462 per week), the government will reimburse wage costs up to
a maximum of EUR203 per week. Such costs are paid by the government
to the Group in arrears.
The total amount of the relief received under the CJRS, the TWSS
and the EWSS by the Group for the six months to June 30, 2022
amounted to EUR11 million (six months to June 30, 2021: EUR200
million).
Temporary Redundancy Plan (ERTE) - no recognition in the
financial statements of the Group
The ERTE was implemented by the government of Spain from March
1, 2020 and ran through to February 28, 2022, at which time the
ERTE ended. Under this plan, employment was temporarily suspended
and those designated employees are paid directly by the government
and there is no remittance made to the Group. The Group has been
obliged to continue to pay the associated social security
costs.
Had those designated employees not been temporarily suspended
during the six months to June 30, 2022, the Group would have
incurred further employee costs of EUR3 million (six months to June
30, 2021: EUR144 million).
The Ireland Strategic Investment Fund (ISIF) - recognised within
Long-term borrowings
On December 23, 2020, Aer Lingus entered into a financing
arrangement for EUR75 million. On March 27, 2021, Aer Lingus
entered into a further financing arrangement to extend the total
amount to EUR150 million.
On March 4, 2022 Aer Lingus entered into a further financing
arrangement with the ISIF for EUR200 million and is repayable in
March 2025. The facility is unsecured. At June 30, 2022 the
facility remained undrawn.
The UK Export Finance (UKEF) - recognised within Long-term
borrowings
On February 22, 2021, British Airways entered into a 5-year term
loan Export Development Guarantee Facility of EUR2.3 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF. The loan is
unsecured.
On November 1, 2021, British Airways entered into a further
5-year term loan Export Development Guarantee Facility of EUR1.2
billion (GBP1.0 billion) underwritten by a syndicate of banks, with
80 per cent of the principal guaranteed by UKEF. The facility is
unsecured. At June 30, 2022 the facility remained undrawn.
20. RELATED PARTY TRANSACTIONS
The Group had the following transactions in the ordinary course
of business with related parties.
Sales and purchases of goods and services:
Six months to June 30
-----------------------
EUR million 2022 2021
---------------------------------------- ----------- ----------
Sales of goods and services
Sales to associates 2 3
Sales to significant shareholders 41 13
Purchases of goods and services
Purchases from associates 31 18
Purchases from significant shareholders 72 30
---------------------------------------- ----------- ----------
Period end balances arising from sales and purchases of goods
and services:
June 30, December 31,
EUR million 2022 2021
----------------------------------------- ---------- ------------
Receivables from related parties
Amounts owed by associates 1 1
Amounts owed by significant shareholders 8 5
Payables to related parties
Amounts owed to associates 5 3
Amounts owed to significant shareholders 2 2
----------------------------------------- ---------- ------------
For the six months to June 30, 2022 the Group has not made any
allowance on expected credit losses relating to amounts owed by
related parties (2021: nil).
Board of Directors and Management Committee remuneration
Compensation received by the Group's key management personnel is
as follows:
Six months to June 30
------------------------
EUR million 2022 2021
---------------------------------- ------------ ----------
Base salary, fees and benefits
Board of Directors' remuneration 2 1
Management Committee remuneration 4 4
---------------------------------- ------------ ----------
For the six months to June 30, 2022 the remuneration for the
Board of Directors includes one Executive Director (June 30, 2021:
one Executive Director). The Management Committee includes
remuneration for 12 members (June 30, 2021: 14 members).
The Company provides life insurance for all Executive Directors
and the Management Committee. For the six months to June 30, 2022
the Company's obligation was EUR 20,000 (2021: EUR18,000).
At June 30, 2022 the transfer value of accrued pensions covered
under defined benefit pension obligation schemes, relating to the
current members of the Management Committee totalled EUR 6 million
(2021: EUR8 million).
No loan or credit transactions were outstanding with Directors
or officers of the Group at June 30, 2022 (2021: nil).
21. POST BALANCE SHEET EVENTS
On July 28, IAG announced a further order for more
fuel-efficient A320 Neo family aircraft, as part of its plan to
meet climate commitments. The Group is converting 12 A320 Neo
family options into firm orders and is ordering a further 25 A320
Neo family aircraft, with the option to purchase 50 additional
aircraft. The firm orders will replace existing aircraft and are
for delivery between 2025 and 2028; the split between A320 Neos and
A321 Neos will be determined nearer to delivery. The order is
subject to approval by IAG shareholders.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
LIABILITY STATEMENT OF COMPANY 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 July 28, 2022, the directors of
International Consolidated Airlines Group, S.A. (the "Company")
state that, to the best of their knowledge, the condensed
consolidated financial statements for the six months to June 30,
2022, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and of the
companies that fall within the consolidated group taken as a whole,
and that the interim management report includes a fair review of
the required information.
July 28, 2022
Javier Ferrán Larraz Luis Gallego Martín
Chairman Chief Executive Officer
Giles Agutter Peggy Bruzelius
Eva Castillo Sanz Margaret Ewing
Maurice Lam Heather Ann McSharry
Robin Phillips Emilio Saracho Rodríguez de
Torres
Lucy Nicola Shaw
LIMITED REVIEW REPORT ON THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
To the Shareholders of International Consolidated Airlines
Group, S.A. commissioned by management:
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Introduction
We have carried out a limited review of the accompanying
condensed consolidated interim financial statements (the "interim
financial statements") of International Consolidated Airlines
Group, S.A. (the "Company") and subsidiaries (together the
"Group"), which comprise the balance sheet at 30 June 2022, the
income statement, statement of other comprehensive income,
statement of changes in equity, cash flow statement and the
explanatory notes thereto for the six-month period then ended (all
condensed and consolidated). The Directors of the Company are
responsible for the preparation of these interim financial
statements in accordance with International Accounting Standard
(IAS) 34 "Interim Financial Reporting" as adopted by the European
Union, pursuant to article 12 of Royal Decree 1362/2007 as regards
the preparation of condensed interim financial information. Our
responsibility is to express a conclusion on these interim
financial statements based on our limited review.
Scope of review
We conducted our limited review in accordance with International
Standard on Review Engagements 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity". A
limited review of interim financial statements consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A limited review is substantially less in scope than an
audit conducted in accordance with prevailing legislation
regulating the audit of accounts in Spain and, consequently, does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion on the accompanying
interim financial statements.
Conclusion
Based on our limited review, which can under no circumstances be
considered an audit, nothing has come to our attention that causes
us to believe that the accompanying interim financial statements
for the six-month period ended 30 June 2022 have not been prepared,
in all material respects, in accordance with International
Accounting Standard (IAS) 34 "Interim Financial Reporting", as
adopted by the European Union, pursuant to article 12 of Royal
Decree 1362/2007 as regards the preparation of condensed interim
financial statements.
Emphasis of matter
We draw your attention to the accompanying note 1, which states
that these interim financial statements do not include all the
information that would be required in a complete set of
consolidated financial statements prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. The accompanying interim financial statements
should therefore be read in conjunction with the Group's
consolidated annual accounts for the year ended 31 December 2021.
This matter does not modify our conclusion.
Report on other legal and regulatory requirements
The accompanying consolidated interim managements' report for
the six-month period ended 30 June 2022 contains such explanations
as the Directors of the Company consider relevant with respect to
the significant events that have taken place in this period and
their effect on the interim financial statements, as well as the
disclosures required by article 15 of Royal Decree 1362/2007. The
consolidated interim managements' report is not an integral part of
the interim financial statements. We have verified that the
accounting information contained therein is consistent with that
disclosed in the interim financial statements for the six-month
period ended 30 June 2022. Our work is limited to the verification
of the consolidated interim managements' report within the scope
described in this paragraph and does not include a review of
information other than that obtained from the accounting records of
International Consolidated Airlines Group, S.A. and
subsidiaries.
Other matter
This report has been prepared at the request of management in
relation to the publication of the six-monthly financial report
required by article 119 of the Revised Securities Market Law,
approved by Royal Legislative Decree 4/2015 of 23 October 2015 and
enacted by Royal Decree 1362/2007 of 19 October 2007.
KPMG Auditores, S.L.
Bernardo Rücker-Embden
28 July 2022
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'. Further information on why these APMs
are used is provided in the Strategic priorities and key
performance indicators section in IAG's 2021 Annual Report and
Accounts.
During the six months to June 30, 2022, the Group has made no
changes to its disclosures and treatment of APMs compared with
those disclosed in the Annual Report and Accounts for the year to
December 31, 2021.
The definition of each APM, together with a reconciliation to
the nearest measure prepared in accordance with IFRS is presented
below.
a Profit/(loss) 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 to
supplement the understanding of the entity's financial performance.
The Management Committee of the Group uses financial performance on
a pre-exceptional basis to evaluate operating performance and to
make strategic, financial and operational decisions, and externally
because it is widely used by security analysts and investors in
evaluating the performance of the Group between reporting periods
and against other companies.
The table below reconciles the statutory income statement to the
income statement before exceptional items of the Group:
Six months to June 30
----------------------------------------------------------------------------------------------------
Before Before
Exceptional exceptional Exceptional exceptional
EUR million Reported 2022 items items 2022 Reported 2021(1) items items 2021
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Passenger
revenue(4) 7,604 - 7,604 1,141 5 1,136
Cargo revenue 843 - 843 769 - 769
Other revenue 904 - 904 302 - 302
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Total revenue 9,351 - 9,351 2,212 5 2,207
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Employee costs 2,167 - 2,167 1,288 - 1,288
Fuel, oil costs
and emissions
charges(4) 2,566 - 2,566 497 (140) 637
Handling,
catering and
other operating
costs 1,322 - 1,322 367 - 367
Landing fees and
en-route
charges 847 - 847 287 - 287
Engineering and
other aircraft
costs 928 - 928 419 - 419
Property, IT and
other costs(2) 435 (23) 458 353 - 353
Selling costs 442 - 442 159 - 159
Depreciation,
amortisation
and
impairment(3) 1,015 (6) 1,021 920 - 920
Currency
differences 67 - 67 (43) - (43)
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Total
expenditure on
operations 9,789 (29) 9,818 4,247 (140) 4,387
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Operating loss (438) 29 (467) (2,035) 145 (2,180)
Finance costs (480) - (480) (401) - (401)
Finance income 3 - 3 4 - 4
Net change in
fair value of
financial
instruments 130 - 130 38 - 38
Net financing
credit relating
to pensions 13 - 13 1 - 1
Net currency
retranslation
charges (197) - (197) (13) - (13)
Other
non-operating
credits 126 - 126 70 - 70
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Total net
non-operating
costs (405) - (405) (301) - (301)
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Loss before tax (843) 29 (872) (2,336) 145 (2,481)
Tax 189 - 189 288 (24) 312
Loss after tax
for the period (654) 29 (683) (2,048) 121 (2,169)
---------------- ------------- --------------- --------------- ---------------- ---------------- ---------------
Three months to June 30
----------------------------------------------------------------------------------------------------
Before Before
Exceptional exceptional Exceptional exceptional
EUR million Reported 2022 items items 2022 Reported 2021 items items 2021(1)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Passenger
revenue(4) 4,949 - 4,949 682 - 682
Cargo revenue 411 - 411 419 - 419
Other revenue 556 - 556 143 - 143
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total revenue 5,916 - 5,916 1,244 - 1,244
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Employee costs 1,122 - 1,122 666 - 666
Fuel, oil costs
and emissions
charges(4) 1,648 - 1,648 271 (78) 349
Handling,
catering and
other operating
costs 780 - 780 194 - 194
Landing fees and
en-route
charges 489 - 489 160 - 160
Engineering and
other aircraft
costs 553 - 553 212 - 212
Property, IT and
other costs(2) 231 - 231 169 - 169
Selling costs 241 - 241 89 - 89
Depreciation,
amortisation
and
impairment(3) 484 (6) 490 450 - 450
Currency
differences 75 - 75 - - -
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total
expenditure on
operations 5,623 (6) 5,629 2,211 (78) 2,289
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Operating
profit/(loss) 293 6 287 (967) 78 (1,045)
Finance costs (247) - (247) (224) - (224)
Finance income 2 - 2 1 - 1
Net change in
fair value of
financial
instruments 70 - 70 38 - 38
Net financing
credit relating
to pensions 6 - 6 2 - 2
Net currency
retranslation
charges (136) - (136) - - -
Other
non-operating
credits 85 - 85 30 - 30
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Total net
non-operating
costs (220) - (220) (153) - (153)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
Profit/(loss)
before tax 73 6 67 (1,120) 78 (1,198)
Tax 60 - 60 139 (14) 153
Profit/(loss)
after tax for
the period 133 6 127 (981) 64 (1,045)
---------------- ------------- ---------------- ---------------- ------------- ---------------- ----------------
The rationale for each exceptional item for the six months ended
June 30, 2022 is given below:
(1) The 2021 results include a reclassification to conform with
the presentation adopted in the 2021 Annual Report and Accounts
regarding the fair value movements of the convertible bond. Further
information is given in note 1.
(2) The exceptional credit of EUR23 million relates to the
partial reversal of the fine, plus accrued interest, initially
issued by the European Commission, in 2010, to British Airways
regarding its involvement in cartel activity in the air cargo
sector and that had been recognised as an exceptional charge. The
exceptional credit has been recorded within Property, IT and other
costs in the Income statement with no resultant tax charge
arising.
(3) The exceptional impairment reversal of EUR6 million relates
to four Airbus A320s in Vueling, previously stood down in the
fourth quarter of 2020 and subsequently stood up in the second
quarter of 2022. The exceptional impairment reversal was recorded
within Right of use assets on the Balance sheet and within
Depreciation, amortisation and impairment in the Income statement
with no resultant tax charge arising.
(4) The exceptional credit to Fuel, oil costs and emissions
charges of EUR140 million recorded in the six months to June 30,
2021 and the exceptional credit to Passenger revenue of EUR5
million related to the derecognition of hedge accounting of the
associated fuel derivatives and the foreign currency derivatives on
forecast revenue and fuel consumption. These amounts arose from the
substantial deterioration in demand for air travel caused by the
COVID-19 outbreak, which caused a significant level of hedged fuel
purchases in US dollars and hedged passenger revenue transactions
in a variety of foreign currencies to no longer be expected to
occur based on the Group's operating forecasts prevailing at the
balance sheet date. The credit related to revenue derivatives and
fuel derivatives was recorded in the Income statement within
Passenger revenue and Fuel, oil and emission charges, respectively.
The related tax charge was EUR24 million.
b Basic loss per share before exceptional items and adjusted loss 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.
Six months to Six months to
EUR million June 30, 2022 June 30, 2021
------------------------------------------------------------------------------------- -------------- --------------
Loss after tax attributable to equity holders of the parent (654) (2,048)
Exceptional items 29 121
------------------------------------------------------------------------------------- -------------- --------------
Loss after tax attributable to equity holders of the parent before exceptional items (683) (2,169)
Interest expense on convertible bonds - -
------------------------------------------------------------------------------------- -------------- --------------
Adjusted loss (683) (2,169)
------------------------------------------------------------------------------------- -------------- --------------
Weighted average number of shares used for basic earnings per share 4,963 4,967
Weighted average number of shares used for diluted earnings per share 4,963 4,967
Basic loss per share before exceptional items (EUR cents) (13.8) (43.7)
------------------------------------------------------------------------------------- -------------- --------------
Adjusted loss per share (EUR cents) (13.8) (43.7)
------------------------------------------------------------------------------------- -------------- --------------
c Airline non-fuel costs per ASK
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.
Six months to June 30, 2022 ccy Six months to June 30, 2022 Six months to June 30,
EUR million reported adjustment (1) ccy 2021
---------------- ---------------------------- ---------------- ---------------------------- ----------------------
Total
expenditure on
operations 9,789 (549) 9,240 4,247
Less:
exceptional
items (29) - (29) (140)
Less: fuel, oil
costs and
emission
charges before
exceptional
items 2,566 (188) 2,378 637
---------------- ---------------------------- ---------------- ---------------------------- ----------------------
Non-fuel costs 7,252 (361) 6,891 3,750
Less: Non-flight
specific costs 778 (43) 735 260
Airline non-fuel
costs 6,474 (318) 6,156 3,490
---------------- ---------------------------- ---------------- ---------------------------- ----------------------
ASKs 117,710 117,710 34,041
Airline non-fuel
unit costs per
ASK (EUR cents) 5.50 5.23 10.25
---------------- ---------------------------- ---------------- ---------------------------- ----------------------
(1) Refer to note g for the definition of the ccy adjustment.
d Levered free cash flow (KPI)
Levered free cash flow represents the cash generated, and the
financing raised, by the 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 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 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 Six months to June 30, 2022 Six months to June 30, 2021
------------------------------------------------------------ --------------------------- ---------------------------
Net Increase in cash and cash equivalents 1,093 1,685
------------------------------------------------------------ --------------------------- ---------------------------
Less: Increase/(decrease) in other current interest-bearing
deposits 134 (90)
Add: Dividends paid - -
------------------------------------------------------------ --------------------------- ---------------------------
Levered free cash flow 1,227 1,595
------------------------------------------------------------ --------------------------- ---------------------------
e 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 against internal and external security
analyst and investor benchmarks.
Net debt is defined as long-term borrowings (both current and
non-current), less cash, cash equivalents and current
interest-bearing deposits. Net debt excludes supply chain financing
arrangements which are classified within trade payables.
EBITDA is defined as the rolling four quarters operating result
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.
June 30, December 31,
EUR million 2022 2021
----------------------------------------------- --------- ------------
Interest-bearing long-term borrowings 20,169 19,610
Less: Cash and cash equivalents (9,004) (7,892)
Less: Other current interest-bearing deposits (186) (51)
----------------------------------------------- --------- ------------
Net debt 10,979 11,667
----------------------------------------------- --------- ------------
Operating loss (1,168) (2,765)
Add: Exceptional items (89) (205)
Add: Depreciation, amortisation and impairment 2,054 1,953
----------------------------------------------- --------- ------------
EBITDA 797 (1,017)
----------------------------------------------- --------- ------------
Net debt to EBITDA 13.8 (11.5)
----------------------------------------------- --------- ------------
f 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. 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 over a 12-month period
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.
June 30, December 31,
EUR million 2022 2021
----------------------------------------------------------------------- ---------- ------------
EBITDA 797 (1,017)
Less: Fleet depreciation multiplied by inflation adjustment (1,914) (1,777)
Less: Other property, plant and equipment depreciation (266) (257)
Less: Software intangible amortisation (176) (167)
----------------------------------------------------------------------- ---------- ------------
(1,559) (3,218)
----------------------------------------------------------------------- ---------- ------------
Invested capital
Average fleet value(2) 15,816 15,241
Less: average progress payments(3) (909) (729)
----------------------------------------------------------------------- ---------- ------------
Fleet book value less progress payments 14,907 14,512
Inflation adjustment (1) 1.17 1.16
----------------------------------------------------------------------- ---------- ------------
17,425 16,893
Average net book value of other property, plant and equipment(4) 2,116 2,106
Average net book value of software intangible assets(5) 642 640
----------------------------------------------------------------------- ---------- ------------
Total invested capital 20,183 19,639
----------------------------------------------------------------------- ---------- ------------
Return on Invested Capital (7.7)% (16.4)%
----------------------------------------------------------------------- ---------- ------------
(1) Presented to two decimal places and calculated using a 1.5 per cent inflation (June 30,
2021: 1.5 per cent inflation) rate over the weighted average age of the fleet at June 30,
2022: 10.8 years (June 30, 2021: 10.2 years).
(2) The average net book value of aircraft is calculated from an amount of EUR15,545 million
at June 30, 2021 and EUR16,087 million at June 30, 2022.
(3) The average net book value of progress payments is calculated from an amount of EUR677
million at June 30, 2021 and EUR1,141 million at June 30, 2022.
(4) The average net book value of other property, plant and equipment is calculated from
an amount of EUR2,155 million at June 30, 2021 and EUR2,077 million at June 30, 2022.
(5) The average net book value of software intangible assets is calculated from an amount
of EUR645 million at June 30, 2021 and EUR640 million at June 30, 2022.
g 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 retranslation, 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 2022 figures are
stated at a constant currency basis, they have applied the 2021
rates stated below:
Foreign exchange rates
---------------------------- --------------- -------------- ---------- ----------------------
Closing at
Average six months to June 30 June 30 Closing at December 31
------------------------------- ---------- ----------------------
2022 2021 2022 2021
---------------------------- --------------- -------------- ---------- ----------------------
Pound sterling to euro 1.19 1.14 1.16 1.18
Euro to US dollar 1.11 1.21 1.05 1.13
Pound sterling to US dollar 1.32 1.38 1.22 1.33
---------------------------- --------------- -------------- ---------- ----------------------
h Liquidity
The Board and the Management Committee monitor liquidity in
order to assess the resilience of the Group to adverse events and
uncertainty and develops funding initiatives to maintain this
resilience.
Liquidity is used by analysts, investors and other users of the
financial statements as a measure to the financial health and
resilience of the Group.
Liquidity is defined as Cash and cash equivalents plus Current
interest-bearing deposits, plus Committed general undrawn
facilities and committed aircraft undrawn facilities.
June 30, December 31,
EUR million 2022 2021
-------------------------------------- --------- ------------
Cash and cash equivalents 9,004 7,892
Current interest-bearing deposits 186 51
Committed general undrawn facilities 3,118 2,864
Committed aircraft undrawn facilities 1,128 1,126
Overdrafts and other facilities 53 53
-------------------------------------- --------- ------------
Total liquidity 13,489 11,986
-------------------------------------- --------- ------------
AIRCRAFT FLEET
Number in service with Group companies (1)
Total Changes since
June 30, Total December 31, Future
Owned Finance lease Operating lease 2022 December 31, 2021 2021 deliveries Options
----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A319 Ceo 8 3 30 41 39 2 - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A320 Ceo 42 31 125 198 190 8 - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A320 Neo 7 27 21 55 50 5 36 50
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A321 Ceo 16 8 22 46 51 (5) - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A321 Neo 1 - 14 15 14 1 24 -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A321 LR - - 8 8 8 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A321 XLR - - - - - - 14 14
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A330-200 - 2 15 17 18 (1) - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A330-300 4 4 12 20 18 2 - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A350-900 4 2 6 12 9 3 11 16
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A350-1000 3 9 - 12 8 4 6 36
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Airbus
A380 2 10 - 12 12 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
777-200 38 2 3 43 43 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
777-300 5 4 7 16 16 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
777-9 - - - - - - 18 24
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
787-8 - 10 2 12 12 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
787-9 1 8 9 18 18 - - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Boeing
787-10 - 2 - 2 2 - 10 6
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Embraer
E190 9 - 13 22 23 (1) - -
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
Group
total 140 122 287 549 531 18 119 146
---------- ----- ------------- --------------- ---------- ------------------ ------------- ----------- -------
(1) During the six-month period ended June 30, 2022, the Group has changed the basis in which
it presents the aircraft fleet table.
Aircraft are reported based on their contractual definitions as opposed to their accounting
determination.
Future deliveries and options do not include those orders that are still subject to shareholder
approval.
The categorisation of leases for accounting purposes differs to that presented above. For
accounting purposes, while all operating leases are presented as lease liabilities, finance
leases are presented as either lease liabilities or asset financed liabilities, depending
on the nature of the individual arrangement. Refer to note 2 of the 2021 Annual Report and
Accounts for further information.
As well as those aircraft in service the Group also holds 18 aircraft (December 31, 2021:
29) not in service.
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