TIDMIAG
RNS Number : 4779Q
International Cons Airlines Group
26 February 2021
Full year results announcement
International Consolidated Airlines Group (IAG) today (February
26, 2021) presented Group consolidated results for the year to
December 31, 2020.
COVID-19 situation and management actions:
-- Passenger capacity in quarter 4 was 26.6 per cent of 2019 and
for the full year was 33.5 per cent of 2019 and continues to be
adversely affected by the COVID-19 pandemic, together with
government restrictions and quarantine requirements
-- Current passenger capacity plans for quarter 1, 2021 are for
around 20 per cent of 2019 capacity, but remain uncertain and
subject to review
-- 969 cargo-only flights operated in quarter 4
-- Additional funding of EUR3.4 billion secured in quarter 4,
including GBP2.0 billion commitment from UK Export Finance
finalised in February 2021 and $1.0 billion EETC for British
Airways, $0.2 billion sales and leaseback transactions for Iberia
and EUR150 million for Aer Lingus backed by the Ireland Strategic
Investment Fund (ISIF), with EUR0.8 billion bridge financing
facilities repaid
-- 2020 capex reduced by EUR2.3 billion, from plans at the start
of the year, to EUR1.9 billion, with EUR0.5 billion due to seven
aircraft deliveries delayed from Q4-20 into 2021; 2021 capex
expected to be lower than 2020
-- British Airways reached agreement to defer EUR495 million of
pension contributions due between September 2020 and October
2021
-- British Airways reached agreement in principle over
restructuring plans for cargo employees, following agreement with
the other main British Airways employee groups earlier in 2020
-- Group continues to focus on cost reduction, increasing the
variability of its cost-base and liquidity initiatives
IAG period highlights on results:
-- Fourth quarter operating loss EUR1,471 million (2019:
operating profit EUR93 million), and operating loss before
exceptional items EUR1,165 million (2019: operating profit before
exceptional items EUR765 million)
-- Operating loss for the year to December 31, 2020 EUR7,426
million (2019: operating profit EUR2,613 million), and operating
loss before exceptional items EUR4,365 million (2019: operating
profit before exceptional items EUR3,285 million)
-- Exceptional charge before tax in the year to December 31,
2020 of EUR3,061 million on discontinuance of fuel and foreign
exchange hedge accounting, impairment of fleet and restructuring
costs; exceptional charge before tax for quarter 4 EUR306
million
-- Loss after tax and exceptional items for the year to December
31, 2020 EUR6,923 million (2019: profit EUR1,715 million) and loss
after tax before exceptional items: EUR4,325 million (2019: profit
before exceptional items EUR2,387 million)
-- Cash of EUR5,917 million at December 31, 2020 down EUR766
million on December 31, 2019. Committed and undrawn general and
aircraft facilities were EUR2.14 billion, bringing total liquidity
to EUR8.1 billion. Including EUR2.2 billion proceeds from the UK
Export Finance (UKEF) gives total pro-forma liquidity of EUR10.3
billion.
Performance summary:
Year to December 31
================================================== ==========================
Higher
/
Statutory results (EUR million) 2020 2019 (lower)
================================================== ======= ======= ========
Passenger revenue 5,512 22,468 (75.5)%
Total revenue 7,806 25,506 (69.4)%
Operating (loss)/profit (7,426) 2,613 nm
(Loss)/profit after tax (6,923) 1,715 nm
Basic (loss)/earnings per share (EUR cents)(1) (196.2) 56.1 nm
================================================== ======= ======= ========
Cash and interest-bearing deposits 5,917 6,683 (11.5)%
Interest-bearing borrowings 15,679 14,254 10.0 %
Higher
/
Alternative performance measures (EUR million) 2020 2019 (lower)
================================================== ======= ======= ========
Passenger revenue before exceptional items 5,574 22,468 (75.2)%
Total revenue before exceptional items 7,868 25,506 (69.2)%
Operating (loss)/profit before exceptional items (4,365) 3,285 nm
(Loss)/profit after tax before exceptional items (4,325) 2,387 nm
Adjusted (loss)/earnings per share (EUR cents)(1) (122.6) 76.9 nm
================================================== ======= ======= ========
Net debt 9,762 7,571 28.9 %
Net debt to EBITDA nm 1.4 nm
================================================== ======= ======= ========
Available seat kilometres (ASK million) 113,195 337,754 (66.5)%
Passenger revenue per ASK (EUR cents) 4.92 6.65 (26.0)%
Non-fuel costs per ASK (EUR cents) 9.00 4.80 87.7 %
================================================== ======= ======= ========
For definitions refer to the Alternative performance measures
section.
Cash comprises cash, cash equivalents and interest-bearing
deposits.
1 The earnings per share information for 2019 has been restated
to reflect the impact of the rights issue.
Luis Gallego, IAG's Chief Executive Officer, said:
"In 2020, we're reporting an operating loss of EUR4,365 million
before exceptional items compared to an operating profit of
EUR3,285 million in 2019. Total operating losses including
exceptional items relating to fuel and currency hedges, early fleet
retirement plus restructuring costs came to EUR7,426 million.
"Our results reflect the serious impact that COVID-19 has had on
our business. We have taken effective action to preserve cash,
boost liquidity and reduce our cost base. Despite this crisis, our
liquidity remains strong. At 31 December, the Group's liquidity was
EUR10.3 billion including a successful EUR2.7 billion capital
increase and GBP2 billion loan commitment from UKEF. This is higher
than at the start of the pandemic.
"In 2020, our capacity decreased by 66.5 per cent while our
non-fuel costs went down 37.1 per cent thanks to the extraordinary
effort across our business. The Group continues to reduce its cost
base and increase the proportion of variable costs to better match
market demand. We're transforming our business to ensure we emerge
in a stronger competitive position.
"IAG Cargo's turnover increased by almost EUR200 million to
EUR1.3 billion. Cargo helped to make longhaul passenger flights
viable. In addition, we operated 4,003 cargo-only flights in the
year.
"I would like to thank our employees across the Group for their
remarkable commitment, resilience and flexibility through this
crisis. They have adapted quickly to new ways of working and made
big sacrifices in terms of salary and working time. Our people have
played a central role in all we have achieved during these
challenging times.
"The aviation industry stands with governments in putting public
health at the top of the agenda. Getting people travelling again
will require a clear roadmap for unwinding current restrictions
when the time is right.
"We know there is pent-up demand for travel and people want to
fly. Vaccinations are progressing well and global infections are
going in the right direction. We're calling for international
common testing standards and the introduction of digital health
passes to reopen our skies safely."
Trading outlook
Given the uncertainty on the impact and duration of COVID-19,
IAG is not providing profit guidance for 2021.
LEI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed
in accordance with the Company's obligations under the Market Abuse
Regulation (EU) No 596/2014.
Steve Gunning, Chief Financial Officer
Forward-looking statements:
Certain statements included in this announcement are
forward-looking. These statements can be identified by the fact
that they do not relate only to historical or current facts. By
their nature, they involve risk and uncertainties because they
relate to events and depend on circumstances that will occur in the
future. Actual results could differ materially from those expressed
or implied by such forward-looking statements.
Forward-looking statements 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 effects of 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 Annual Announcement and Accounts 2019; these
documents are available on www.iairgroup.com. All forward-looking
statements made on or after the date of this announcement and
attributable to IAG are expressly qualified in their entirety by
the primary risks set out in that section. Many of these risks are,
and will be, exacerbated by the COVID-19 pandemic and any further
disruption to the global airline industry and economic environment
as a result.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Tel: +44 (0)208 564 2990
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Year to December Three months to December
31 31
========================= ============================
Higher/ Higher/
EUR million 2020 2019 (lower) 2020 2019 (lower)
======================================= ======= ====== ======== ========= ====== =========
Passenger revenue 5,512 22,468 (75.5)% 684 5,390 (87.3)%
16.9
Cargo revenue 1,306 1,117 % 389 292 33.2 %
Other revenue 988 1,921 (48.6)% 228 532 (57.1)%
======================================= ======= ====== ======== ========= ====== =========
Total revenue 7,806 25,506 (69.4)% 1,301 6,214 (79.1)%
======================================= ======= ====== ======== ========= ====== =========
Employee costs 3,560 5,634 (36.8)% 693 1,921 (63.9)%
Fuel, oil costs and emissions charges 3,735 6,021 (38.0)% 453 1,452 (68.8)%
Handling, catering and other operating
costs 1,340 2,972 (54.9)% 260 736 (64.7)%
Landing fees and en-route charges 918 2,221 (58.7)% 181 522 (65.3)%
Engineering and other aircraft
costs 1,456 2,092 (30.4)% 321 505 (36.4)%
Property, IT and other costs 782 811 (3.6)% 185 229 (19.2)%
Selling costs 405 1,038 (61.0)% 65 225 (71.1)%
Depreciation, amortisation and 40.0
impairment 2,955 2,111 % 620 557 11.3 %
Currency differences 81 (7) nm (6) (26) (76.9)%
======================================= ======= ====== ======== ========= ====== =========
Total expenditure on operations 15,232 22,893 (33.5)% 2,772 6,121 (54.7)%
======================================= ======= ====== ======== ========= ====== =========
Operating (loss)/profit (7,426) 2,613 nm (1,471) 93 nm
Finance costs (670) (611) 9.7 % (167) (165) 1.2 %
Finance income 41 50 (18.0)% 14 17 (17.6)%
Net financing credit relating to
pensions 4 26 (84.6)% - 7 nm
21.9
Net currency retranslation credits 245 201 % 62 108 (42.6)%
Other non-operating charges (4) (4) - (47) (54) (13.0)%
======================================= ======= ====== ======== ========= ====== =========
13.6
Total net non-operating costs (384) (338) % (138) (87) 58.6 %
======================================= ======= ====== ======== ========= ====== =========
(Loss)/profit before tax (7,810) 2,275 nm (1,609) 6 nm
Tax 887 (560) nm 253 (105) nm
======================================= ======= ====== ======== ========= ====== =========
(Loss)/profit after tax for the
year (6,923) 1,715 nm (1,356) (99) nm
======================================= ======= ====== ======== ========= ====== =========
.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional items.
Refer to Alternative performance measures section for more
detail.
Year to December 31 Three months to December
31
=============================== =============================
Before exceptional items Before exceptional items
=============================== =============================
Higher/ Higher/
EUR million 2020 2019 (lower)(1) 2020 2019 (lower)(1)
================================= ======= ========= =========== ======= ======= ===========
Passenger revenue 5,574 22,468 (75.2)% 686 5,390 (87.3)%
16.9 33.2
Cargo revenue 1,306 1,117 % 389 292 %
Other revenue 988 1,921 (48.6)% 228 532 (57.1)%
================================= ======= ========= =========== ======= ======= ===========
Total revenue before exceptional
items 7,868 25,506 (69.2)% 1,303 6,214 (79.0)%
================================= ======= ========= =========== ======= ======= ===========
Employee costs 3,247 4,962 (34.6)% 649 1,249 (48.0)%
Fuel, oil costs and emissions
charges 2,041 6,021 (66.1)% 358 1,452 (75.3)%
Handling, catering and other
operating costs 1,340 2,972 (54.9)% 260 736 (64.7)%
Landing fees and en-route
charges 918 2,221 (58.7)% 181 522 (65.3)%
Engineering and other aircraft
costs 1,348 2,092 (35.6)% 296 505 (41.4)%
Property, IT and other costs 754 811 (7.0)% 185 229 (19.2)%
Selling costs 405 1,038 (61.0)% 65 225 (71.1)%
Depreciation, amortisation
and impairment 2,099 2,111 (0.6)% 480 557 (13.8)%
Currency differences 81 (7) nm (6) (26) (76.9)%
================================= ======= ========= =========== ======= ======= ===========
Total expenditure on operations
before exceptional items 12,233 22,221 (44.9)% 2,468 5,449 (54.7)%
================================= ======= ========= =========== ======= ======= ===========
Operating (loss)/profit before
exceptional items (4,365) 3,285 nm (1,165) 765 nm
Finance costs (670) (611) 9.7 % (167) (165) 1.2 %
Finance income 41 50 (18.0)% 14 17 (17.6)%
Net financing credit relating
to pensions 4 26 (84.6)% - 7 nm
Net currency retranslation 21.9
credits 245 201 % 62 108 (42.6)%
Other non-operating charges (4) (4) - (47) (54) (13.0)%
================================= ======= ========= =========== ======= ======= ===========
13.6 58.6
Total net non-operating costs (384) (338) % (138) (87) %
================================= ======= ========= =========== ======= ======= ===========
(Loss)/profit before tax before
exceptional items (4,749) 2,947 nm (1,303) 678 nm
Tax 424 (560) nm 154 (105) nm
================================= ======= ========= =========== ======= ======= ===========
(Loss)/profit after tax for
the year before exceptional
items (4,325) 2,387 nm (1,149) 573 nm
================================= ======= ========= =========== ======= ======= ===========
Higher/ Higher/
Operating figures 2020(1) 2019(1) (lower) 2020(1) 2019(1) (lower)
================================= ======= ========= =========== ======= ======= ===========
Available seat kilometres
(ASK million) 113,195 337,754 (66.5)% 21,801 82,005 (73.4)%
Revenue passenger kilometres
(RPK million) 72,262 285,745 (74.7)% 9,817 69,138 (85.8)%
Seat factor (per cent) 63.8 84.6 (20.8)pts 45.0 84.3 (39.3)pts
Passenger numbers (thousands) 31,275 118,253 (73.6)% 4,298 27,805 (84.5)%
Cargo tonne kilometres (CTK
million) 3,399 5,580 (39.1)% 928 1,432 (35.2)%
Sold cargo tonnes (thousands) 444 682 (34.9)% 118 175 (32.6)%
Sectors 267,748 775,486 (65.5)% 48,195 183,490 (73.7)%
Block hours (hours) 820,983 2,272,904 (63.9)% 160,230 541,874 (70.4)%
================================= ======= ========= =========== ======= ======= ===========
Average manpower equivalent(2) 60,612 66,034 (8.2)% 53,553 65,293 (18.0)%
Aircraft in service 533 598 (10.9)%
================================= ======= ========= =========== ======= ======= ===========
Passenger revenue per RPK
(EUR cents) 7.71 7.86 (1.9)% 6.99 7.80 (10.4)%
Passenger revenue per ASK
(EUR cents) 4.92 6.65 (26.0)% 3.15 6.57 (52.1)%
Cargo revenue per CTK (EUR 91.9
cents) 38.42 20.02 % 41.92 20.39 nm
Fuel cost per ASK (EUR cents) 1.80 1.78 1.1 % 1.64 1.77 (7.3)%
Non-fuel costs per ASK (EUR 87.7
cents) 9.00 4.80 % 9.68 4.87 nm
64.3 70.4
Total cost per ASK (EUR cents) 10.81 6.58 % 11.32 6.64 %
================================= ======= ========= =========== ======= ======= ===========
1 Financial ratios are before exceptional items. Refer to
Alternative performance measures section for detail.
2 Included in the average manpower equivalent are staff on
furlough, wage support and equivalent schemes, including the
Temporary Redundancy Plan arrangements in Spain.
FINANCIAL REVIEW
Structure of Financial Review
Due to the unprecedented impact of COVID-19 and governments'
responses, many of the usual variance analysis and measures are
significantly less meaningful than in previous years and in some
cases measures used previously no longer provide relevant insight
into understanding the performance of the Group. As a consequence,
unlike in prior years, in this review there is no detail on
industry growth rates and GDP by market, as in 2020 the main
drivers of capacity and revenue were COVID-19 and the related
governmental travel bans and restrictions, rather than broader
economic factors. This review, therefore, is structured to provide
detail about the impact of COVID-19 on the Group, including the
measures the Group has taken to mitigate the financial impact of
the pandemic. Where variances exceed 100 per cent they have been
substituted with 'nm' for 'not meaningful' and the absolute values
are shown.
COVID-19 impact and IAG's response
The main impact of COVID-19 materialised as a significant drop
in the demand for passenger flights, linked to both the pandemic
itself and the travel restrictions introduced by national
governments, which changed many times through the year, normally
with no or very short notice, thereby creating uncertainty for
customers.
As a result of the significantly reduced flying programme,
aircraft had to be temporarily grounded, with some retired early.
Jet fuel consumption was significantly lower than that on which the
Group's hedging programme was based, leading to the discontinuation
of hedge accounting for the related derivative financial
instruments. In addition, the commodity price of jet fuel fell
sharply, leading to significant losses related to the hedging
programme.
The Group acted quickly to mitigate the impact of COVID-19 on
its liquidity and results, through reductions in operating and
capital expenditure, together with working capital initiatives and
additional funding. The success of these measures was recognised by
all three credit rating agencies, however, the severity of the
deterioration in operating conditions resulted in successive
downgrading of both IAG's and British Airways' credit ratings to
below investment grade. The main measures taken to mitigate the
impact of COVID-19 on the Group are shown opposite and reviewed in
further detail below.
Key COVID-19 mitigations
Demand and Passenger capacity 66.5% lower than 2019
capacity Additional cargo flights, including for essential equipment
and supplies
=================== ===================================================================
Fleet reductions Temporary grounding and parking of aircraft
Early retirement of aircraft, including British Airways Boeing
747-400s and Iberia Airbus A340-600s, plus lease returns
=================== ===================================================================
Operating Pay cuts, wage support, furlough and temporary reductions in
costs hours worked and employee numbers
Restructuring in British Airways and Aer Lingus, with increased
flexibility
Non-essential discretionary spend reduced
Negotiated price reductions for supplier costs
=================== ===================================================================
Capital expenditure Deferral of delivery of 68 aircraft
Reduction in other capital expenditure; cyber spend retained
=================== ===================================================================
Working capital 2019 final dividend proposal withdrawn and no 2020 dividend
Reduction in trade receivables
Impact of reduction in bookings for future travel mitigated
by customers opting to take vouchers in lieu of cash refunds
With agreement, deferred supplier payments treasury settlements
and lease payments
American Express loyalty contract renewal, with significant
pre-payment
Accelerated tax refunds from 2021 to 2020 and deferral of UK
HMRC payments
Deferred UK and US pension contributions
=================== ===================================================================
Funding Aircraft financed throughout year (sale and leaseback and new
EUR1 billion EETC facility)
British Airways Revolving Credit Facility extended by one year;
other credit lines secured
EUR328 million commercial paper issued under UK's CCFF
EUR1 billion debt through ICO-backed loans in Spain
EUR75 million debt through ISIF-backed loans in Ireland, potential
for further EUR75 million
GBP2 billion UK Export Finance loan agreed
EUR2.7 billion equity increase
=================== ===================================================================
Demand and capacity
IAG capacity
In 2020, all of IAG's airlines significantly reduced passenger
capacity, with total Group capacity, measured in Available seat
kilometres (ASKs), down 66.5 per cent versus 2019. The early months
of the year started in line with the Group's plans approved by the
Board in December 2019, aside from a limited COVID-19 impact mainly
in the Asia Pacific region with suspension of services to China at
the end of January and other capacity reductions across the region.
Passenger capacity was 1.4 per cent higher than 2019 in January and
2.9 per cent higher in February. From late February, as the virus
spread across the globe, many governments placed significant
restrictions on the movement of people and on travel across
international borders. This led to the cancellation of all flights
to, from and within Italy and extensive reductions across the whole
network, with capacity in the first quarter down 10.5 per cent on
2019.
In the second quarter, due to the impact of the virus worldwide
and the associated travel and border restrictions applying in most
countries, the Group was only able to operate a skeleton passenger
schedule, with capacity operated only 5 per cent of that operated
in the same quarter 2019. The third quarter showed improvement and
additional capacity was introduced, mainly driven by leisure demand
and for those visiting friends and relatives (VFR); however,
capacity was still down 78.6 per cent on the previous year. Where
travel restrictions were removed the Group saw a strong level of
travel demand from customers. Plans to increase capacity steadily
during the fourth quarter had to be revised, as a second wave of
infections swept across Europe and governments re-imposed lockdowns
and travel restrictions. Capacity for the fourth quarter was down
73.4 per cent.
The IAG passenger load factor was down 20.8 points from 2019 to
63.8 points, also impacted by travel restrictions, which changed
frequently, together with low demand and a higher than normal level
of passengers not checking in for flights that were still operating
('no-shows'). One consequence of the reduction in passenger
capacity across the industry was a reduction in hold space
available for cargo purposes, leading to reduced overall cargo
supply and a more favourable cargo yield environment than in the
previous year.
IAG capacity
ASKs Passenger
higher/(lower) load Higher/
Year to December 31, 2020 vly factor (lower)
=================================== =============== ========= ========
(16.2)
Domestic (49.8)% 71.0 pts
(19.0)
Europe (70.5)% 64.6 pts
(30.9)
North America (69.3)% 53.2 pts
(13.7)
Latin America and Caribbean (64.3)% 72.7 pts
(15.8)
Africa, Middle East and South Asia (61.4)% 67.2 pts
(24.5)
Asia Pacific (70.7)% 61.3 pts
=================================== =============== ========= ========
(20.8)
Total network (66.5)% 63.8 pts
=================================== =============== ========= ========
Domestic and Europe
Together, IAG's Domestic and European markets continue to
represent the Group's largest region. However, capacity across both
was, and continues to be, significantly impacted by the travel
restrictions and quarantines imposed by European governments.
Capacity in IAG's Domestic markets decreased by 49.8 per cent
versus 2019. British Airways' capacity reflected demand from UK
holidaymakers avoiding overseas destinations subject to quarantine
restrictions, Scottish routes re-opened in quarter 2 and a new
route to Newquay launched in the summer. Vueling focused its
operations on connecting the Spanish peninsula with the Canary and
Balearic Islands and Iberia maintained similar Domestic routes for
connectivity. Aer Lingus' route between London and Belfast
benefitted from UK citizens opting for domestic holidays, with load
factors reaching 70 per cent in August. Passenger load factor in
the region remained above 70 per cent as Spanish and UK government
travel restrictions and quarantine rules prompted an increase in
travellers opting for holidays in their home country.
The Group's capacity in Europe decreased 70.5 per cent year on
year. As the COVID-19 outbreak started to spread, Vueling limited
its operations outside of Spain as demand remained weak throughout
2020. Iberia maintained minimum operations to keep major European
cities, including London, Paris and Madrid, connected in quarter 2
and expanded operations in quarter 3 to meet summer leisure demand.
In quarter 3 British Airways had a good performance throughout the
summer on the limited number of routes operated to destinations
included on the UK Government's 'Travel Corridor' list. Aer Lingus'
European operations were limited by the Irish government's 'Green
List', which severely restricted travel and discouraged Irish
citizens from non-essential travel. LEVEL's operations in Vienna
and Amsterdam ceased on June 19, 2020.
North America
IAG's North American market accounts for almost 30 per cent of
the Group's ASKs. The region's capacity increase at the beginning
of 2020 reflected the full-year impact of routes launched during
2019, including British Airways' route to Pittsburgh, Aer Lingus'
route to Minneapolis and LEVEL's route to New York, JFK. Following
the outbreak of COVID-19, a much-reduced flight schedule to North
America operated, primarily for cargo purposes, with British
Airways and Aer Lingus operating regular flights to New York,
Boston, Washington and Chicago. Iberia resumed operations to
Chicago in quarter 3 and LEVEL Spain restarted its route to JFK in
September. Quarter 4 benefited from increased leisure and VFR
travel around the Thanksgiving and Christmas holidays, with routes
to second-home markets such as Miami performing well. LEVEL France
ceased operations on July 8, leading to the cancellation of its
routes to Newark and Las Vegas. Passenger load factor for the
region was the lowest for the Group as the United States
government's COVID-19 restrictions allowed only residents and
nationals to enter the country.
Latin America and Caribbean (LACAR)
IAG's capacity in LACAR increased in January and February driven
by Iberia's new route to Guayaquil, Ecuador launched in 2019 and
additional frequencies on routes to Colombia, Peru and Brazil.
LEVEL's growth reflected the annualisation of new routes launched
in 2019 to Santiago de Chile and additional frequencies on routes
to the French Caribbean. However, following the initial outbreak of
COVID-19, LACAR operations were extremely limited, due to strict
government restrictions and high COVID-19 case numbers impacting
the region, with regular operations only starting to resume in
quarter 3. British Airways operated a number of charter flights to
the Caribbean in quarter 2 and restarted regular service to a
number of destinations in quarter 3. In quarter 4 flights operated
regularly to São Paulo, Antigua and Saint Lucia, benefiting from
leisure travel over the holiday period. In quarter 2, Iberia's
operations were mainly for repatriation and cargo purposes and
routes to Panama City, Santo Domingo and Quito resumed in quarter
3. Quarter 4 benefited from significant VFR travel to the region
with load factors to routes in Ecuador and Dominican Republic
reaching over 80 per cent. LEVEL France operations to the French
Caribbean ceased in July, however LEVEL Spain continues to operate
and resumed limited operations to Buenos Aires in September and
Santiago de Chile in December. Passenger load factor in this region
was the highest for the Group, down only 13.7 points on 2019 to
72.7 per cent.
Africa, Middle East and South Asia (AMESA)
AMESA capacity increased in January and February primarily due
to new routes launched in 2019 by British Airways, including to
Dammam via Bahrain and Islamabad. Following the outbreak of
COVID-19 and initial lockdowns, regular operations did not restart
until quarter 3 with British Airways returning to Dubai, Kenya,
Israel, India and Pakistan. Iberia restarted its regular service to
Dakar, Senegal in July but did not reopen regular operations to
Morocco and Israel in 2020. Vueling did not restart any regular
operations to the region in 2020. Passenger load factor for the
region was down 15.8 points versus 2019 to 67.2 per cent.
Asia Pacific
In the Asia Pacific region, the Group's capacity was down
significantly on 2019 and it was the first region to see
cancellations as a result of the COVID-19 outbreak in late January.
British Airways, Iberia and Aer Lingus all operated government
charter flights to the region, carrying back Personal Protective
Equipment (PPE) during the first wave of the pandemic. Since then,
there has been a steady return to flying with British Airways
reopening routes to China, Hong Kong and Tokyo, although strict
travel restrictions remain in place limiting capacity, with China
only allowing international carriers to operate one flight per week
on a single route. Passenger load factor was down 24.5 points to
61.3 per cent on a capacity decrease of 70.7 per cent.
Basis of preparation
Based on the extensive modelling the Group has undertaken in
light of the COVID-19 pandemic, the Directors have a reasonable
expectation that the Group has sufficient liquidity for the going
concern assessment period to March 31, 2022, and accordingly the
Directors have adopted the going concern basis in preparing the
consolidated financial statements.
There are a number of significant factors related to COVID-19
that are outside of the control of the Group, including the status
and impact of the pandemic worldwide, including the emergence of
new variants of the virus and potential resurgence of existing
strains of the virus; the availability of vaccines worldwide,
together with the speed at which they are deployed; the efficacy of
those vaccines; and the restrictions imposed by national
governments in respect of the freedom of movement and travel. Due
to the uncertainty that these factors create, the Group is not able
to provide certainty that there could not be more severe downside
scenarios than those it has considered, including the sensitivities
it has considered in relation to factors such as the impact on
yield, capacity operated, cost mitigations achieved and the
availability of aircraft financing to offset capital expenditure.
In the event that such a scenario were to occur, the Group would
need to implement additional mitigation measures and would likely
need to secure additional funding over and above that which is
contractually committed at February 25, 2021. The Group has been
successful in raising financing since the outbreak of COVID-19,
having financed all aircraft deliveries in 2020, secured an
additional EUR3.6 billion of non-aircraft debt and having completed
an equity increase of EUR2.7 billion in September 2020, which was
fully subscribed. However, the Group cannot provide certainty that
it will be able to secure additional funding, if required, in the
event that a more severe downside scenario than those it has
considered were to occur. Refer to note 2 of the consolidated
financial statements for further information.
Summary
In light of the significant reduction in the Group's passenger
capacity linked to the impact of COVID-19, the year saw a
significant reduction in passenger revenue. The Group took action
to mitigate the impact through exploiting cargo opportunities and
by reducing costs. The Group also recognised exceptional charges
for restructuring costs, the discontinuance of hedge accounting in
relation to fuel and foreign currency derivatives and the
impairment of aircraft and related assets either retired or stood
down early. The net result was an operating loss for the year of
EUR7,426 million, versus an operating profit in 2019 of EUR2,613
million. The reported loss after tax for the year was EUR6,923
million, versus a profit of EUR1,715 million in 2019.
(Loss)/profit for the year
Statutory results Higher/
EUR million (lower)
2020 2019 vly
========================= ======= ===== ========
Operating (loss)/profit (7,426) 2,613 (10,039)
(Loss)/profit before tax (7,810) 2,275 (10,085)
(Loss)/profit after tax (6,923) 1,715 (8,638)
========================= ======= ===== ========
The Group uses Alternative Performance Measures (APMs) to
analyse the underlying results of the business excluding
exceptional items, which are those that in management's view need
to be separately disclosed by virtue of their size or incidence in
understanding the entity's financial performance. A summary of the
exceptional items relating to 2019 and 2020 is given below, with
more detail in the Alternative Performance Measures section,
including the exceptional items by operating company.
Summary of exceptional items
(Charge)/credit
to the
Income statement Exceptional Income statement
line item description EUR million
=========================== =================================================== ================= =================
2020 1 2019
=========================== =================================================== ================= =================
Discontinuation of hedge accounting for foreign
Passenger revenue currency derivatives for revenue (62) -
=========================== =================================================== ================= =================
Non-cash increase in liabilities in association
Employee costs with pension scheme settlement - (672)
=========================== =================================================== ================= =================
Employee costs Restructuring costs (313) -
=========================== =================================================== ================= =================
Fuel, oil and emissions Discontinuation of hedge accounting for fuel
costs and associated foreign exchange derivatives (1,694) -
=========================== =================================================== ================= =================
Engineering and other Inventory write-down and charge in relation to
aircraft costs contractual lease provisions (108) -
=========================== =================================================== ================= =================
Property, IT and Legal costs associated with employee restructuring
other costs programmes (6) -
=========================== =================================================== ================= =================
Property, IT and Settlement provision in relation to the theft
other costs of customer data at British Airways in 2018 (22) -
=========================== =================================================== ================= =================
Depreciation, amortisation Impairment of fleet
and impairment and associated assets (856) -
=========================== =================================================== ================= =================
Tax Tax on exceptional items 463 -
=========================== =================================================== ================= =================
1 In 2020 all items were associated with the impact of COVID-19,
except the settlement provision in relation to the theft of
customer data at British Airways in 2018.
Excluding the impact of the exceptional items shown above, the
operating loss for 2020 was EUR4,365 million, down EUR7,650 million
from the operating profit of EUR3,285 million generated in 2019.
The loss after tax and before exceptional items was EUR4,325
million, versus a profit after tax and before exceptional items of
EUR2,387 million in 2019.
Higher/
Alternative Performance Measures (lower)
(before exceptional items), EUR million 2020 2019 vly
========================================= ======= ===== ========
Operating (loss)/profit (4,365) 3,285 (7,650)
(Loss)/profit before tax (4,749) 2,947 (7,696)
(Loss)/profit after tax (4,325) 2,387 (6,712)
========================================= ======= ===== ========
Revenue
Higher/ Higher/
(lower) (lower)
EUR million 2020 vly vly
==================== ===== ======== ========
Passenger revenue 1 5,512 (16,956) (75.5)%
Cargo revenue 1,306 189 16.9%
Other revenue 988 (933) (48.6)%
==================== ===== ======== ========
Total revenue 7,806 (17,700) (69.4)%
==================== ===== ======== ========
1 Includes an exceptional charge of EUR62 million (2019: nil)
related to discontinued hedge accounting of revenue foreign
currency derivatives. Further information is given in the
Alternative Performance Measures section.
Passenger revenue
The overall impact of the significantly reduced schedule and
lower passenger load factors described above was a decrease in
passenger revenue of EUR16,956 million, or 75.5 per cent versus
2019.
Cargo revenue
2020 was a record year for cargo revenue, as additional flights
were operated to transport essential equipment and supplies,
assisted by a dedicated charter team to develop solutions for
customers and governments, recognising that IAG Cargo does not
operate a dedicated freighter fleet. The cargo business identified
markets most impacted by the reduction in air cargo supply, where
demand would not be met by traditional freighter services and that
could support the yields required to fly cargo-only services using
passenger aircraft. The focus of cargo-only flying was to ensure a
cash-positive contribution was achieved for the airlines and the
Group. Cargo opportunities were increased by removing seats from
five passenger aircraft and obtaining regulatory approvals to load
cargo in the passenger cabins. During the year 4,003 additional
cargo-driven flights were operated; these additional flights are
not included in the passenger capacity figures for ASKs, as seats
were not offered for general sale to passengers.
The overall impact of the cargo operation, including the
additional cargo-driven flights linked to the COVID-19 response,
was an increase in Cargo revenue of EUR189 million, or 16.9 per
cent versus 2019.
Other revenue
The largest Other revenue streams for the Group in normal times
are Iberia's Maintenance, Repair and Overhaul (MRO) and Handling
businesses, together with BA Holidays. Revenue from these
activities was also significantly reduced versus the previous year,
linked to lower activity levels associated with COVID-19. In the
case of MRO and Handling, these revenues were affected by reduced
demand following lower flight schedules and significant fleet
reductions across the airline industry and hence lower maintenance
requirements, although the reductions were less than the reduction
in the level of passenger capacity. The BA Holidays business is
closely linked to the passenger business and was therefore impacted
by the significantly reduced passenger operation. Loyalty revenues
were also down on 2019, as the lower flying programme led to a
reduced number of redemptions of Avios and a reduced volume of the
sale of Avios to third parties, linked to the reduced level of
expenditure on travel. Other ancillary revenue streams were also
affected by the impact of the pandemic, including handling
recoveries in Terminal 7 at New York, JFK. In total Other revenue
was down EUR933 million, or 48.6 per cent versus 2019.
Fleet reductions
The Group anticipates that as a result of COVID-19, demand will
continue to be supressed for several years and will not reach
levels seen in 2019 until at least 2023. The Group, therefore, took
steps to reduce its aircraft fleet and the associated cost of
maintenance.
During 2020, a significant number of aircraft were temporarily
grounded and parked, with the limited operations focused on flying
the more fuel-efficient new-generation aircraft, where possible.
The Group also decided to accelerate the retirement of its older,
four-engined longhaul fleet. British Airways retired its fleet of
32 Boeing 747-400 aircraft, and Iberia retired its fleet of 15
Airbus A340-600 aircraft. In addition to these retirements, 37
aircraft were stood down earlier than planned, either pending
disposal or return to lessors, bringing the reductions in fleet
numbers to 84 aircraft. However, the Group also took delivery of 34
aircraft during the year, detailed in the Capital expenditure
section below.
The early retirement and stand-down of these aircraft led to an
exceptional impairment charge of EUR837 million; there was also a
EUR108 million exceptional charge related to a write-down of
inventory and recognition of contractual end-of-lease
provisions.
Number of fleet
Higher/
(lower)
Number of fleet in-service 2020 2019 vly
=========================== ==== ==== ========
Shorthaul 367 394 (6.9)%
Longhaul 166 204 (18.6)%
=========================== ==== ==== ========
533 598 (10.9)%
=========================== ==== ==== ========
241 of the 533 "in-service" fleet at the end of the year were
temporarily grounded. In addition to the in-service fleet, there
were a further 71 aircraft held by the Group pending disposal or
lease return and 1 new aircraft that had been delivered to the
Group and paid for but had not yet entered service.
Operating costs
Due to the reduced flying programme and significantly reduced
revenues, the Group took action to offset the financial impact by
reducing costs, together with measures to increase the variability
and flexibility in its cost base. Total expenditure on operations
before exceptional items fell from EUR22,221 million in 2019 to
EUR12,233 million in 2020, a 44.9 per cent reduction, compared to
the reduction in passenger capacity, measured in ASKs, of 66.5 per
cent. The reduction in operating costs before exceptional items and
excluding depreciation, amortisation and impairment was 49.6 per
cent.
Employee costs
Higher/ Higher/
(lower) (lower)
EUR million 2020 vly vly
================= ===== ======== ========
Employee costs 1 3,560 (2,074) (36.8)%
================= ===== ======== ========
1 Includes an exceptional charge of EUR313 million related to
the restructuring programmes in British Airways, Aer Lingus, Iberia
and LEVEL, undertaken to resize the Group as a consequence of
COVID-19. A non-cash exceptional charge of EUR672 million in 2019
related to the impact of a settlement between British Airways and
its oldest pension scheme, APS. Further information is given in the
Alternative Performance Measures section.
National governments provided wage or job support mechanisms in
each of IAG's main home markets and the operating companies used
these facilities to reduce employee numbers and costs, with the
direct impact of these mechanisms reducing employee costs by
approximately EUR730 million. Other arrangements were agreed for
staff not directly covered by such schemes and so costs were
reduced at all levels in the organisation, with the Management
Committee and Board members also seeing reductions as outlined in
the Report of the Remuneration Committee.
In addition to temporary measures, both British Airways and Aer
Lingus implemented longer-term restructuring, consistent with the
expected multi-year impact of COVID-19 on demand. The restructuring
measures will result in reductions at British Airways of
approximately 10,000 employees (or one quarter of the workforce at
June 2020) and 500 at Aer Lingus (or approximately 10 per cent of
the workforce at June 2020); the substantial majority of employees
affected had left the Group by the end of 2020. British Airways has
also introduced more flexibility in certain operational areas, in
order to be able to better adjust employee numbers and cost to the
level of capacity operated. Iberia also made reductions in
management numbers, together with restructuring related to staff
outside of Spain. Iberia and Vueling made use of the temporary
redundancy arrangements in Spain under an Expedientes de Regulación
Temporal de Empleo ('ERTE') arrangement and hence did not incur
restructuring costs in respect of non-managerial employees in
Spain. The closure of LEVEL France led to an exceptional provision
of EUR28 million for the associated employee restructuring costs.
The total exceptional employee restructuring charges for the year
included within Employee costs were EUR313 million.
In addition to the wage and pay support schemes and
restructuring programmes outlined above, other measures were taken
to further reduce employee costs, such as offering unpaid leave,
the removal of bonuses and reduced non-mandatory training. Measures
were taken at all levels across the Group.
Employee costs for the year decreased by EUR2,074 million, or
36.8 per cent compared with 2019; excluding exceptional items,
employee costs reduced by EUR1,715 million, or 34.6 per cent.
Fuel, oil and emissions costs
Higher/ Higher/
(lower) (lower)
EUR million 2020 vly vly
======================================== ===== ======== ========
Fuel, oil costs and emissions charges 1 3,735 (2,286) (38.0)%
======================================== ===== ======== ========
1 Includes an exceptional charge of EUR1,694 million (2019: nil)
related to discontinuation of hedge accounting for fuel derivatives
and fuel foreign currency derivatives as a result of the impact of
COVID-19. Further information is given in the Alternative
Performance Measures section.
Commodity fuel prices fell dramatically following the spread of
COVID-19 globally in March, with prices down approximately 75 per
cent on levels experienced immediately beforehand. Although there
was a partial recovery during the remainder of the year, prices
were still at levels much lower than 2019.
The Group seeks to reduce the impact of volatile commodity
prices by hedging prices up to three years in advance. The hedging
programme is based on expected levels of activity, with the
proportion hedged in line with treasury policies agreed with the
Board.
In 2020, due to the rapid fall in the commodity fuel price, the
Group has experienced losses on its fuel hedging derivatives. These
hedging losses would have normally been offset against the reduced
cost of physical fuel purchased. However, the impact of COVID-19
has led to a significant reduction in the requirement to purchase
jet fuel, due to the significantly reduced flying programme. As a
consequence, the Group had derivative contracts for which there was
no corresponding purchase of jet fuel, leading to discontinuance of
hedge accounting for these derivatives, with the mark-to-market
loss of EUR1,781 million recognised as an exceptional charge in the
Income statement. There was also a related mark-to-market gain
recognised in the Income statement related to foreign exchange
hedging of EUR87 million, bringing the net exceptional charge to
EUR1,694 million for the year. These values are calculated based on
the fuel curve and foreign exchange rates as at December 31, 2020
and the anticipated capacity to be operated for 2021 and 2022.
The Group continued to benefit from reduced fuel consumption
associated with the investment in new fleet, together with the
early retirement of older aircraft. Overall fuel, oil and emissions
charges were down EUR2,286 million, or 38.0 per cent versus 2019;
excluding the exceptional net overhedging charge fuel, oil and
emissions charges were down EUR3,980 million, or 66.1 per cent.
Supplier costs
Higher/ Higher/
(lower) (lower)
EUR million 2020 vly vly
============================================= ===== ======== ========
Handling, catering and other operating costs 1,340 (1,632) (54.9)%
Landing fees and en-route charges 918 (1,303) (58.7)%
Engineering and other aircraft costs 1 1,456 (636) (30.4)%
Property, IT and other costs 2 782 (29) (3.6)%
Selling costs 405 (633) (61.0)%
Currency differences 81 88 nm
============================================= ===== ======== ========
1 Includes an exceptional charge of EUR108 million (2019: nil)
related to an inventory write-down and a charge relating to
contractual lease provisions. Further information is given in the
Alternative Performance Measures section.
2 Includes an exceptional charge of EUR28 million (2019: nil)
related to the penalty notice issued by the UK Information
Commissioner's Office for the theft of customer data at British
Airways in 2018 (EUR22 million) and to the legal costs of the
Group-wide restructuring programme undertaken in the year (EUR6
million). Further information is given in the Alternative
Performance Measures section.
Handling, catering and other operating costs were down EUR1,632
million on 2019, or 54.9 per cent. In addition to volume-linked
savings, including the reduced product costs associated with lower
BA Holidays revenues, costs were reduced by management actions,
such as the closure of airport lounges and by the necessary
reduction in catering, linked to measures to reduce the risk of
transmission of COVID-19 to customers and staff.
Landing fees and en-route charges were down EUR1,303 million on
2019, or 58.7 per cent. Costs reduced in line with the lower flying
programme, although there was some adverse impact from lost volume
rebates and equivalent arrangements, including at London Heathrow,
together with price increases from Eurocontrol.
Engineering and other aircraft costs reduced due to the
reduction in flights operated, together with the reduction in
Iberia's external MRO business and other savings in the wake of
COVID-19. Engineering and other aircraft costs were down EUR636
million, or 30.4 per cent; excluding the exceptional charge, due to
the write-down of inventory and provision for lease return costs,
Engineering and other aircraft costs were down EUR744 million, or
35.6 per cent.
Property, IT and other costs were down EUR29 million, or 3.6 per
cent, on 2019, including the final penalty notice issued by the UK
Information Commissioner's Office regarding the theft of customer
data at British Airways in 2018; excluding the cost of this final
penalty notice Property, IT and other costs were down EUR57 million
or 7.0 per cent. Cost savings associated with the lower volume of
IT transactions and reduced energy usage and rates were partly
offset by the costs associated with IT infrastructure investment.
The 2019 base included income from a settlement in respect of a
British Airways data centre issue in 2017.
Selling costs reduced with the significant drop in passenger
revenue and lower forward bookings, together with a reduction in
marketing and other discretionary expenditure in light of COVID-19.
Selling costs were EUR633 million lower than the previous year, or
61.0 per cent.
Ownership costs
Ownership costs include depreciation, amortisation and
impairment of tangible and intangible assets. The Group adopted
IFRS 16 'Leases' from January 1, 2019, meaning right of use assets
in respect of leases are included with the Balance sheet and
associated depreciation of those right of use assets is included
within depreciation.
Higher/ Higher/
(lower) (lower)
EUR million 2020 vly vly
================== ===== ======== ========
Ownership costs 1 2,955 844 40.0%
================== ===== ======== ========
1 Includes an exceptional charge of EUR856 million (2019: nil)
related to the impairment of fleet assets and other assets. Further
information is given in the Alternative Performance Measures
section.
The increase in ownership costs of EUR844 million, or 40.0 per
cent, is driven by the EUR856 million impairment charge in respect
of the retirement of the British Airways Boeing 747-400 and Iberia
Airbus A340-600 fleets, and related other assets, together with the
early stand down or lease return of 37 other aircraft. Excluding
these items, ownership costs would have been at a similar level to
2019.
Exchange rate impact
Exchange rate impacts are calculated by retranslating current
year results at prior year exchange rates. The reported revenues
and expenditures are impacted by the translation of currencies
other than euro to the Group's reporting currency of euro,
primarily British Airways and IAG Loyalty. From a transaction
perspective, the Group performance is impacted by the fluctuation
of exchange rates, primarily exposure to the pound sterling, euro
and US dollar. The Group typically generates a surplus in most
currencies in which it does business, except the US dollar, for
which capital expenditure, debt repayments and fuel purchases
typically create a deficit which is managed and partially hedged.
The Group hedges its economic exposure from transacting in foreign
currencies but does not hedge the translation impact of reporting
in euro.
Overall, in 2020 the Group operating loss before exceptional
items was increased by EUR5 million due to adverse exchange rate
impacts.
Exchange impact before exceptional items
2020
================================================ ===================================
Total
EUR million Translation Transaction exchange
Favourable/(adverse) impact impact impact
================================================ =========== =========== =========
Total exchange impact on revenue 84 33 117
Total exchange impact on operating expenditures (31) (91) (122)
================================================ =========== =========== =========
Total exchange impact on operating loss 53 (58) (5)
================================================ =========== =========== =========
2019
================================================ ===================================
Total
EUR million Translation Transaction exchange
Favourable/(adverse) impact impact impact
================================================ =========== =========== =========
Total exchange impact on revenue 68 325 393
Total exchange impact on operating expenditures (58) (268) (326)
================================================ =========== =========== =========
Total exchange impact on operating profit 10 57 67
================================================ =========== =========== =========
The exchange rates for the Group were as follows:
Higher/
(lower)
2020 2019 vly
================================================== ==== ==== ========
Translation - Balance sheet
GBP to EUR 1.10 1.18 (6.8%)
================================================== ==== ==== ========
Translation - Income statement (weighted average)
GBP to EUR 1.13 1.13 0.0%
================================================== ==== ==== ========
Transaction (weighted average)
GBP to EUR 1.13 1.13 0.0%
EUR to $ 1.13 1.12 0.9%
GBP to $ 1.27 1.27 0.0%
================================================== ==== ==== ========
Total net non operating costs
Total net non-operating costs for the year were EUR384 million,
versus EUR338 million in 2019. The main driver of the increase was
finance costs up EUR59 million (9.7 per cent), related to interest
on new debt and arrangement costs. In both years the finance costs
were partially offset by net currency retranslation credits, mainly
related to the retranslation of US dollar balances and related
derivate financial instruments.
Tax
The tax credit for the period was EUR887 million (2019: tax
charge of EUR560 million), with an effective tax rate (credit) for
the Group of 11 per cent (2019: 25 per cent charge). 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 2020 of 19 per cent, 25 per cent and
12.5 per cent respectively, which results in an expected effective
tax rate of 21 per cent. The difference between the expected
effective tax rate of 21 per cent and the actual effective tax rate
of 11 per cent was firstly due to not recognising tax credits in
respect of certain current and prior period losses and deductible
temporary differences; those losses and deductible temporary
differences relate principally to Iberia, Openskies and Vueling. In
addition, the UK Government retained its rate of corporation tax
rate at 19 per cent from April 1, 2020, in place of the reduction
to 17 per cent that had previously been enacted into law.
Operating profit and loss performance of operating companies
British Airways Aer Lingus Iberia Vueling
GBP million EUR million EUR million EUR million
================= ========================== =========================== ========================= ===========================
Post-exceptional Higher/ Higher/ Higher/ Higher/ Higher/ Higher/ Higher/ Higher/
items 1 2020 (lower) (lower) 2020 (lower) (lower) 2020 (lower) (lower) 2020 (lower) (lower)
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Passenger
revenue 2,840 (9,059) (76)% 379 (1,681) (82)% 1,160 (2,893) (71)% 569 (1,868) (77)%
Cargo revenue 890 179 25% 88 34 63% 240 (51) (18)% - - -
Other revenue 217 (463) (68)% - (11) - 859 (442) (34)% 5 (13) (72)%
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Total revenue 3,947 (9,343) (70)% 467 (1,658) (78)% 2,259 (3,386) (60)% 574 (1,881) (77)%
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Fuel, oil
costs and
emissions
charges 1,996 (1,241) (38)% 286 (174) (38)% 716 (486) (40)% 314 (234) (43)%
Employee
costs 1,916 (1,196) (38)% 217 (188) (46)% 798 (366) (31)% 196 (105) (35)%
Supplier
costs 2,440 (2,057) (46)% 370 (484) (57)% 1,544 (848) (35)% 594 (522) (47)%
Ownership
costs 2 1,475 369 33% 157 27 21% 612 222 57% 345 95 38%
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Operating
loss (3,880) (5,218) nm (563) (839) nm (1,411) (1,908) nm (875) (1,115) nm
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Operating (108.4) (133.4) (71.3) (162.1)
margin (98.3)% pts (120.4)% pts (62.5)% pts (152.3)% pts
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Alternative Performance Measures 1
==================================================================================================================================
Passenger
revenue 2,894 (9,005) (76)% 382 (1,678) (81)% 1,160 (2,893) (71)% 569 (1,868) (77)%
Cargo revenue 890 179 25% 88 34 63% 240 (51) (18)% - - -
Other revenue 217 (463) (68)% - (11) - 859 (442) (34)% 5 (13) (72)%
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Total revenue
before
exceptional
items 4,001 (9,289) (70)% 470 (1,655) (78)% 2,259 (3,386) (60)% 574 (1,881) (77)%
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Fuel, oil
costs and
emissions
charges 1,159 (2,078) (64)% 142 (318) (69)% 372 (830) (69)% 160 (388) (71)%
Employee
costs 1,695 (834) (33)% 193 (212) (52)% 784 (380) (33)% 196 (105) (35)%
Supplier
costs 2,398 (2,099) (47)% 363 (491) (57)% 1,492 (900) (38)% 564 (552) (49)%
Ownership
costs 2 1,076 (30) (3)% 133 3 2% 370 (20) (5)% 277 27 11%
----------------- ------- -------- ------- -------- -------- ------- ------- ------- ------- -------- -------- -------
Operating
loss before
exceptional
items (2,327) (4,248) nm (361) (637) nm (759) (1,256) nm (623) (863) nm
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
Operating
margin
before
exceptional (72.7) (89.8) (42.4) (118.3)
items (58.2)% pts (76.8)% pts (33.6)% pts (108.5)% pts
================= ======= ======== ======= ======== ======== ======= ======= ======= ======= ======== ======== =======
1 Further detail is provided in the Alternative Performance Measures section.
2 Ownership costs reflects Depreciation, amortisation and impairment.
Review by operating company
The results after exceptional items for each operating company
are shown previously, along with the Alternative Performance
Measures, which exclude exceptional items, as detailed in the
Alternative Performance Measures section.
The results for all operating companies were significantly
impacted by COVID-19 in 2020 and the main items driving the results
of the four main operating companies are therefore common, many of
which have been covered above. All four of the operating companies
saw significant reductions in passenger revenue and took measures
to reduce operating costs and preserve liquidity. British Airways,
Iberia and Aer Lingus benefited from additional cargo flights and
higher cargo yields, with both British Airways and Aer Lingus
generating higher cargo revenue than in 2019.
Employee costs fell due to the use of wage support or similar
schemes, particularly in the UK and Ireland, with temporary
redundancy programmes under the ERTE arrangement operating in
Spain. British Airways and Aer Lingus undertook restructuring
programmes during the year, with Iberia also making reductions in
management numbers and reductions outside of Spain.
The operating companies all operate similar hedging programmes,
under a centrally agreed Group policy, which resulted in
overhedging of jet fuel purchases and related currency
transactions. Excluding the impact of overhedging, fuel costs fell
in line with the capacity reductions, with a small benefit from the
efficiency of new-generation aircraft and a reduced effective price
net of hedging.
Supplier costs also fell significantly at each of the operating
companies, reflecting the impact of volume-related savings, linked
to the significantly lower flying programmes, together with the
negotiated cost-reduction initiatives and reductions in
discretionary expenditure.
Ownership costs were impacted by the impairment of aircraft and
related assets in each operating company, including the early
retirement of the Boeing 747-400 fleet at British Airways and the
Airbus A340-600 fleet at Iberia, together with other aircraft
permanently stood down pending disposal or return to lessors.
Operating margins are much less meaningful than in previous
years, given the significant impact of COVID-19, but are included
for completeness; each main operating company saw a substantial
operating loss in 2020, with cost reductions only able to mitigate
part of the fall in revenues.
Capital expenditure
In response to COVID-19, the Group has agreed to defer 68
aircraft scheduled for delivery over the period 2020 to 2022 and to
re-schedule certain pre-delivery payments to aircraft
manufacturers. In November 2019, as announced at the IAG Capital
Markets Day, it was anticipated capital expenditure would total
EUR14.2 billion for the period 2020 to 2022. With aircraft
deferrals and savings in other capital expenditure, linked to the
response to COVID-19, the Group now expects capital expenditure
over that period to be below EUR7 billion. Further deferrals are
under discussion with the aircraft manufacturers.
The Group did not enter into any new agreements to acquire
additional aircraft in 2020, either from aircraft manufacturers or
lessors.
In 2020 the Group took delivery of 34 aircraft, with 19 for
British Airways, eight for Iberia, three for Vueling and four for
Aer Lingus. As at December 31, 2020 one of these aircraft had yet
to enter service and is therefore not included in the 'in service'
fleet shown elsewhere in this report. The liquidity impact of the
aircraft deliveries in the year was cash-positive, as the value of
financing raised exceeded the final delivery payments made to the
aircraft manufacturers, due to pre-delivery payments for those
aircraft made in previous years, with total aircraft financing
proceeds in the year of EUR2.2 billion.
Aircraft deliveries 2020 2019
==================== ==== ====
Airbus A320 family 15 32
Airbus A330 2 3
Airbus A350 7 8
Boeing 777-300 4 -
Boeing 787-10 2 -
Embraer E190 4 2
==================== ==== ====
Total 34 45
==================== ==== ====
Capital expenditure for the year was reduced to EUR1.9 billion,
more than 50 per cent down on the EUR4.2 billion anticipated for
2020 in November 2019. Capital expenditure was also lower than the
revised projection of EUR2.7 billion for the year given in July
2020, mainly due to further aircraft delays, moving approximately
EUR0.5 billion of aircraft delivery payments and associated
financing into 2021.
Despite the reductions made to discretionary capital projects,
the Group maintained its programme of cyber-related
investments.
Capital commitments
Capital expenditure authorised and contracted for at December
31, 2020 amounted to EUR10,545 million (2019: EUR12,830 million).
Most of this commitment is denominated in US dollars and includes
commitments until 2027 for 121 aircraft including 64 aircraft from
the Airbus A320 family, 10 Boeing 787s, 18 Boeing 777s, one Airbus
A330, 26 Airbus A350s and two Embraer E190.
The Group has certain rights to cancel commitments in the event
of significant delays to aircraft deliveries caused by the aircraft
manufacturers. No such rights had been exercised as at December 31,
2020.
Aircraft future deliveries at December 31 2020 2019
========================================== ==== ====
Airbus A320 family 64 79
Airbus A330 1 1
Airbus A350 26 33
Boeing 777-300 - 4
Boeing 777-9 18 18
Boeing 787-10 10 12
Embraer E190 2 -
========================================== ==== ====
Total 121 147
========================================== ==== ====
Working capital and other initiatives
The Group negotiated deferrals to supplier payments and lease
payments. The Group rolled over fuel derivatives, monetised EU
Emissions Trading Scheme credits and foreign currency derivatives
that resulted in reduced cash outflow in 2020 of approximately
EUR625 million; deferrals to future years account for approximately
60 per cent of this amount, with the majority due in 2021. Relief
was given during the year in respect of the timing of VAT and other
payments to the UK's HMRC and to Eurocontrol for regulated
overlying charges, although both had reverted to normal terms by
the end of the year.
In quarter 3 a multi-year renewal was signed with American
Express, including an upfront payment of approximately EUR830
million (GBP754 million), with a significant amount being for the
pre-purchase of Avios.
Trade receivables were reduced significantly, falling from
EUR2,255 million (net of the provision for expected credit losses)
at December 31, 2019 to EUR557 million at the end of 2020. Part of
the reduction was due to the contraction in activity, with lower
passenger and other revenue yet to be received by the Group, but
the reduction was also achieved by ensuring outstanding amounts due
from customers and government agencies were paid.
Deferred revenue on ticket sales , which includes loyalty points
(Avios), fell EUR356 million to EUR5,130 million at December 31,
2020; EUR4,657 million is included in current liabilities and
EUR473 million within non-current liabilities, associated with the
renewal of the IAG Loyalty contract with American Express. The
value of loyalty points (Avios) issued and yet to be recognised in
revenue was up EUR0.8 billion versus 2019 at EUR2.7 billion,
reflecting the American Express contract renewal and associated
pre-payment, but sales in advance of carriage, related to passenger
ticket sales, were down EUR1.2 billion versus 2019 at EUR2.4
billion. The cash impact of cancelled flights was partially
mitigated by customers accepting vouchers for future travel in lieu
of a cash refund, with the outstanding value of vouchers as at
December 31, 2020 accounting for approximately half of the sales in
advance of carriage balance.
Due to COVID-19 British Airways was eligible for refund of tax
payments made to HMRC in 2019 and the Group was able to accelerate
receipt into 2020, rather than 2021. Together with refunds in
Ireland, the impact was to improve cash by approximately EUR175
million in 2020.
British Airways deferred monthly UK pension contributions that
would otherwise have been due in quarter 4, 2020 to the value of
EUR125 million, together with contributions of EUR375 million
relating to the first three quarters of 2021. These payments are
due to be added to the end of the schedule of deficit recovery
contributions, which currently ends in March 2023. British Airways
granted to the Trustee of NAPS security over certain property
assets in respect of these deferred payments. British Airways has
also agreed that it will not make dividend payments to IAG before
the end of 2023 and that from 2024 dividends will be matched by a
contribution to NAPS of 50 per cent of the dividend paid until the
deferred contributions have been paid.
Funding and debt
IAG's long-term objectives when managing capital are to
safeguard the Group's ability to continue as a going concern, to
maintain an optimal capital structure to reduce the cost of capital
and to provide sustainable returns to shareholders. In November
2018, S+P and Moody's assigned IAG with a long-term investment
grade credit rating with stable outlook. Ratings (as at February
25, 2021) are: S&P: BB (3 notch decline), Moody's: Ba2 (2 notch
decline), based on the status of COVID-19 and related travel
restrictions, together with the expected timing of the recovery of
global air traffic.
Debt and capital
The Group monitors leverage using net debt to EBITDA.
The Group has a target of net debt to EBITDA below 1.8
times.
In 2020, due to the significant impact of COVID-19, EBITDA
turned negative, rendering the net debt to EBITDA ratio much less
meaningful than in normal times; the calculation for 2020 results
in minus 4.3 times.
Net debt
Higher
EUR million 2020 2019 / (lower)
======================================================== ======= ======= ==========
Debt 14,254 12,704 1,550
Cash and cash equivalents and interest-bearing deposits (6,683) (6,274) (409)
======================================================== ======= ======= ==========
Net debt at January 1 7,571 6,430 1,141
======================================================== ======= ======= ==========
Decrease/(increase) in cash net of exchange 766 (409) 1,175
======================================================== ======= ======= ==========
Net cash outflow from repayments of borrowings and
lease liabilities (2,514) (2,237) (277)
Net cash inflow from new borrowings 3,567 2,286 1,281
Non-cash impact from new leases 1,179 1,199 (20)
======================================================== ======= ======= ==========
Increase in net debt from financing 2,232 1,248 984
======================================================== ======= ======= ==========
Exchange and other non-cash movements (807) 302 (1,109)
======================================================== ======= ======= ==========
Net debt at December 31 9,762 7,571 2,191
======================================================== ======= ======= ==========
Gross debt increased by EUR1,425 million, principally driven by
the non-aircraft debt raised by British Airways under the UK's CCFF
mechanism (EUR328 million), loans backed by Spain's ICO of EUR750
million for Iberia and EUR260 million for Vueling, together with
EUR75 million of debt backed by the Irish ISIF (see below). Cash
fell by EUR766 million, leading to net debt EUR2,191 million higher
at EUR9,762 million. Since the adoption of IFRS 16 from January 1,
2019 net debt includes leases for aircraft with financing
arrangements formerly accounted for as operating leases.
Cash and interest-bearing deposits
The 2020 cash balance in IAG and other Group companies includes
the balance of the proceeds from the capital increase retained in
IAG and the net proceeds of the American Express renewal payment in
IAG Loyalty.
Higher/
EUR million 2020 2019 (lower)
============================== ===== ===== ========
British Airways 1,389 3,055 (1,666)
Iberia 822 1,121 (299)
Aer Lingus 266 580 (314)
Vueling 590 820 (230)
IAG and other Group companies 2,850 1,107 1,743
============================== ===== ===== ========
Cash and deposits 5,917 6,683 (766)
============================== ===== ===== ========
Cash and interest-bearing deposits reduced by EUR766 million to
EUR5,917 million, with the significant impact of COVID-19 on
profitability offset by the mitigation measures taken by the Group,
including additional borrowing and the EUR2.7 billion capital
increase.
Debt
Despite some disruption to financial markets in respect of the
aviation sector, linked to the COVID-19 pandemic, the Group has
been able to continue to obtain efficient funding secured against
aircraft deliveries. In total 36 aircraft were financed in the
year, 4 of which were delivered in 2019, and with 13 involving sale
and leaseback transactions, a further 11 direct leases from lessors
and 12 on finance lease arrangements. Just two of the aircraft
delivered in 2020 had not been financed as at the end of the year,
although sale and leaseback transactions for these were agreed and
executed in February 2021.
Proceeds from sale and leaseback transactions continue to cover
substantially all of the Group's aircraft purchase price. An
Enhanced Equipment Trust Certificates (EETC) funding for $1,005
million (EUR823 million) was successfully issued and closed for
British Airways in November 2020, with $577 million (EUR472
million) drawn down in December in the form of finance leases, with
the remainder expected to be drawn in 2021, in line with aircraft
deliveries. The issuance comprised a dual-tranche structure
achieving a loan-to-value of 75 per cent against an independently
appraised value of the aircraft.
In addition to long-term regular aircraft financing, the Group
took steps to boost available liquidity through other lending and
facilities. Short-term aircraft-backed financing facilities for
British Airways ($750 million, or EUR667 million) and Iberia ($228
million, or EUR194 million) were secured in the second quarter.
These facilities were fully drawn during the year but had been
repaid in full by the end of the year, due to the Group's success
in securing more efficient long-term financing.
The Group agreed new non-aircraft debt for each of its main
operating companies. In March, British Airways completed its
inaugural commercial paper issuance raising net proceeds of EUR328
million (GBP298 million) using the UK's Coronavirus Corporate
Finance Facility (CCFF) with a maturity of 12 months. In April,
Iberia and Vueling entered into floating rate syndicated financing
agreements for EUR750 million and EUR260 million respectively, with
the funds received in May. These loans are secured by a guarantee
of 70 per cent of the amount borrowed from the Instituto de Crédito
Oficial ('ICO') in Spain. There is no amortisation for the first
three years and the loans mature in 2025; the loans do not include
financial covenants but place some restrictions on the transfer of
cash to the rest of the IAG companies. In December, the Irish
Strategic Investment Fund (ISIF) approved a EUR150 million facility
for Aer Lingus with EUR75 million drawn down as a loan as at
December 31, 2020; this loan also has restrictions regarding
transfers of cash, from Aer Lingus to IAG and other Group
companies. At the end of 2020 British Airways announced that it had
received commitments for a 5-year Export Development Guaranteed
term loan for GBP2.0 billion underwritten by a syndicate of banks,
partially guaranteed (80 per cent) by UK Export Finance (UKEF) and
containing some non-financial covenants, including restrictions on
cash transfers to IAG. The facility was fully drawn down as a loan
in February 2021.
The debt actions above resulted in total 'Proceeds from
borrowings' for the year of EUR3,567 million. This includes the
drawing down of the short-term aircraft financing facilities above,
with the repayment of those facilities during the year shown in
'Repayments of borrowings and lease liabilities'.
Equity
During quarter 3 the Group launched a capital increase by rights
issue, which was fully subscribed, with the Group's largest
shareholder, Qatar Airways Group subscribing for its pro rated
entitlement in full. The capital increase was successfully
completed at the start of quarter 4, with gross proceeds of EUR2.7
billion received in October. As at December 31, 2020 none of the
proceeds from the EUR2.7 billion capital increase had been
allocated permanently to any of the Group's operating companies.
British Airways received a loan from IAG of EUR1,645 million and
Aer Lingus a loan of EUR50 million.
Liquidity facilities
In March, British Airways' revolving credit facility (RCF) was
extended to June 2021, with a committed amount of $1.38 billion.
The Group has secured other credit facilities during the year. At
the end of the year committed general credit facilities, including
the undrawn amount of the British Airways RCF, were EUR0.9 billion.
In addition, the Group had committed aircraft financing facilities
of EUR1.2 billion, which provide guaranteed financing against
certain future aircraft deliveries, including the committed
proceeds still to be drawn as part of the British Airways EETC
issued in November 2020. In total, the Group had EUR2.1 billion of
committed and undrawn general and aircraft facilities as at
December 31, 2020.
Dividends
As a result of the impact of COVID-19, on April 2, 2020, the
Board of Directors of the Group resolved to withdraw the proposal
to the subsequent Shareholders' Meeting to pay a final dividend for
2019 of 17 EUR cents per share, which would have resulted in a
total payment of EUR337 million.
Liquidity and cashflow
Total liquidity, measured as cash and interest-bearing deposits
of EUR5,917 million and committed and undrawn general and aircraft
facilities of EUR2,142 million, was EUR8,059 million at December
31, 2020. Including the EUR2.2 billion UKEF debt agreed in December
2020 results in pro forma liquidity of EUR10.3 billion.
Cash flow
EUR million 2020 2019 Movement
=========================================================== ======= ======= ========
Operating (loss)/profit (7,426) 2,613 (10,039)
Depreciation, amortisation and impairment 2,955 2,111 844
Movement in working capital 1,227 (70) 1,297
Payment related to restructuring (383) (180) (203)
Pension contributions net of service costs (313) (865) 552
Provisions and other non-cash movements 556 951 (395)
Unrealised loss on discontinuance of fuel and foreign
exchange hedge accounting 569 - 569
Interest paid (548) (481) (67)
Interest received 22 42 (20)
Tax received/(paid) 45 (119) 164
=========================================================== ======= ======= ========
Net cash (outflows)/inflows from operating activities (3,296) 4,002 (7,298)
=========================================================== ======= ======= ========
Acquisition of PPE and intangible assets (1,939) (3,465) 1,526
Sale of PPE and intangible assets 1,133 911 222
Decrease/(increase) in current interest-bearing deposits 2,366 (103) 2,469
Other investing movements 2 (1) 3
=========================================================== ======= ======= ========
Net cash flows from investing activities 1,562 (2,658) 4,220
=========================================================== ======= ======= ========
Proceeds from borrowings 3,567 2,286 1,281
Repayments of borrowings (978) (730) (248)
Repayment of lease liabilities (1,536) (1,507) (29)
Dividend paid (53) (1,308) 1,255
Proceeds from rights issue 2,674 - 2,674
=========================================================== ======= ======= ========
Net cash flows from financing activities 3,674 (1,259) 4,933
=========================================================== ======= ======= ========
Net increase in cash and cash equivalents 1,940 85 1,855
Net foreign exchange differences (228) 140 (368)
Cash and cash equivalents at January 1 4,062 3,837 225
=========================================================== ======= ======= ========
Cash and cash equivalents at year end 5,774 4,062 1,712
=========================================================== ======= ======= ========
Interest-bearing deposits maturing after more than
three months 143 2,621 (2,478)
=========================================================== ======= ======= ========
Cash, cash equivalents and interest-bearing deposits 5,917 6,683 (766)
=========================================================== ======= ======= ========
Many of the significant cashflow items are already explained
above, including in the sections on operating costs (fuel), capital
expenditure, working capital and other initiatives and funding.
Restructuring payments include payments in Spain relating to
redundancy programmes agreed in prior years, together with the cash
paid in 2020 relating to the exceptional restructuring charge of
EUR313 million (see Alternative Performance Measures section).
Pension payments in 2019 included an additional one-off payment
of GBP250 million (EUR283 million) to the British Airways NAPS
fund; 2020 benefited from the deferral of deficit contributions in
quarter 4.
Of the exceptional charges for discontinuance of hedge
accounting in respect of passenger revenue of EUR62 million and
fuel, oil and emissions costs of EUR1,694 million in 2020, EUR1,187
million had been paid, leaving EUR569 million to be paid in future
years, with the majority due in 2021.
Sale of property, plant and equipment and intangibles, in
addition to the aircraft 13 sale and leaseback transactions
discussed under 'Funding' above, includes the disposal of surplus
engines and other equipment and property at London Heathrow.
Repayments of borrowings and lease liabilities includes the
principal element of ongoing lease payments, together with
short-term aircraft financing of EUR833 million, which was drawn
and fully repaid during the year. There are no IAG bond payments
falling due in 2021; based on the share price at December 31, 2020,
the remaining EUR500 million IAG convertible bond will be due for
repayment in November 2022.
The EUR53 million of cash outflow for dividends relates to the
Spanish withholding tax in respect of the 2019 interim dividend, as
the dividend was paid to shareholders in December 2019 and the
related withholding tax was paid to the Spanish tax authorities in
January 2020.
Strategic framework
IAG's vision is to be the leading international airline
group.
This means we strive to:
-- Win the customer through service and value across our global network;
-- Deliver higher returns to our shareholders through leveraging
cost and revenue opportunities across the Group;
-- Attract and develop the best people in the industry;
-- Provide a platform for quality international airlines,
leaders in their markets, to participate in consolidation;
-- Retain the distinct cultures and brands of our individual airlines; and
-- Lead the industry in sustainability.
By driving toward our vision, IAG will help to shape the future
of the industry and set standards of excellence, with a view to
maximising sustainable value creation for our shareholders and
customers..
IAG's strategic priorities are as follows:
-- Strengthening a portfolio of world-class brands and operations;
-- Growing global leadership positions; and
-- Enhancing the common integrated platform.
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 62 to 69 of
the 2019 Annual Report and Accounts, remain relevant and included
the risk of pandemic within "Event causing significant network
disruption".
This year, in response to the pandemic crisis, the risk
management framework has further evolved to develop the Group's
assessment of the interdependencies of risks; built on scenario
planning to quantify impacts under different assumptions; and
considers the risks that have increased either as a result of the
external environment or as a result of decisions made by the
business in response to the external environment. The process
adopted this year has helped the Board and management to respond
quickly to the rapidly changing environment, enabling clear
understanding and identification of emerging risks arising from the
impact of the pandemic. No new principal risks were identified
through the risk management assessment discussions across the
business, although the severity or likelihood of occurrence of
certain risks has increased as a result of the pandemic and its
consequences.
Where additional mitigating actions have been identified they
have been implemented and embedded to minimise the continued impact
to the Group and protect its businesses and people. These actions
have been discussed with the Board through regular updates and
include frequent and ongoing consideration of potential scenarios,
outlining the impact of further stress on the Group driven by the
wider political and economic environment and local government
responses to the pandemic.
From the risks identified in the 2019 Annual Report and
Accounts, the main risks impacted by the COVID-19 pandemic are
highlighted below, with business responses implemented by
management and reflected in the Group's latest business plan and
scenarios.
-- Airports, infrastructure and critical third parties.
Restrictions at hubs and airports have required ongoing capacity
adjustments, including fleet adjustments, operational flexibility
and new operating procedures. The Group has pro-actively worked
with suppliers to ensure operations are maintained and the impact
to their businesses understood, with mitigations implemented where
necessary.
-- Competition, consolidation and government regulation. The
scale of governmental support and aviation specific state-aid
measures have varied in different countries and the potential
impact to the competitive landscape is under continuous assessment.
Governmental restrictions continue to be fragmented and volatile
and have required significant agility within our networks to manage
the impact on our customers and business. The Group has
restructured its businesses and operations to meet the challenge of
the current environment.
-- Cyber attack and data security. The Group has continued with
its planned investment in cyber security and has taken steps to
mitigate IT and other risks as a result of remote working. The IAG
Chief Information Security Office supports the Group businesses
providing assurance and expertise around strategy, policy, training
and information security operations for the Group. Threat
Intelligence is used to analyse cyber risks to the Group.
-- Event causing operational disruption. The COVID-19 pandemic
is likely to continue to have an adverse effect on the Group, as
would any future pandemic outbreak or other material event that
results in the imposition of governments' restrictions on travel
and the movement of people. Disruptive events impact the Group
airlines' customers and can have an adverse effect on the Group's
brands. The Group is focussed on operational and financial
resilience and customer and colleague safety and recovery.
-- IT systems and IT infrastructure. The dependency on IT
systems for key business and customer processes is high. The
transformational change at pace required by the Group's airlines
may result in disruption to operations as the legacy IT environment
is addressed.
-- People, culture and employee relations. Additional safety
procedures have been introduced to protect the Group's staff and
customers, in line with industry recommendations. Where possible,
the Group's staff worked from home and in line with governments'
recommendations. The resilience and engagement of the Group's
people and leaders has been critical through the pandemic period to
ensuring the Group is best positioned to resume operations and
adapt as needed to the uncertain external environment. As the Group
rapidly transforms all its operations to adjust for the new
environment, the engagement and support of the Group's employees is
going to be a critical enabler. Employee consultations have been
undertaken as required and appropriate in relation to restructuring
necessitated by COVID-19.
-- Political and economic environment. National governments are
imposing a range of travel and quarantine restrictions, which will
continue to impact Group operations. These are being actively
monitored and near-term capacity plans are refreshed dynamically,
according to the latest status. If the economic impact of COVID-19
continues, the Group will adjust its future capacity plans
accordingly, retaining flexibility to adapt as required.
-- Debt funding and financial risk. Despite disruption in the
financial markets since the spread of the pandemic, the Group has
focused on protecting liquidity by renewing and extending credit
facilities and agreeing new aircraft leases, together with agreeing
additional one-year funding facilities in advance of an improvement
in market conditions. Aircraft were successfully financed on
long-term arrangements during the year and the additional one-year
facilities were repaid. The Group also raised additional equity,
with net proceeds of EUR2.7 billion received in early October. On
22nd February 2021, British Airways announced that it had finalised
the agreement for a 5-year Export Development Guaranteed term loan
for GBP2.0 billion underwritten by a syndicate of banks,
substantially guaranteed (80 per cent) by UK Export Finance
(UKEF).
The Board and its sub committees have been appraised of
regulatory, competitor and governmental responses on an ongoing
basis.
International Consolidated Airlines Group S.A.
Unaudited full year Consolidated Financial Statements
January 1, 2020 - December 31, 2020
CONSOLIDATED INCOME STATEMENT
Year to December
31
==================
EUR million Note 2020 2019(1)
================================================= ==== ======== ========
Passenger revenue 5,512 22,468
Cargo revenue 1,306 1,117
Other revenue 988 1,921
================================================= ==== ======== ========
Total revenue 4 7,806 25,506
================================================= ==== ======== ========
Employee costs 7 3,560 5,634
Fuel, oil costs and emissions charges 3,735 6,021
Handling, catering and other operating costs 1,340 2,972
Landing fees and en-route charges 918 2,221
Engineering and other aircraft costs 1,456 2,092
Property, IT and other costs 782 811
Selling costs 405 1,038
Depreciation, amortisation and impairment 5 2,955 2,111
Currency differences 81 (7)
================================================= ==== ======== ========
Total expenditure on operations 15,232 22,893
================================================= ==== ======== ========
Operating (loss)/profit (7,426) 2,613
Finance costs 8 (670) (611)
Finance income 8 41 50
Net financing credit relating to pensions 8 4 26
Net currency retranslation credits 245 201
Other non-operating charges 8 (4) (4)
================================================= ==== ======== ========
Total net non-operating costs (384) (338)
================================================= ==== ======== ========
(Loss)/profit before tax (7,810) 2,275
Tax 9 887 (560)
================================================= ==== ======== ========
(Loss)/profit after tax for the year (6,923) 1,715
================================================= ==== ======== ========
Attributable to:
Equity holders of the parent (6,923) 1,715
Non-controlling interest - -
================================================= ==== ======== ========
(6,923) 1,715
================================================= ==== ======== ========
Basic (loss)/earnings per share (EUR cents)(2) 10 (196.2) 56.1
================================================= ==== ======== ========
Diluted (loss)/earnings per share (EUR cents)(2) 10 (196.2) 55.5
================================================= ==== ======== ========
1 In 2020 the Group has presented the Income statement using a
single column approach whereas in prior years the Group presented
the Income statement using a three-column approach. The 2019
comparative figures have also been re-presented. Further
information is given in the basis of preparation in note 2.
2 The earnings per share information for 2019 has been restated
to reflect the impact of the rights issue. Further information is
given in note 10.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Year to December
31
==================
EUR million Note 2020 2019
====================================================== ==== ========== ======
Items that may be reclassified subsequently to net
profit
Cash flow hedges:
Fair value movements in equity (2,171) 610
Reclassified and reported in net profit 1,871 141
Fair value movements on cost of hedging (16) 36
Cost of hedging reclassified and reported in net
profit (19) (10)
Currency translation differences 29 (192) 296
Items that will not be reclassified to net profit
Fair value movements on other equity investments (53) (8)
Fair value movements on cash flow hedges (45) (70)
Fair value movements on cost of hedging 26 32
Remeasurements of post-employment benefit obligations (632) (788)
====================================================== ==== ========== ======
Total other comprehensive (loss)/income for the year,
net of tax (1,231) 239
====================================================== ==== ========== ======
(Loss)/profit after tax for the year (6,923) 1,715
Total comprehensive (loss)/income for the year (8,154) 1,954
====================================================== ==== ========== ======
Total comprehensive (loss)/income is attributable
to:
Equity holders of the parent (8,154) 1,954
Non-controlling interest 29 - -
====================================================== ==== ========== ======
(8,154) 1,954
====================================================== ==== ========== ======
Items in the consolidated Statement of other comprehensive
income above are disclosed net of tax.
CONSOLIDATED BALANCE SHEET
December December
31, 31,
EUR million Note 2020 2019(1)
================================================== ==== ======== ========
Non-current assets
Property, plant and equipment 12 17,531 19,168
Intangible assets 15 3,208 3,442
Investments accounted for using the equity method 16 29 31
Other equity investments 17 29 82
Employee benefit assets 30 282 314
Derivative financial instruments 26 42 268
Deferred tax assets 9 1,075 546
Other non-current assets 18 228 273
================================================== ==== ======== ========
22,424 24,124
================================================== ==== ======== ========
Current assets
Inventories 351 565
Trade receivables 18 557 2,255
Other current assets 18 792 1,314
Current tax receivable 9 101 186
Derivative financial instruments 26 122 324
Current interest-bearing deposits 19 143 2,621
Cash and cash equivalents 19 5,774 4,062
================================================== ==== ======== ========
7,840 11,327
================================================== ==== ======== ========
Total assets 30,264 35,451
================================================== ==== ======== ========
Shareholders' equity
Issued share capital 27 497 996
Share premium 27 7,770 5,327
Treasury shares (40) (60)
Other reserves (6,917) 560
================================================== ==== ======== ========
Total shareholders' equity 1,310 6,823
================================================== ==== ======== ========
Non-controlling interest 29 6 6
================================================== ==== ======== ========
Total equity 1,316 6,829
================================================== ==== ======== ========
Non-current liabilities
Borrowings 23 13,464 12,411
Employee benefit obligations 30 719 400
Deferred tax liability 9 40 290
Provisions 24 2,286 2,416
Deferred revenue on ticket sales 21 473 -
Derivative financial instruments 26 310 286
Other long-term liabilities 22 140 71
================================================== ==== ======== ========
17,432 15,874
================================================== ==== ======== ========
Current liabilities
Borrowings 23 2,215 1,843
Trade and other payables 20 2,810 4,344
Deferred revenue on ticket sales 21 4,657 5,486
Derivative financial instruments 26 1,160 252
Current tax payable 9 48 192
Provisions 24 626 631
================================================== ==== ======== ========
11,516 12,748
================================================== ==== ======== ========
Total liabilities 28,948 28,622
================================================== ==== ======== ========
Total equity and liabilities 30,264 35,451
================================================== ==== ======== ========
1 The 2019 Balance sheet includes a reclassification in the
presentation of assets and liabilities for employee benefits and
deferred tax. Refer to note 2 for further information.
CONSOLIDATED CASH FLOW STATEMENT
Year to December
31
==================
EUR million Note 2020 2019
========================================================= ==== ======== ========
Cash flows from operating activities
Operating (loss)/profit (7,426) 2,613
Depreciation, amortisation and impairment 5 2,955 2,111
Movement in working capital 1,227 (70)
Decrease/(increase) in trade receivables, inventories
and other current assets 2,347 (935)
(Decrease)/increase in trade and other payables and
deferred revenue on ticket sales (1,120) 865
Payments related to restructuring 24 (383) (180)
Employer contributions to pension schemes (318) (870)
Pension scheme service costs 30 5 5
Provisions and other non-cash movements 556 951
Unrealised loss on discontinuance of fuel and foreign
exchange hedge accounting 569 -
Interest paid (548) (481)
Interest received 22 42
Tax received/(paid) 45 (119)
========================================================= ==== ======== ========
Net cash (outflows)/inflows from operating activities (3,296) 4,002
========================================================= ==== ======== ========
Cash flows from investing activities
Acquisition of property, plant and equipment and
intangible assets (1,939) (3,465)
Sale of property, plant and equipment and intangible
assets 1,133 911
Decrease/(increase) in current interest-bearing deposits 2,366 (103)
Other investing movements 2 (1)
========================================================= ==== ======== ========
Net cash inflows/(outflows) from investing activities 1,562 (2,658)
========================================================= ==== ======== ========
Cash flows from financing activities
Proceeds from borrowings 3,567 2,286
Repayment of borrowings (978) (730)
Repayment of lease liabilities (1,536) (1,507)
Dividend paid 11 (53) (1,308)
Proceeds from rights issue 2,674 -
========================================================= ==== ======== ========
Net cash inflows/(outflows) from financing activities 3,674 (1,259)
========================================================= ==== ======== ========
Net increase in cash and cash equivalents 1,940 85
Net foreign exchange differences (228) 140
Cash and cash equivalents at 1 January 4,062 3,837
========================================================= ==== ======== ========
Cash and cash equivalents at year end 19 5,774 4,062
========================================================= ==== ======== ========
Interest-bearing deposits maturing after more than
three months 19 143 2,621
========================================================= ==== ======== ========
Cash, cash equivalents and interest-bearing deposits 19 5,917 6,683
========================================================= ==== ======== ========
For details on restricted cash balances refer to note 19 Cash,
cash equivalents and current interest-bearing deposits .
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2020
Issued
share Share Treasury Other Non-controlling
capital premium shares reserves Total interest
(note (note (note (note Retained shareholders' (note Total
EUR million 27) 27) 27) 29) earnings equity 29) equity
======================== ======== ======== ======== ========= ========= ============== =============== =======
January 1, 2020 996 5,327 (60) (2,579) 3,139 6,823 6 6,829
Loss for the year - - - - (6,923) (6,923) - (6,923)
Other comprehensive loss
for the year
Cash flow hedges
reclassified
and reported in net
profit:
Passenger revenue - - - 50 - 50 - 50
Fuel and oil costs - - - 356 - 356 - 356
Currency differences - - - 18 - 18 - 18
Finance costs - - - 12 - 12 - 12
Discontinuance of
hedge
accounting - - - 1,435 - 1,435 - 1,435
Net change in fair value
of cash flow hedges - - - (2,216) - (2,216) - (2,216)
Net change in fair value
of equity investments - - - (53) - (53) - (53)
Net change in fair value
of cost of hedging - - - 10 - 10 - 10
Cost of hedging
reclassified
and reported in the net
profit - - - (19) - (19) - (19)
Currency translation
differences - - - (192) - (192) - (192)
Remeasurements of
post-employment
benefit obligations - - - - (632) (632) - (632)
======================== ======== ======== ======== ========= ========= ============== =============== =======
Total comprehensive loss
for the year - - - (599) (7,555) (8,154) - (8,154)
======================== ======== ======== ======== ========= ========= ============== =============== =======
Hedges reclassified and
reported in property,
plant
and equipment - - - (18) - (18) - (18)
Cost of share-based
payments - - - - (10) (10) - (10)
Vesting of share-based
payment
schemes - - 20 - (22) (2) - (2)
Share capital reduction (797) - - 797 - - - -
Rights issue 298 2,443 - - (70) 2,671 - 2,671
======================== ======== ======== ======== ========= ========= ============== =============== =======
December 31, 2020 497 7,770 (40) (2,399) (4,518) 1,310 6 1,316
======================== ======== ======== ======== ========= ========= ============== =============== =======
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2019
Issued
share Share Treasury Other Non-controlling
capital premium shares reserves Total interest
(note (note (note (note Retained shareholders' (note Total
EUR million 27) 27) 27) 29) earnings equity 29) equity
======================== ======== ======== ======== ========= ========= ============== =============== =======
January 1, 2019 996 6,022 (68) (3,556) 2,770 6,164 6 6,170
Profit for the year - - - - 1,715 1,715 - 1,715
Other comprehensive
income
for the year
Cash flow hedges
reclassified
and reported in net
profit:
Passenger revenue - - - 55 - 55 - 55
Fuel and oil costs - - - 106 - 106 - 106
Currency differences - - - (26) - (26) - (26)
Finance costs - - - 6 - 6 - 6
Net change in fair value
of cash flow hedges - - - 540 - 540 - 540
Net change in fair value
of equity investments - - - (8) - (8) - (8)
Net change in fair value
of cost of hedging - - - 68 - 68 - 68
Cost of hedging
reclassified
and reported in net
profit - - - (10) - (10) - (10)
Currency translation
differences - - - 296 - 296 - 296
Remeasurements of
post-employment
benefit obligations - - - - (788) (788) - (788)
======================== ======== ======== ======== ========= ========= ============== =============== =======
Total comprehensive
income
for the year - - - 1,027 927 1,954 - 1,954
======================== ======== ======== ======== ========= ========= ============== =============== =======
Hedges reclassified and
reported in property,
plant
and equipment - - - (11) - (11) - (11)
Cost of share-based
payments - - - - 33 33 - 33
Vesting of share-based
payment
schemes - - 8 - (14) (6) - (6)
Dividend - (695) - - (615) (1,310) - (1,310)
Redemption of
convertible
bond - - - (39) 38 (1) - (1)
======================== ======== ======== ======== ========= ========= ============== =============== =======
December 31, 2019 996 5,327 (60) (2,579) 3,139 6,823 6 6,829
======================== ======== ======== ======== ========= ========= ============== =============== =======
NOTES TO THE ACCOUNTS
For the year to December 31, 2020
1 B ackground and general information
International Consolidated Airlines Group S.A. (hereinafter
'International Airlines Group', 'IAG' or the 'Group') is a leading
European airline group, formed to hold the interests of airline and
ancillary operations. IAG is a Spanish company registered in Madrid
and was incorporated on December 17, 2009. On January 21, 2011
British Airways Plc and Iberia Líneas Aéreas de España S.A.
Operadora (hereinafter 'British Airways' and 'Iberia' respectively)
completed a merger transaction becoming the first two airlines of
the Group. Vueling Airlines S.A. ('Vueling') was acquired on April
26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18,
2015. A list of the subsidiaries of the Group is included in the
Group investments section.
IAG shares are traded on the London Stock Exchange's main market
for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'),
through the Spanish Stock Exchanges Interconnection System (Mercado
Continuo Español).
2 Significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by
the EU). The consolidated financial statements herein are not the
Group's statutory accounts and are unaudited. The consolidated
financial statements are rounded to the nearest million unless
otherwise stated. These financial statements have been prepared on
a historical cost convention except for certain financial assets
and liabilities, including derivative financial instruments and
other equity investments that are measured at fair value. The
carrying value of recognised assets and liabilities that are
subject to fair value hedges are adjusted to record changes in the
fair values attributable to the risks that are being hedged. The
financial statements for the prior year include reclassifications
that were made to conform to the current year presentation.
The Group's financial statements for the year to December 31,
2020 were authorised for issue, and approved by the Board of
Directors on February 25, 2021.
Reclassification
Deferred tax assets arising on the restriction of surpluses to
reflect minimum funding requirements of the British Airways Airways
Pension Scheme (APS) and New Airways Pension Scheme (NAPS) defined
benefit schemes, previously recognised within Employee benefit
assets in the Balance sheet at December 31, 2019, have been
reclassified to be presented net within Deferred tax liabilities at
both December 31, 2019 and January 1, 2019 to conform to the
current period presentation. The reclassification had the effect of
reducing Deferred tax liabilities, reducing the Employee benefit
assets and increasing the Employee benefit obligations at both
balance sheet dates.
There is no impact to Profit after tax for the year, Other
comprehensive income for the year, Net assets or the Statement of
changes in equity in any year presented. The following table
summarises the impact of the reclassification on the Consolidated
balance sheet line items at December 31, 2019 and January 1,
2019:
Consolidated balance sheet (at December 31, 2019)
Previously
EUR million reported Reclassification Adjusted
============================= ========== ================ ========
Non-current assets
Employee benefit assets 524 (210) 314
Non-current liabilities
Employee benefit obligations 328 72 400
Deferred tax liability 572 (282) 290
============================= ========== ================ ========
Consolidated balance sheet (at January 1, 2019)
Previously
EUR million reported Reclassification Adjusted
============================= ========== ================ ========
Non-current assets
Employee benefit assets 1,129 (365) 764
Deferred tax assets 536 131 667
Non-current liabilities
Employee benefit obligations 289 138 427
Deferred tax liability 453 (372) 81
============================= ========== ================ ========
Presentation of results
Following consideration of regulatory publications, the Group
has re-presented its results in the Income statement from using a
three-column approach to a single column approach. The comparative
figures have also been re-presented. The impact of exceptional
items on the performance of the Group is detailed in the
Alternative performance measures section.
Going concern
The economic uncertainty of the COVID-19 pandemic and the
fragmented and varied responses from governments have had a
significant impact on the Group's results and cash flows. At
December 31, 2020, the Group had cash and interest-bearing deposits
of EUR5.9 billion, EUR0.9 billion of committed and undrawn general
facilities and a further EUR1.2 billion of committed and undrawn
aircraft specific facilities. Liquidity has been enhanced through
to the date of this report by a further EUR2.2 billion arising from
the Group finalising the terms of a UK Export Credit Facility.
The reduction in liquidity during 2020 was partially mitigated
by, amongst other actions, accessing Spain's Instituto de Crédito
Oficial (ICO) facility, the UK's Coronavirus Corporate Finance
Facility (CCFF) and Ireland's Strategy Investment Fund (ISIF).
These actions raised an additional EUR1.4 billion, of which EUR0.3
billion matures within 12 months from the date of this report. The
Group's facilities have limited financial covenants, but there are
a number of non-financial covenants to protect the position of the
banks, including restrictions on the upstreaming of cash to IAG or
lending to other Group companies.
Despite the uncertainty of the COVID-19 pandemic, the Group has
continued to successfully secure financing arrangements for all
aircraft delivered in 2020. This includes the one-year
aircraft-backed financing facilities for old and new aircraft which
were secured in the second quarter of 2020 and subsequently repaid
prior to year-end and the aircraft-specific facility achieved as
part of the Enhanced Equipment Trust Certificate (EETC) financing
structure. In total the Group raised proceeds of EUR2.2 billion
through aircraft specific financing.
In its assessment of going concern over the period to March 31,
2022 (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 2020, was subsequently refreshed with the latest
available internal and external information in February 2021. This
refreshed Business plan supports the Base Case, which takes into
account the Board's and management's views on the anticipated
impact and recovery from the COVID-19 pandemic on the Group across
the going concern period. The key inputs and assumptions underlying
the Base Case include:
-- As part of the recovery, the Group has assumed a gradual
easing of travel restrictions, by geographical region, based on
deployment of vaccines during the year. Travel corridors between
countries are assumed to be introduced from quarter 3 2021, first
in Europe then North America, with other regions following in the
first half of 2022;
-- Capacity recovery modelled by geographical region (and in
certain regions, by key destinations) with capacity gradually
increasing from a reduction of 79 per cent in quarter 1 2021
(compared to the equivalent period in 2019) to 18 per cent in
quarter 1 2022 (again compared to quarter 1 2019), with the average
over the going concern period being 43 per cent down;
-- Passenger unit revenue per ASK, although forecast to continue
recovering, is expected to still remain below levels of 2019 by the
end of the going concern period, which is based on, amongst other
assumptions, a greater weighting of shorthaul versus longhaul,
leisure versus business and economy versus premium compared to
2019. Specifically, the Group's expectation is that traffic related
to domestic and leisure will recover faster than longhaul and
business;
-- The Group has assumed that the committed and undrawn general
facilities of EUR0.9 billion will not be drawn over the going
concern period. The availability of certain of these facilities
reduces over time, with EUR0.1 billion being available to the Group
at the end of the going concern period;
-- The Group has assumed that of the committed and undrawn
aircraft specific facilities of EUR1.2 billion, EUR0.4 billion will
be drawn to fund specific aircraft scheduled for delivery during
2021 and of the remaining EUR0.8 billion, EUR0.3 billion would be
available to be drawn over the going concern period if required;
and
-- Of the capital commitments detailed in note 14, EUR1.6
billion is due to be paid over the going concern period and the
Group has forecast securing 80 per cent, or EUR1.0 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 below the level of financing the Group
has been able to achieve recently, including over the course of the
COVID-19 pandemic to date.
The Downside Case applies further stress to the Base Case to
model a more prolonged downturn, with a more gradual recovery
relative to the Base Case. The Downside Case is representative of a
slower roll out of the vaccination programme on a regional basis,
with travel restrictions remaining in place and the gradual
recovery of capacity being delayed longer than in the Base Case.
The Downside Case also models a more acute impact on the longhaul
sector, with the domestic sector and European shorthaul sectors
recovering faster than longhaul. The result of which is that the
levels of capacity assumed under the Base Case for the third
quarter of 2021 are not achieved under the Downside Case until the
first quarter of 2022. In the Downside Case, over the going concern
period capacity would be 60 per cent down on 2019. 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, including mitigating actions to reduce
operating and capital expenditure. 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.
Furthermore, to add resilience to the liquidity position of the
Group, the Directors are actively pursuing a range of financing
options, including the renegotiation of existing financing
arrangements and securing additional long term financial
facilities, but these have not been included in the Base or
Downside Cases.
Having reviewed the Base Case, Downside Case and additional
sensitivities, the Directors have a reasonable expectation that the
Group has sufficient liquidity to continue in operational existence
for the foreseeable future and hence continue to adopt the going
concern basis in preparing the financial statements.
However, due to the uncertainty created by COVID-19, there are a
number of significant factors that are outside of the control of
the Group, including: the status and impact of the pandemic
worldwide; the emergence of new variants of the virus and potential
resurgence of existing strains of the virus; the availability of
vaccines worldwide, together with the speed at which they are
deployed; the efficacy of those vaccines; and the restrictions
imposed by national governments in respect of the freedom of
movement and travel. The Group, therefore, is not able to provide
certainty that there could not be a more severe downside scenario
than those it has considered, including the sensitivities in
relation to the timing of recovery from the COVID-19 pandemic,
capacity operated, impact on yield, cost mitigations achieved and
the availability of aircraft financing to offset capital
expenditure. In the event that a more severe scenario were to
occur, the Group will need to secure sufficient additional funding.
As set out above, sources of additional funding are expected to
include the renegotiation of existing financing arrangements and
securing additional long term financial facilities. However, the
Group's ability to obtain this additional funding in the event of a
more severe downside scenario represents a material uncertainty at
February 25, 2021 that could cast significant doubt upon the
Group's ability to continue as a going concern.
The financial statements do not include the adjustments that
would result if the Group was unable to continue as a going
concern.
Consolidation
The Group financial statements include the financial statements
of the Company and its subsidiaries, each made up to December 31,
together with the attributable share of results and reserves of
associates and joint ventures, adjusted where appropriate to
conform to the Group's accounting policies.
Subsidiaries are consolidated from the date of their
acquisition, which is the date on which the Group obtains control
and continue to be consolidated until the date that such control
ceases. Control exists when the Group is exposed to, or has rights
to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power over the
entity.
The Group applies the acquisition method to account for business
combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity
interests issued by the Group. Identifiable assets acquired and
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Non-controlling interests represent the portion of profit or loss
and net assets in subsidiaries that are not held by the Group and
are presented separately within equity in the consolidated Balance
sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the
acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of
the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities
assumed.
All intragroup account balances, including intragroup profits,
are eliminated in preparing the consolidated financial
statements.
Unconsolidated structured entities
The Group regularly uses sale and leaseback transactions to
finance the acquisition of aircraft. In certain instances the Group
will finance several such transactions at once through Enhanced
Equipment Trust Certificates (EETCs). Under each of these financing
structures, a company (the EETC Issuer) is established to
facilitate such financing on behalf of a number of unrelated
investors. The proceeds from the issuance of the EETCs by the EETC
Issuer are then used to purchase aircraft solely from the Group.
Payments by the Group (under the asset financed liabilities) to the
EETC Issuer are distributed, through a trust, to the aforementioned
unrelated investors. The main purpose of the trust structure is to
enhance the credit worthiness of the Group's debt obligations
through certain bankruptcy protection provisions and liquidity
facilities, and also to lower the Group's total borrowing cost.
The EETC Issuer is established solely with the purpose of
providing the asset-backed financing and upon maturity of such
financing is expected to have no further activity. The relevant
activities of the EETC Issuer are restricted to pre-established
financing agreements and the retention of the title of the
associated financed aircraft. Accordingly, the Group has determined
that each EETC Issuer is a structured entity. Under the contractual
terms of the EETC structure, the Group does not own any of the
share capital of the EETC Issuer, does not have any representation
on the respective boards and has no ability to influence decision
making.
In considering the aforementioned facts, management has
concluded that the Group does not have access to variable returns
from the EETC Issuers because its involvement is limited to the
payment of principal and interest under the arrangement and,
therefore, it does not control the EETC Issuers and as such does
not consolidate them.
Segmental reporting
Operating segments are reported in a manner consistent with how
resource allocation decisions are made by the chief operating
decision-maker. The chief operating decision-maker, who is
responsible for resource allocation and assessing performance of
the operating segments, has been identified as the IAG Management
Committee.
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the
Group's entities are measured using the functional currency, being
the currency of the primary economic environment in which the
entity operates. In particular, British Airways and Avios have a
functional currency of pound sterling. The Group's consolidated
financial statements are presented in euros, which is the Group's
presentation currency.
b Transactions and balances
Transactions in foreign currencies are initially recorded in the
functional currency using the rate of exchange prevailing on the
date of the transaction. Monetary foreign currency balances are
translated into the functional currency at the rates ruling at the
balance sheet date. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation
at balance sheet exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Income
statement, except where hedge accounting is applied. Foreign
exchange gains and losses arising on the retranslation of monetary
assets and liabilities classified as non-current on the Balance
sheet are recognised within Net currency retranslation
(charges)/credits in the Income statement. All other gains and
losses arising on the retranslation of monetary assets and
liabilities are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros
at the rate of exchange ruling at the balance sheet date. Profits
and losses of such operations are translated into euros at average
rates of exchange during the year. The resulting exchange
differences are taken directly to a separate component of equity
(Currency translation reserve) until all or part of the interest is
sold, when the relevant portion of the cumulative exchange
difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a
policy of not revaluing property, plant and equipment. Depreciation
is calculated to write off the cost less the estimated residual
value on a straight-line basis, over the economic life of the
asset. Residual values, where applicable, are reviewed annually
against prevailing market values for equivalently aged assets and
depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments made on account of
aircraft and other qualifying assets under construction are
capitalised and added to the cost of the asset concerned. All other
borrowing costs are recognised in the Income statement in the year
in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration
given after taking account of manufacturers' credits. Fleet assets
owned or right of use ('ROU') assets are disaggregated into
separate components and depreciated at rates calculated to write
down the cost of each component to the estimated residual value at
the end of their planned operational lives (which is the shorter of
their useful life or lease term) on a straight-line basis.
Depreciation rates are specific to aircraft type, based on the
Group's fleet plans, within overall parameters of 23 years and up
to 5 per cent residual value for shorthaul aircraft and between 25
and 29 years (depending on aircraft) and up to 5 per cent residual
value for longhaul aircraft. Right of use assets are depreciated
over the shorter of the lease term and the aforementioned
depreciation rates.
Cabin interior modifications, including those required for brand
changes and relaunches, are depreciated over the lower of five
years and the remaining economic life of the aircraft.
Aircraft and engine spares acquired on the introduction or
expansion of a fleet, as well as rotable spares purchased
separately, are carried as property, plant and equipment and
generally depreciated in line with the fleet to which they
relate.
Major overhaul expenditure, including replacement spares and
labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares
and other costs relating to maintenance of fleet assets (including
maintenance provided under 'pay-as-you-go' contracts) are charged
to the Income statement on consumption or as incurred
respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant
and equipment. Property, with the exception of freehold land, is
depreciated over its expected useful life over periods not
exceeding 50 years, or in the case of leasehold properties, over
the duration of the lease if shorter, on a straight-line basis.
Equipment is depreciated over periods ranging from 4 to 20
years.
d Leases
The Group leases various aircraft, properties and equipment. The
lease terms of these assets are consistent with the determined
useful economic life of similar assets within property, plant and
equipment.
At inception of a contract, the Group assesses whether a
contract is, or contains a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
Leases are recognised as a ROU asset and a corresponding lease
liability at the date at which the leased asset is available for
use by the Group.
Right of use assets
At the lease commencement date a ROU asset is measured at cost
comprising the following: the amount of the initial measurement of
the lease liability; any lease payments made at or before the
commencement date less any lease incentives received; any initial
direct costs; and restoration costs to return the asset to its
original condition. (with a corresponding amount recognised within
Provisions).
The ROU asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis. If
ownership of the ROU asset transfers to the Group at the end of the
lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the
asset.
Lease liabilities
Lease liabilities are initially measured at their present value,
which includes the following lease payments: fixed payments
(including in-substance fixed payments), less any lease incentives
receivable; variable lease payments that are based on an index or a
rate; amounts expected to be payable by the Group under residual
value guarantees; the exercise price of a purchase option if the
Group is reasonably certain to exercise that option; payments of
penalties for terminating the lease, if the lease term reflects the
Group exercising that option; and payments to be made under
reasonably certain extension options.
The lease payments are discounted using the interest rate
implicit in the lease. The interest rate implicit in the lease is
the discount rate that, at the inception of the lease, causes the
aggregate present value of the minimum lease payments and the
unguaranteed residual value to be equal to the fair value of the
leased asset and any initial indirect costs of the lessor. For
aircraft leases these inputs are either observable in the contract
or readily available from external market data. The initial direct
costs of the lessor are considered to be immaterial. If the
interest rate implicit in the lease cannot be determined, the Group
entity's incremental borrowing rate is used.
Each lease payment is allocated between the principal and
finance cost. The finance cost is charged to the Income statement
over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the lease liability for each
period. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made.
The carrying amount of lease liabilities is remeasured if there
is a modification of the lease contract, a re-assessment of the
lease term (specifically in regard to assumptions regarding
extension and termination options) and changes in variable lease
payments that are based on an index or a rate.
The Group has elected not to recognise ROU assets and lease
liabilities for short-term leases that have a lease term of 12
months or less and those leases of low-value assets. Payments
associated with short-term leases and leases of low-value assets
are recognised on a straight line basis as an expense in the Income
statement. Short-term leases are leases with a lease term of 12
months or less, that do not contain a purchase option. Low-value
assets comprise IT equipment and small items of office
furniture.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the ROU asset.
Extension options are included in a number of aircraft, property
and equipment leases across the Group and are reflected in the
lease payments where the Group is reasonably certain that it will
exercise the option. The Group is also exposed to variable lease
payments based on usage or revenue generated over a defined period.
Such variable lease payments are expensed to the Income statement
as incurred.
The Group regularly uses sale and lease transactions to finance
the acquisition of aircraft. Each transaction is assessed as to
whether it meets the criteria within IFRS 15 'Revenue from
contracts with customers' for a sale to have occurred. If a sale
has occurred, then the associated asset is de-recognised and a ROU
asset and lease liability is recognised. The ROU asset recognised
is based on the proportion of the previous carrying amount of the
asset that is retained. Any gain or loss is restricted to the
amount that relates to the rights that have been transferred to the
counter-party to the transaction. Where a sale has not occurred,
the asset is retained on the balance sheet within Property, plant
and equipment and an asset financed liability recognised equal to
the financing proceeds.
Financing arrangements with the following features that do not
meet the recognition criteria as a sale under IFRS 15 are therefore
not eligible for recognition under IFRS 16: the lessor has legal
ownership retention as security against repayment and interest
obligations; the Group initially acquired the aircraft or took a
major share in the acquisition process from the manufacturer; in
view of the contractual conditions, it is virtually certain that
the aircraft will be purchased at the end of the lease term.
Cash flow presentation
Lease payments are presented as follows in the Consolidated cash
flow statement: the repayments of the principal element of lease
liabilities are presented within cash flows from financing
activities; the payments of the interest element of lease
liabilities are included within cash flows from operating
activities, and; the payments arising from variable elements of a
lease, short-term leases and low-value assets are presented within
cash flows from operating activities.
COVID-19 related rent concessions
On May 28, 2020, the IASB issued 'COVID-19 Related Rent
Concessions - amendments to IFRS 16 Leases'. The EU subsequently
adopted the amendment on October 9, 2020. The amendment provides a
practical expedient for lessees not to assess whether a COVID-19
related rent concession is a lease modification. The amendment is
effective for annual reporting periods commencing on or after June
1, 2020 and the Group has elected to adopt this amendment for the
year to December 31, 2020.
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates
and joint ventures and represents the excess of the consideration
paid over the net fair value of the identifiable assets and
liabilities of the acquiree. Where the net fair value of the
identifiable assets and liabilities of the acquiree is in excess of
the consideration paid, a gain on bargain purchase is recognised
immediately in the Income statement.
For the purpose of assessing impairment, goodwill is grouped at
the lowest levels for which there are separately identifiable cash
flows (cash generating units). Goodwill is tested for impairment
annually and whenever indicators exist that the carrying value may
not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially
recognised at fair value at the acquisition date. Long established
brands that are expected to be used indefinitely are not amortised
but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of
subsidiaries are initially recognised at fair value at the
acquisition date. A customer loyalty programme with an expected
useful life is amortised over the expected remaining useful life.
Established customer loyalty programmes that are expected to be
used indefinitely are not amortised but assessed annually for
impairment.
d Landing rights
Landing rights acquired in a business combination are recognised
at fair value at the acquisition date. Landing rights acquired from
other airlines are capitalised at cost.
Capitalised landing rights based outside of the United Kingdom
and the EU are amortised on a straight-line basis over a period not
exceeding 20 years. Capitalised landing rights based within the EU
are not amortised, as regulations provide that these landing rights
are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination
are recognised initially at fair value at the acquisition date and
amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is
separable from an item of related hardware is capitalised
separately and amortised on a straight-line basis generally over a
period not exceeding five years, with certain specific software
developments amortised over a period of up to 10 years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions
allowances are not revalued or amortised but are tested for
impairment whenever indicators exist that the carrying value may
not be recoverable.
From time to time the Group enters into sale and repurchase
transactions for specified emission allowances. Such transactions
do not meet the recognition criteria of a sale under IFRS 15 and
accordingly the asset is retained on the balance sheet within
Intangible assets and an other financing liability recognised equal
to the proceeds received.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. Assets that
are subject to amortisation are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for
the value by which the asset's carrying value exceeds its
recoverable amount. The recoverable amount is the higher of an
asset's fair value less cost to sell and value-in-use.
Non-financial assets other than goodwill that were subject to an
impairment are reviewed for possible reversal of the impairment at
each reporting date.
a Property, plant and equipment, including Right of use
assets
The carrying value is reviewed for impairment when events or
changes in circumstances indicate the carrying value may not be
recoverable and the cumulative impairment losses are shown as a
reduction in the carrying value of property, plant and
equipment.
b Intangible assets
Intangible assets are held at cost and are either amortised on a
straight-line basis over their economic life, or they are deemed to
have an indefinite economic life and are not amortised. Indefinite
life intangible assets are tested annually for impairment or more
frequently if events or changes in circumstances indicate the
carrying value may not be recoverable.
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a
long-term equity interest and over which it has the power to
exercise significant influence. Where the Group cannot exercise
control over an entity in which it has a shareholding greater than
51 per cent, the equity interest is treated as an associated
undertaking.
A joint venture is a type of joint arrangement whereby the
parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the
contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control. The
considerations made in determining significant influence or joint
control are similar to those necessary to determine control over
subsidiaries.
Investments in associates and joint ventures are accounted for
using the equity method, and initially recognised at cost. The
Group's interest in the net assets of associates and joint ventures
is included in Investments accounted for using the equity method in
the Balance sheet and its interest in their results is included in
the Income statement, below operating result. The attributable
results of those companies acquired or disposed of during the year
are included for the periods of ownership.
Financial instruments
a Other equity investments
Other equity investments are non-derivative financial assets
including listed and unlisted investments, excluding interests in
associates and joint ventures. On initial recognition, these equity
investments are irrevocably designated as measured at fair value
through Other comprehensive income. They are subsequently measured
at fair value, with changes in fair value recognised in Other
comprehensive income with no recycling of these gains and losses to
the Income statement when the investment is sold. Dividends
received on other equity investments are recognised in the Income
statement.
The fair value of quoted investments is determined by reference
to bid prices at the close of business on the balance sheet date.
Where there is no active market, fair value is determined using
valuation techniques.
b Interest-bearing deposits
Interest-bearing deposits, principally comprising funds held
with banks and other financial institutions with contractual cash
flows that are solely payments of principal and interest, and held
in order to collect contractual cash flows, are carried at
amortised cost using the effective interest method.
c Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap
agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially
recognised at fair value on the date a derivative contract is
entered into and are subsequently remeasured at their fair value.
They are classified as financial instruments through the Income
statement. The method of recognising the resulting gain or loss
arising from remeasurement depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged (as detailed below under cash flow hedges). The
time value of options is excluded from the designated hedging
instrument and accounted for as a cost of hedging. Movements in the
time value of options are recognised in Other comprehensive income
until the underlying transaction affects the Income statement.
When a derivative is designated as a hedging instrument and that
instrument expires, is sold or is restructured, any cumulative gain
or loss remains in the cash flow hedge reserve until such time as
the hedging instrument was due to mature at inception of the
relationship. Where a forecast transaction which was previously
determined to be highly probable and hedge accounting applied, is
no longer expected to occur, the cumulative gain or loss in the
cash flow hedge reserve is immediately reclassified to the Income
statement.
Exchange gains and losses on monetary investments are taken to
the Income statement unless the item has been designated and is
assessed as an effective hedging instrument. Exchange gains and
losses on non-monetary investments are reflected in equity.
d Cash flow hedges
Changes in the fair value of derivative financial instruments
designated as a hedge of a highly probable expected future cash
flow and assessed as effective are recorded in equity. Gains and
losses on derivative instruments not designated as a cash flow
hedge are reported in the Income statement. Gains and losses
recorded in equity are reflected in the Income statement when
either the hedged cash flow impacts the Income statement or the
hedged item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars,
euros, Japanese yen and Chinese yuan are designated as cash flow
hedges of highly probable future foreign currency revenues.
Exchange differences arising from the translation of these loan
repayment instalments are recorded in equity and subsequently
reflected in the Income statement when either the future revenue
impacts income or its occurrence is no longer expected to
occur.
e Long-term borrowings
Long-term borrowings are recorded at amortised cost, including
lease liabilities which contain interest rate swaps that are
closely related to the underlying financing and as such are not
accounted for as an embedded derivative.
f Convertible debt
Convertible bonds are classified as compound instruments,
consisting of a liability and an equity component. At the date of
issue, the fair value of the liability component is estimated using
the prevailing market interest rate for similar non-convertible
debt, and is subsequently recorded at an amortised cost basis using
the effective interest method until extinguished on conversion or
maturity of the bonds, and is recognised within Interest-bearing
borrowings. The difference between the proceeds of issue of the
convertible bond and the fair value assigned to the liability
component, representing the embedded option to convert the
liability into equity of the Group, is included in Equity portion
of convertible bond in Other reserves and is not subsequently
remeasured.
Issue costs are apportioned between the liability and equity
components of the convertible bonds where appropriate based on
their relative carrying values at the date of issue. The portion
relating to the equity component is charged directly against
equity.
The interest expense on the liability component is calculated by
applying the effective interest rate for similar non-convertible
debt to the liability component of the instrument. The difference
between this value and the interest paid is added to the carrying
amount of the liability.
g Impairment of financial assets
At each balance sheet date, the Group recognises provisions for
expected credit losses on financial assets measured at amortised
cost, based on 12-month or lifetime losses depending on whether
there has been a significant increase in credit risk since initial
recognition. The simplified approach, based on the calculation and
recognition of lifetime expected credit losses, is applied to
contracts that have a maturity of one year or less, including trade
receivables.
When determining whether there has been a significant increase
in credit risk since initial recognition and when estimating the
expected credit loss, the Group considers reasonable and
supportable information that is relevant and available. This
includes both quantitative and qualitative information and
analysis, based on the Group's historical experience and informed
credit assessment, including forward-looking information. Such
forward-looking information takes into consideration the forecast
economic conditions expected to impact the outstanding balances at
the balance sheet date. A financial asset is written off when there
is no reasonable expectation of recovery, such as the customer
having filed for liquidation.
Employee benefit plans
a Pension obligations
The Group has both defined benefit and defined contribution
plans. A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The
Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay
all employees the benefits relating to employee service in the
current and prior years.
Typically defined benefit plans define an amount of pension
benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and
compensation.
The Group's net obligation in respect of defined benefit pension
plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for
their service in the current and prior years. The benefit is
discounted to determine its present value, and the fair value of
any plan assets are deducted. The discount rate is the yield at the
balance sheet date on AA-rated corporate bonds of the appropriate
currency that have durations approximating those of the Group's
obligations. The calculation is performed by a qualified actuary
using the projected unit credit method. When the net obligation
calculation results in an asset for the Group, the recognition of
an asset is limited to the present value of any future refunds from
the plan or reductions in future contributions to the plan ('the
asset ceiling'). The fair value of the plan assets is based on
market price information and, in the case of quoted securities, is
the published bid price. The fair value of insurance policies which
exactly match the amount and timing of some or all benefits payable
under the scheme are deemed to be the present value of the related
obligations. Longevity swaps are measured at their fair value.
Current service costs are recognised within employee costs in
the year in which they arise. Past service costs are recognised in
the event of a plan amendment or curtailment, or when the Group
recognises related restructuring costs or severance obligations.
The net interest is calculated by applying the discount rate used
to measure the defined benefit obligation at the beginning of the
period to the net defined benefit liability or asset, taking into
account any changes in the net defined benefit liability or asset
during the period as a result of contributions and benefit
payments. Net interest and other expenses related to the defined
benefit plans are recognised in the Income statement.
Remeasurements, comprising actuarial gains and losses, the effect
of the asset ceiling (excluding interest) and the return on plan
assets (excluding interest), are recognised immediately in Other
comprehensive income. Remeasurements are not reclassified to the
Income statement in subsequent periods.
b Severance obligations
Severance obligations are recognised when employment is
terminated by the Group before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognises a provision for severance
payments when it is demonstrably committed to either terminating
the employment of current employees according to a detailed formal
plan without realistic possibility of withdrawal, or providing
severance payments as a result of an offer made to encourage
voluntary redundancy.
Other employee benefits are recognised when there is deemed to
be a present obligation.
Taxation
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or
substantively enacted at the balance sheet date.
Deferred income tax is recognised on all temporary differences
arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following
exceptions:
-- Where the temporary difference arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination that at the time of
the transaction affects neither accounting nor taxable profit or
loss;
-- In respect of taxable temporary differences associated with
investments in subsidiaries or associates, where the timing of the
reversal of the temporary differences can be controlled and it is
probable that the temporary differences will not reverse in the
foreseeable future; and
-- Deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which the deductible temporary differences, carried forward tax
credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an
undiscounted basis at the tax rates that are expected to apply when
the related asset is realised or liability is settled, based on tax
rates and laws enacted or substantively enacted at the balance
sheet date.
Income tax is charged or credited directly to equity if it
relates to items that are credited or charged to equity. Otherwise
income tax is recognised in the Income statement.
Inventories
Inventories are valued at the lower of cost and net realisable
value. Such cost is determined by the weighted average cost method.
Inventories include mainly aircraft spare parts, repairable
aircraft engine parts and fuel.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits with
any qualifying financial institution repayable on demand or
maturing within three months of the date of acquisition and which
are subject to an insignificant risk of change in value.
Share-based payments
The Group operates a number of equity-settled, share-based
payment plans, under which the Group awards equity instruments of
the Group for services rendered by employees. The fair value of the
share-based payment plans is measured at the date of grant using a
valuation model provided by external specialists. The resulting
cost, as adjusted for the expected and actual level of vesting of
the plan, is charged to the Income statement over the period in
which the options vest. At each balance sheet date before vesting,
the cumulative expense is calculated, representing the extent to
which the vesting period has expired and management's best estimate
of the achievement or otherwise of non-market conditions, and
accordingly the number of equity instruments that will ultimately
vest. The movement in the cumulative expense since the previous
balance sheet date is recognised in the Income statement with a
corresponding entry in equity.
Provisions
Provisions are made when an obligation exists for a present
liability in respect of a past event and where the amount of the
obligation can be reliably estimated.
Employee leaving indemnities and other employee provisions are
recorded for flight crew who, meeting certain conditions, have the
option of being placed on reserve or of taking early retirement.
The Group is obligated to remunerate these employees until they
reach the statutory retirement age. The calculation is performed by
independent actuaries using the projected unit credit method.
Other employee related provisions are recognised for direct
expenditures of business reorganisation such as severance payments
(restructuring provisions) where plans are sufficiently detailed
and well advanced, and where appropriate communication to those
affected has been undertaken at the balance sheet date.
Restoration and handback provisions arising on the commencement
of a lease are recognised as a provision with a corresponding
amount recognised as part of the ROU asset. Any change in
estimation relating to such costs are reflected in the ROU asset.
Maintenance and handback provisions that occur through usage or
through the passage of time are recognised with a corresponding
amount recorded over time in the Income statement.
If the effect is material, expected future cash flows are
discounted using a rate that reflects, where appropriate, the risks
specific to the provision. Where discounting is used, the increase
in the provision due to unwinding the discount is recognised as a
finance cost.
Revenue recognition
The Group's revenue primarily derives from transportation
services for both passengers and cargo. Revenue is recognised when
the transportation service has been provided. Passenger tickets are
generally paid for in advance of transportation and are recognised,
net of discounts, as deferred revenue on ticket sales in current
liabilities until the customer has flown. Prior to the impact of
COVID-19 on the ability of passengers to utilise the Group's
transportation services, unused tickets were recognised as revenue
after the contracted date of departure using estimates regarding
the timing of recognition based on the terms and conditions of the
ticket and statistical analysis of historical trends. If as a
result of the impact of COVID-19 a flight is cancelled, the
passenger is entitled to either a refund, changing to an
alternative flight or the receipt of a voucher. Where a voucher is
issued, given the relative short period of historical data, no
revenue is recognised until either the voucher is redeemed through
transportation services or it expires. Revenue is stated net of
compensation for flight delays and cancellations, taking into
consideration the level of expected claims.
The Group considers whether it is an agent or a principal in
relation to transportation services by considering whether it has a
performance obligation to provide services to the customer or
whether the obligation is to arrange for the services to be
provided by a third party. The Group acts as an agent where (i) it
collects various taxes and fees assessed on the sale of tickets to
passengers and remits these to the relevant taxing authorities; and
(ii) where it provides interline services to airline partners
outside of the Group.
Other revenue including maintenance; handling; hotel and holiday
and commissions is recognised as the related performance
obligations are satisfied (over time), being where the control of
the goods or services are transferred to the customer.
Customer loyalty programmes
The Group operates four loyalty programmes: the British Airways
Executive Club, Iberia Plus, Vueling Club and the Aer Lingus Aer
Club. The customer loyalty programmes award travellers Avios to
redeem for various rewards, primarily redemption travel, including
flights, hotels and car hire. Avios are also sold to commercial
partners to use in loyalty activity.
The Group has identified several performance obligations
associated with the sale of Avios. Revenue associated with brand
and marketing services and revenue associated with Avios has been
determined based on the relative stand-alone selling price of each
of the performance obligations. Revenue associated with brand and
marketing services is recognised as the points are issued. Revenue
allocated to the Avios is deferred on the balance sheet as a
current liability, and recognised when the points are redeemed.
When the points are redeemed for products provided by suppliers
outside the Group, revenue is recognised in the Income statement
net of related costs, as the Group is considered to be an agent in
these redemption transactions.
The Group estimates the stand-alone selling price of the brand
and marketing performance obligations by reference to the amount
that a third party would be prepared to pay in an arm's length
transaction for access to comparable brands for the period over
which they have access. The stand-alone selling price of Avios is
based on the value of the awards for which the points could be
redeemed. The Group also recognises revenue associated with the
proportion of Avios which are not expected to be redeemed, based on
the results of statistical modelling.
Exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or nature and where
such presentation is relevant to an understanding of the entity's
financial performance. The exceptional items recorded in the Income
statement include items such as significant settlement agreements
with the Group's pension schemes; significant restructuring; the
impact of business combination transactions that do not contribute
to the ongoing results of the Group; significant discontinuance of
hedge accounting; legal settlements; and the impact of the sale,
disposal or impairment of an asset or investment in a business.
Business combination transactions include cash items such as the
costs incurred to effect the transaction and non-cash items such as
accounting gains or losses recognised through the Income statement,
such as bargain purchase gains and step acquisition losses.
Government grants
Government grants are recognised where there is reasonable
assurance that the grant will be received. Loans provided and/or
guaranteed by governments that represent market rates of interest
are recorded at the amount of the proceeds received and recognised
within Borrowings. Those loans provided and/or guaranteed by
governments that represent below market rates of interest are
measured at inception at their fair value and recognised within
Borrowings, with the differential to the proceeds received recorded
within Deferred income and released to the relevant financial
statement caption in the Income statement on a systematic basis.
Grants that compensate the Group for expenses incurred are
recognised in the Income statement in the relevant financial
statement caption on a systematic basis in the periods in which the
expenses are recognised.
Critical accounting estimates, assumptions and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and
liabilities, income and expenses. These judgements, estimates and
associated assumptions are based on historical experience and
various other factors believed to be reasonable under the
circumstances. Actual results in the future may differ from
judgements and estimates upon which financial information has been
prepared. These underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised
prospectively.
Estimates
The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are as follows:
a Employee benefit obligations, employee leaving indemnities,
other employee related restructuring
At December 31, 2020 the Group recognised EUR282 million in
respect of employee benefit assets (2019: EUR314 million) and
EUR719 million in respect of employee benefit obligations (2019:
EUR400 million). Further information on employee benefit
obligations is disclosed in note 30.
The cost of employee benefit obligations, employee leaving
indemnities and other employee related provisions is determined
using actuarial valuations. Actuarial valuations involve making
assumptions about discount rates, expected rates of return on
assets, future salary increases, mortality rates and future pension
increases. Due to the long-term nature of these schemes, such
assumptions are subject to significant uncertainty. The assumptions
relating to these schemes are disclosed in note 30. The Group
determines the assumptions to be adopted in discussion with
qualified actuaries. Any difference between these assumptions and
the actual outcome will impact future net assets and total
comprehensive income. The sensitivity to changes in pension
assumptions is disclosed in note 30.
Under the Group's APS and NAPS defined benefit schemes,
increases to pensions are based on the annual Government Pension
Increase (Review) Orders, which since 2011 have been based on the
Consumer Prices Index (CPI). Additionally, in APS there is
provision for the Trustee to pay increases up to the level of the
Retail Prices Index (RPI), subject to certain affordability tests.
Historically market expectations for RPI could be derived by
comparing the prices of UK Government fixed-interest and
index-linked gilts, with CPI assessed by considering the Bank of
England's inflation target and comparison of the construction of
the two inflation indices.
In February 2019, following the UK House of Lords Economic
Affairs Committee report on measuring inflation, the National
Statistician concluded that the existing methodology was
unsatisfactory and proposed a number of options to the UK
Statistics Authority (UKSA). In March 2019, the UKSA recommended to
the UK Chancellor of the Exchequer that the publication of the RPI
cease at a point to be determined in the future and in the
intervening period, the RPI be addressed by bringing in the methods
of the CPIH (a proposed variant to CPI). In September 2019, the UK
Chancellor of the Exchequer announced his intention to consult with
the Bank of England and the UKSA on whether to implement these
proposed changes to RPI in the period of 2025 to 2030. Following
consultation during 2020, on November 25, 2020 the UK Chancellor of
the Exchequer and the UKSA confirmed that from February 2030
onwards CPIH will replace RPI with no compensation to holders of
index-linked gilts.
Following the Chancellor of the Exchequer's announcement in
September 2019 and through to December 31, 2020, market-implied
break-even RPI inflation forward rates for periods after 2030 have
reduced in the investment market. Therefore, in assessing RPI and
CPI from investment market data, allowance has been made for
partial alignment between RPI and CPI from 2030 onwards.
On October 26, 2018 the High Court of Justice of England and
Wales issued a judgment in a claim between Lloyds Banking Group
Pension Trustees Limited as claimant and Lloyds Banking Group plc
and others as defendants (collectively referred to as the 'Lloyds
Bank case') regarding the rights of female members of certain
pension schemes to equality of treatment in relation to pension
benefits. The judgment in the Lloyd's Bank case confirmed that all
pension schemes were required to equalise, with immediate
application, for the effects of unequal Guaranteed Minimum Pension
('GMP') benefits accrued over the period since May 17, 1990 ('GMP
equalisation'). On November 20, 2020 the High Court of Justice of
England and Wales issued a further judgment requiring all pension
schemes, if requested by their individual members, to revisit
individual transfer payments made between May 17, 1990 and April 5,
1997 to assess the shortfall, if any, between the original transfer
payments and the impact of GMP equalisation. Where a shortfall
exists, the pension scheme is required to make an additional
payment to the individual member, including interest accrued at 1.0
per cent above the base rate per annum. The APS and NAPS estimated
Defined benefit obligations as at December 31, 2020 and December
31, 2019 includes allowance for the estimated effect of GMP
equalisation based on the assessments made by the respective APS
and NAPS Scheme Actuaries.
Restructuring provisions are estimates of future obligations.
The Group exercises judgement in determining the expected direct
expenditures of reorganisation based on plans which are
sufficiently detailed and advanced.
b Revenue recognition
At December 31, 2020 the Group recognised EUR5,130 million
(2019: EUR5,486 million) in respect of deferred revenue on ticket
sales of which EUR2,725 million (2019: EUR1,917 million) related to
customer loyalty programmes.
Passenger revenue is recognised when the transportation is
provided. At the time of transportation, revenue is also recognised
in respect of tickets that are not expected to be used ('unused
tickets'). Revenue associated with unused tickets is estimated
based on the terms and conditions of the tickets and historical
trends.
Revenue associated with the issuance of points under customer
loyalty programmes is based on the relative stand-alone selling
prices of the related performance obligations (brand, marketing and
points), determined using estimation techniques. The transaction
price of brand and marketing services is determined using specific
brand valuation methodologies. The transaction price of the points
is based on the value of the awards for which the points can be
redeemed and is reduced to take account of the proportion of the
award credits that are not expected to be redeemed by customers.
The Group estimates the number of points not expected to be
redeemed (using statistical modelling and historical trends) and
the mix and fair value of the award credits. A five percentage
point change in the assumption of points outstanding and not
expected to be redeemed would result in an adjustment to deferred
revenue of EUR100 million, with an offsetting adjustment to revenue
and operating profit recognised in the year.
In August 2020, the Group received an upfront payment of EUR830
million (GBP754 million) related to the fulfilment of future
performance obligations under the renewal of the multi-year
commercial partnership with American Express. The Group estimates
the number of points expected to issued over the life of the
contract and allocates the upfront payment to the relevant
performance obligations. At each reporting date, the Group updates
its estimate of the number of points expected to be issued over the
total contract term and recognises a cumulative catch-up adjustment
where necessary. The Group considers that these upfront payments
include a significant financing component considering the length of
time between the payment and the expected allocation to performance
obligations. Accordingly, the transaction price for the contract is
discounted using the prevailing market interest rate.
The following three accounting estimates involve a higher degree
of judgement or complexity, or are areas where assumptions are
significant to the financial statements however these accounting
estimates are not major sources of estimation uncertainty that have
a significant risk of resulting in material adjustment to the
carrying amounts of assets and liabilities within the next
year.
c Income taxes
At December 31, 2020 the Group recognised EUR1,075 million in
respect of deferred tax assets (2019: EUR546 million). Further
information on current and deferred tax liabilities is disclosed in
note 9.
The Group is subject to income taxes in numerous jurisdictions.
Estimates are required in determining the worldwide provision for
income taxes. There are many transactions and calculations for
which the ultimate tax determination is uncertain because it may be
unclear how tax law applies to a particular transaction or
circumstance. Where the Group determines that it is more likely
than not that the tax authorities would accept the position taken
in the tax return, amounts are recognised in the financial
statements on that basis. Where the amount of tax payable or
recoverable is uncertain, the Group recognises a liability based on
either: the Group's judgement of the most likely outcome; or, when
there is a wide range of possible outcomes, uses a probability
weighted average approach.
The Group recognises deferred income tax assets only to the
extent that it is probable that the taxable profit will be
available against which the deductible temporary differences,
carried forward tax credits or tax losses can be utilised.
Management considers past and current operating performance and the
future projections of performance laid out in the approved business
plan in order to assess the probability of recoverability. The
Business plan relies on the use of assumptions, estimates and
judgements in respect of future performance and economics.
d Impairment of non-financial assets
At December 31, 2020 the Group recognised EUR2,390 million
(2019: EUR2,460 million) in respect of intangible assets with an
indefinite life, including goodwill. Further information on these
assets is included in note 15.
The Group assesses whether there are any indicators of
impairment for all non-financial assets at each reporting date.
Goodwill and intangible assets with indefinite economic lives are
tested for impairment annually and at other times when such
indicators exist. The recoverable amounts of cash-generating units
have been determined based on value-in-use calculations, which use
a weighted average multi-scenario discounted cash flow model. The
Group has applied judgement in the weighting of each scenario in
the discounted cash flow model and these calculations require the
use of estimates in the determination of key assumptions and
sensitivities as disclosed in note 15.
Other non-financial assets are tested for impairment when there
are indicators that the carrying amounts may not be
recoverable.
e Residual values and useful lives of assets
At December 31, 2020 the Group recognised EUR17,531 million
(2019: EUR19,168 million) in respect of property, plant and
equipment, including the ROU assets recognised in the year. Further
information on these assets is included in note 12 and note 13.
The Group estimates useful lives and residual values of
property, plant and equipment, including fleet assets based on
network plans and recoverable values. Useful lives and residual
values are reassessed annually, taking into consideration the
latest fleet plans and other business plan information.
Judgements
a Engineering and other aircraft costs
At December 31, 2020, the Group recognised EUR1,588 million in
respect of maintenance, restoration and handback provisions (2019:
EUR1,675 million). Information on movements on the provision is
disclosed in note 24.
The Group has a number of contracts with service providers to
replace or repair engine parts and for other maintenance checks.
These agreements are complex and generally cover a number of years.
The Group exercises judgement in determining the assumptions used
to match the consumption of replacement spares and other costs
associated with fleet maintenance with the appropriate income
statement charge. Aircraft maintenance obligations are based on
aircraft utilisation, expected maintenance intervals, future
maintenance costs and the aircraft's condition.
b Determining the lease term of contracts with renewal and
termination options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised. The Group applies judgement
in evaluating whether it is reasonably certain whether or not to
exercise the option to renew or terminate the lease. Such judgement
includes consideration of fleet plans which underpin approved
business plans and historical experience regarding the extension of
leases. After the commencement date, the Group reassesses the lease
term if there is a significant event or change in circumstances and
affects the Group's ability to exercise or not to exercise the
option to renew or to terminate. Further information is given in
note 13.
New standards, amendments and interpretations
The following amendments and interpretations apply for the first
time in 2020, but do not have a material impact on the consolidated
financial statements of the Group:
-- COVID-19 Related Rent Concessions - amendments to IFRS 16 Leases;
-- Amendments to references to the conceptual framework in IFRS standards;
-- Definition of a business (amendments to IFRS 3 'Business combinations');
-- Definition of material (amendments to IAS 1 'Presentation of
financial statements' and IAS 8 'Accounting policies, Changes in
accounting estimates and errors'); and
-- Interest Rate Benchmark Reform - Amendments to IFRS 9
'Financial instruments', IAS 39 'Financial instruments: Recognition
and measurement' and IFRS 7 'Financial instruments: Disclosures',
which conclude on phase one of the IASB's work to respond to the
effects of Interbank Offered Rates (IBOR) reform on financial
reporting. The amendments provide temporary reliefs which enable
hedge accounting to continue during the period of uncertainty
before the replacement of an existing interest rate benchmark with
an alternative nearly risk-free interest rate.
The IASB and IFRIC have issued the following standards,
amendments and interpretations with an effective date after the
year end of these financial statements which management believe
could impact the Group in future periods. Unless otherwise stated,
the Group plans to adopt the following standards, interpretations
and amendments on the date they become mandatory:
-- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 effective for periods
beginning on or after January 1, 2021;
-- 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;
-- Annual Improvements to IFRS Standards 2018-2020 effective for
periods beginning on or after January 1, 2022; and
-- Classification of Liabilities as Current or Non-current
Amendments to IAS 1 effective for periods beginning on or after
January 1, 2023.
3 Impact of COVID-19 on financial reporting
Significant transactions and critical accounting estimates,
assumptions and judgements in the determination of the impact of
COVID-19
As a result of COVID-19 the Group has experienced a significant
decline in the level of flight activity and does not expect to
return to the level of 2019 activity until at least 2023.
Accordingly, the Group has applied critical estimation and
judgement in the evaluation of the impact of COVID-19 regarding the
recognition and measurement of assets and liabilities within the
Consolidated financial statements.
Critical accounting estimates, assumptions and judgements - cash
flow forecast estimation
The Group has applied estimation and judgement in the evaluation
of the impact of COVID-19 on the estimation uncertainty of
determining cash flow forecasts as part of the approved Business
plans. The details regarding the inputs and assumptions used in the
determination of these cash flow forecasts are given in the going
concern basis of preparation.
The following critical accounting estimates, assumptions and
judgements utilise these cash flow forecasts consistently, which
are in some instances significantly different from judgements
applied in previous years:
a Discontinuance of hedge accounting
In determining whether hedge accounting is required to be
discontinued or to remain in a hedge relationship, judgement is
required as to whether a forecast transaction that was previously
highly probable continues to be expected to occur or is no longer
expected to occur. The Group applied the capacity output from the
cash flow forecasts as part of the approved Business plans in order
to determine the forecast level of revenue generation and fuel
consumption over the periods in which hedge accounting has been
applied.
In 2020 the Group recognised a charge arising from such
discontinuance of EUR1,756 million represented by an expense of
EUR62 million relating to revenue foreign currency derivatives, an
expense of EUR1,781 million relating to fuel derivatives and a
credit of EUR87 million related to the associated fuel foreign
currency derivatives. These amounts relate to the discontinuance of
hedge accounting of the associated foreign currency and fuel
derivatives on forecast revenue and fuel consumption. These losses
have arisen from the substantial deterioration in demand for air
travel caused by COVID-19, which has caused a significant level of
hedged passenger revenue transactions and fuel purchases in US
dollars to no longer be expected to occur based on the Group's
operating forecasts prevailing at the Balance sheet date. The
Group's risk management strategy has been to build up these hedges
gradually over a three-year period when the level of forecast
passenger revenue and fuel consumption were higher than current
expectations. Accordingly, the hedge accounting for these
transactions has been discontinued and the losses recognised in the
Income statement. The exceptional charge relating to revenue
derivatives and fuel derivatives has been recorded in the Income
statement within Passenger revenue and Fuel, oil and emission
charges, respectively.
b Long-term fleet plans and associated impairment
The Group derives long-term fleet plans from the cash flow
forecasts arising from the approved business plans. In deriving the
long-term fleet plans, the Group applies judgement with respect to
consideration of the period of temporary and permanent grounding of
fleet assets, the deferral of the delivery of certain aircraft and
the assumptions around specific provisions relating to leased fleet
assets.
In 2020 the Group recognised an impairment charge of EUR856
million, represented by an impairment of fleet assets of EUR837
million and an impairment of other assets of EUR19 million. The
fleet impairment relates to 82 aircraft, their associated engines
and rotable inventories that have been stood down permanently and 2
further aircraft which have been impaired down to their recoverable
value at December 31, 2020, which includes 32 Boeing 747 aircraft,
23 Airbus A320 aircraft, 15 Airbus A340 aircraft, 4 Airbus A330-200
aircraft, 2 Airbus A318 aircraft, 1 Airbus A321 aircraft, 1 Airbus
A319 aircraft, 2 Boeing 777-200 aircraft and 4 Embraer E170
aircraft. Of the fleet impairment, EUR676 million is recorded
within Property, plant and equipment relating to owned aircraft and
EUR161 million is recorded within Right of use assets relating to
leased aircraft.
Further, the Group has recognised additional inventory write
downs of EUR71 million and additional specific provisions relating
to leased fleet assets of EUR37 million. The inventory write down
expense represents those expendable inventories that, given the
asset impairments, are no longer expected to be utilised. The
charge relating to the recognition of contractual lease provisions
represents the estimation of the additional cost to fulfil the hand
back conditions associated with the leased aircraft that have been
permanently stood down and impaired.
Further information is given in the Alternative performance
measures section, note 12, note 13 and note 24.
c Impairment testing of the Group's cash generating units
Due to the estimation uncertainty of the timing and duration of
the recovery from COVID-19, the Group has adopted a weighted
average multi-scenario discounted cash flow model derived from the
cash flow forecasts from the approved business plans. The Group
exercises judgement in determining the weighting between these
scenarios in the value-in-use model.
Having undertaken this impairment testing, the Group has not
recognised any impairment charge. While no impairment charge is
arising, the headroom in the impairment test of the British
Airways, Iberia and Aer Lingus cash generating units are
particularly sensitive to changes in key assumptions. Further
information is given in note 15.
d Recoverability of deferred tax assets
In determining the recoverable amounts of the Group's deferred
tax assets, the Group applied the future cash flow projections from
the approved business plans. Given the estimation uncertainty of
the timing and duration of the recovery from COVID-19, the Group
exercises judgement in the determination of cash flows during this
recovery and subsequent periods.
As at December 31, 2020, the Group had unrecognised deferred tax
assets of EUR1,337 million relating to tax losses the Group does
not reasonably expect to utilise. Further information is given in
note 9.
Critical accounting estimates, assumptions and judgements -
other transactions
In addition to the estimation uncertainty relating to cash flow
forecasts, the Group has applied the following critical accounting
estimates, assumptions and judgements that impact the consolidated
financial statements:
e Revenue recognition
Historically, where a voucher has been issued to a customer in
the event of a flight cancellation, the Group estimated, based on
historical evidence, the level of such vouchers that would not be
used prior to expiry and recognised revenue accordingly. Due to the
significant level of flight cancellations arising from COVID-19
there remains insufficient historical data by which to reliably
estimate the amount of these vouchers that will not be used prior
to expiry. Accordingly, the Group has not recognised revenue
arising from those vouchers issued due to COVID-19 related
cancellations until either the voucher is redeemed or it
expires.
Significant transactions as a result of COVID-19
The Group has recorded the following additional significant
transactions as a result of management actions in response to
COVID-19:
f Restructuring costs
As a result of the structural changes to the airline sector, the
Group has undertaken significant restructuring activities during
2020 to align the size of the workforce with the expected level of
capacity. This has led to the recognition of severance pay of
EUR313 million arising in British Airways, Aer Lingus, Iberia, and
LEVEL and relating to a forecast reduction of employee numbers of
approximately 10,500 as at December 31, 2020. This amount excludes
those payments associated with restructuring programmes that were
approved prior to COVID-19. These restructuring costs have been
recorded as a charge to Employee costs. Further information is
given in note 24 and the Alternative performance measures
section.
g Rights issue
To enhance the liquidity of the Group as a direct result of the
impact of COVID-19, on October 2, 2020, the Group raised EUR2,741
million through a rights issue of 2,979,443 thousand new ordinary
shares at a price of 92 EUR cents per share on the basis of 3
shares for every 2 existing shares. The transaction resulted in an
increase of Share capital of EUR298 million and an increase in
Share premium of EUR2,443 million. Further information is given in
note 27.
h Loans and borrowings
To enhance liquidity due to the impact of COVID-19, the Group
has entered into a number of financing arrangements during 2020,
which have been fully drawn unless otherwise stated, including:
-- On March 30, 2020, British Airways extended its US dollar
secured Revolving Credit Facility for one year from June 23, 2020
to June 23, 2021. The amount available under the extended facility
was EUR1.18 billion ($1.38 billion) at the time of exercising the
extension and as at December 31, 2020 EUR0.64 billion ($0.79
billion) was available to be drawn;
-- On April 12, 2020, British Airways availed itself of the
Coronavirus Corporate Finance Facility, issuing commercial paper to
the Government of the United Kingdom of EUR328 million (GBP298
million) and repayable in April 2021;
-- On May 1, 2020, Iberia and Vueling entered into floating rate
syndicated financing agreements backed by Spain's ICO for EUR750
million and EUR260 million, respectively. The facilities are
amortising from April 30, 2023 with maturity in 2025;
-- On December 23, 2020 Aer Lingus entered into a floating rate
financing agreement with the Ireland Strategic Investment Fund for
EUR75 million. The facility has a three-year term;
-- On February 22, 2021, British Airways entered into a 5 year
term loan Export Development Guarantee Facility of EUR2.2 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF.
Further information is given in note 23.
i Renewal of the American Express commercial partnership
Under the renewal of the multi-year commercial partnership with
American Express, the Group took into account the liquidity
requirements in the light of COVID-19 in negotiating an upfront
payment of EUR830 million (GBP754 million) related to the
fulfilment of future performance obligations, which included the
pre-purchase of Avios. This upfront payment has been recorded
within Deferred revenue from ticket sales until such time as the
fulfilment of the associated performance obligations. Further
information is given in note 21.
j Government assistance
Given the significant reduction in operations that have occurred
during 2020, the Group has availed itself of the various employee
support mechanisms in the jurisdictions in which it operates. This
has led to an amount of EUR344 million being received directly from
governments (classified as government grants) and savings of EUR214
million (classified as government assistance) where employees have
been paid directly by their respective governments. Those amounts
received in the form of government assistance have been recorded
net within Employee costs. Further information is given in note
32.
k Defined benefit pension scheme contributions
On December 18, 2020 British Airways reached agreement with the
Trustee of NAPS to defer deficit contributions on an interim basis
for the period between October 1, 2020 and January 31, 2021. The
deferral of such contributions amounted to EUR165 million. On
February 19, 2021 British Airways reached further agreement with
the Trustee of NAPS to defer deficit contributions through to
September 30, 2021. The deferral of such contributions will amount
to EUR330 million. Further information is given in note 30 on the
deferral of contributions in 2020 and note 34 on the deferral of
contributions in 2021.
l Sale and repurchase agreements for emission allowances
The Group typically is either issued with or acquires emissions
allowances in advance of the associated flight activity. Due to the
unprecedented decline in capacity during 2020, the Group has
entered into a number of sale and repurchase agreements for
emission allowances, where the Group has sold the excess allowances
with a commitment to repurchase them in 2021. As at December 31,
2020, the value of such emission sale and repurchase agreements was
EUR97 million. These sale and repurchase transactions give rise to
a liability for the repurchase, which is classified as an other
financing liability. Further information is given in note 23a.
m Renegotiation of Air Europa acquisition
On November 4, 2019, the Group entered into an agreement to
acquire the entire share capital of Air Europa for EUR1 billion,
subject to receipt of the approval by the European Commission.
During the course of 2020 and as a result of the impact COVID-19
has had on both the Group and Air Europa, the Group had been
negotiating with the current shareholder of Air Europa regarding
amending the agreement to better reflect the current economic
environment. On January 19, 2021, the Group announced the
successful completion of these negotiations, which has resulted in
the reduction of the purchase price to EUR500 million and deferred
this payment until the sixth anniversary of the date of completion
of the acquisition conditional on the satisfactory negotiation
between Iberia and SEPI regarding the non-financial terms
associated with the financial support provided by SEPI to Iberia.
The transaction is still subject to approval by the European
Commission. Further information is given in note 34.
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 year to December 31, 2020
2020
============================================================
Other
British Aer Group
EUR million Airways Iberia Vueling Lingus companies(1) Total
================================== ======== ======= ======= ======= ============= ========
Revenue
Passenger revenue 3,242 1,148 577 376 169 5,512
Cargo revenue 994 224 - 88 - 1,306
Other revenue 232 605 5 - 146 988
================================== ======== ======= ======= ======= ============= ========
External revenue 4,468 1,977 582 464 315 7,806
Inter-segment revenue 90 282 (8) 3 343 710
================================== ======== ======= ======= ======= ============= ========
Segment revenue 4,558 2,259 574 467 658 8,516
================================== ======== ======= ======= ======= ============= ========
Depreciation and amortisation
charge (1,214) (370) (277) (133) (84) (2,078)
Impairment charge (445) (242) (68) (24) (98) (877)
Operating loss (4,378) (1,411) (875) (563) (199) (7,426)
================================== ======== ======= ======= ======= ============= ========
Exceptional items(2) (1,778) (652) (252) (202) (177) (3,061)
Operating loss before exceptional
items (2,600) (759) (623) (361) (22) (4,365)
================================== ======== ======= ======= ======= ============= ========
Net non-operating costs (384)
================================== ======== ======= ======= ======= ============= ========
Loss before tax (7,810)
================================== ======== ======= ======= ======= ============= ========
Total assets 17,707 7,009 2,850 1,814 884 30,264
Total liabilities (15,979) (7,014) (3,299) (1,495) (1,161) (28,948)
================================== ======== ======= ======= ======= ============= ========
1 Includes eliminations on total assets of EUR14,998 million and
total liabilities of EUR5,100 million.
2 For details on exceptional items refer to the Alternative performance measures section.
For the year to December 31, 2019
2019
============================================================
Other
British Aer Group
EUR million Airways Iberia Vueling Lingus companies(1) Total
==================================== ======== ======= ======= ======= ============= ========
Revenue
Passenger revenue 13,307 4,020 2,437 2,060 644 22,468
Cargo revenue 805 255 - 54 3 1,117
Other revenue 752 912 18 2 237 1,921
==================================== ======== ======= ======= ======= ============= ========
External revenue 14,864 5,187 2,455 2,116 884 25,506
Inter-segment revenue 242 458 - 9 575 1,284
==================================== ======== ======= ======= ======= ============= ========
Segment revenue 15,106 5,645 2,455 2,125 1,459 26,790
==================================== ======== ======= ======= ======= ============= ========
Depreciation, amortisation and
impairment (1,258) (390) (250) (130) (83) (2,111)
Operating profit 1,510 497 240 276 90 2,613
==================================== ======== ======= ======= ======= ============= ========
Exceptional items(2) (672) (672)
Operating profit before exceptional
items 2,182 497 240 276 90 3,285
==================================== ======== ======= ======= ======= ============= ========
Net non-operating costs (338)
==================================== ======== ======= ======= ======= ============= ========
Profit before tax 2,275
==================================== ======== ======= ======= ======= ============= ========
Total assets(3) 22,102 8,733 3,756 2,131 (1,271) 35,451
Total liabilities(3) (15,235) (6,940) (3,354) (1,320) (1,773) (28,622)
==================================== ======== ======= ======= ======= ============= ========
1 Includes eliminations on total assets of EUR14,982 million and
total liabilities of EUR4,603 million.
2 For details on exceptional items refer to the Alternative performance measures section.
3 Total assets and total liabilities at December 31, 2019 have
been reclassified for the effects given in note 2.
b Geographical analysis
Revenue by area of original sale
Year to December
31
==================
EUR million 2020 2019
============== ======== ========
UK 2,390 8,362
Spain 1,845 4,399
USA 933 4,379
Rest of world 2,638 8,366
============== ======== ========
7,806 25,506
============== ======== ========
Assets by area
December 31, 2020
Property,
plant Intangible
EUR million and equipment assets
============== ============== ==========
UK 11,313 1,251
Spain 4,850 1,353
USA 122 15
Rest of world 1,246 589
============== ============== ==========
17,531 3,208
============== ============== ==========
December 31, 2019
Property,
plant Intangible
EUR million and equipment assets
============== ============== ==========
UK 12,214 1,401
Spain 5,324 1,402
USA 188 19
Rest of world 1,442 620
============== ============== ==========
19,168 3,442
============== ============== ==========
5 Expenses by nature
Operating result is arrived at after charging
Depreciation, amortisation and impairment of non-current
assets:
EUR million 2020 2019
========================================================= ===== =====
Depreciation charge on right of use assets 1,153 1,153
Depreciation charge on owned assets 720 776
Impairment charge on owned property, plant and equipment 681 -
Amortisation and impairment of intangible assets 196 142
Impairment charge on right of use assets 161 -
Depreciation charge on other leasehold interests 44 40
========================================================= ===== =====
2,955 2,111
========================================================= ===== =====
Cost of inventories:
EUR million 2020 2019
========================================================== ===== =====
Cost of inventories recognised as an expense, mainly fuel 1,405 3,242
Impairment charge on inventories(1) 71 -
========================================================== ===== =====
1,476 3,242
========================================================== ===== =====
1 For details regarding the impairment charge on inventories refer to note 3.
6 Auditor's remuneration
The fees for audit and non-audit services provided by the
auditor of the Group's consolidated financial statements and of
certain individual financial statements of the consolidated
companies, Ernst & Young S.L., and by companies belonging to
Ernst & Young's network, were as follows:
EUR'000 2020 2019
=============================================================== ===== =====
Fees payable for the audit of the Group and individual
accounts 4,180 3,916
Fees payable for other services:
Audit of the Group's subsidiaries pursuant to legislation 696 632
Other services pursuant to legislation 532 496
Other services relating to taxation 30 3
Other assurance services 350 727
Services relating to working capital review 1,036 1,218
Services relating to corporate finance transactions 370 175
All other services 55 3
=============================================================== ===== =====
7,249 7,170
=============================================================== ===== =====
7 Employee costs and numbers
EUR million 2020 2019
========================================= ===== =====
Wages and salaries 2,236 3,334
Social security costs 385 561
Costs related to pension scheme benefits 247 932
Share-based payment (credit)/charge (8) 34
Other employee costs(1) 700 773
========================================= ===== =====
Total employee costs 3,560 5,634
========================================= ===== =====
1 Other employee costs include allowances and accommodation for crew.
The number of employees during the year and at December 31 was
as follows:
2020 2019
=========================================== ========================================
December 31, December 31,
2020 2019
================ ========================= ============= =========================
Average Average
number Number Percentage number Number Percentage
of employees(1) of employees of women of employees of employees of women
======================== ================ ============= ========== ============= ============= ==========
In the air:
Cabin crew 7,689 17,946 71% 25,774 25,342 71%
Pilots 4,787 7,794 6% 8,217 8,310 6%
On the ground:
Airports 8,841 14,339 39% 19,689 18,970 39%
Corporate 7,954 11,246 48% 11,798 11,855 48%
Maintenance 5,153 6,410 7% 7,620 7,593 8%
Senior executives 196 193 30% 201 198 30%
======================== ================ ============= ========== ============= ============= ==========
34,620 57,928 73,299 72,268
======================== ================ ============= ========== ============= ============= ==========
1 The average number of employees excludes those employees on
furlough, wage support and equivalent schemes, including the
Temporary Redundancy Plan arrangements in Spain. For further
details see note 32. The total average number of employees
including those in these schemes is 65,481.
The number of employees is based on actual headcount. The 2019
figures have been updated to represent actual headcount (rather
than manpower equivalent as disclosed in the prior year), and
classified according to the updated categories (rather in the
categories of senior executives, ground employees and technical
crew as disclosed in the prior year), to align with the categories
used in the Non-Financial Information Statement.
The average manpower equivalent for 2020 was 60,612 (2019:
66,034), which includes employees on furlough, wage support and
equivalent schemes, including Temporary Redundancy Plan
arrangements in Spain.
8 Finance costs, income and other non-operating
(charges)/credits
a Finance costs
EUR million 2020 2019
========================================== ===== =====
Interest expense on:
Bank borrowings (45) (12)
Asset financed liabilities (41) (9)
Lease liabilities (442) (489)
Provisions unwinding of discount (14) (37)
Other borrowings (103) (77)
Capitalised interest on progress payments 8 17
Other finance costs (33) (4)
========================================== ===== =====
(670) (611)
========================================== ===== =====
b Finance income
EUR million 2020 2019
====================================== ==== ====
Interest on interest-bearing deposits 21 47
Other finance income 20 3
====================================== ==== ====
41 50
====================================== ==== ====
c Net financing credit relating to pensions
EUR million 2020 2019
========================================== ==== ====
Net financing credit relating to pensions 4 26
========================================== ==== ====
d Other non-operating charges
EUR million 2020 2019
========================================================== ==== ====
Gains/(losses) on sale of property, plant and equipment
and investments 38 (22)
Credit related to equity investments (note 17) 1 3
Share of profits in investments accounted for using the
equity method (note 16) 1 6
Realised (losses)/gains on derivatives not qualifying for
hedge accounting (13) 8
Unrealised (losses)/gains on derivatives not qualifying
for hedge accounting (31) 1
========================================================== ==== ====
(4) (4)
========================================================== ==== ====
9 Tax
a Tax charges
Tax (charge)/credit in the Income statement, Other comprehensive
income and Statement of changes in equity:
2020 2019
============================================== ==============================================
Other Statement Other Statement
Income comprehensive of changes Income comprehensive of changes
EUR million statement income in equity Total statement income in equity Total
==================== ========== ============== =========== ===== ========== ============== =========== =====
Current tax
Movement in respect
of prior years 6 - - 6 26 (8) - 18
Movement in respect
of current year 273 (17) - 256 (494) 146 - (348)
==================== ========== ============== =========== ===== ========== ============== =========== =====
Total current tax 279 (17) - 262 (468) 138 - (330)
==================== ========== ============== =========== ===== ========== ============== =========== =====
Deferred tax
Movement in respect
of prior years (8) - - (8) (14) - - (14)
Movement in respect
of current year 690 129 (2) 817 (79) (403) (1) (483)
Rate change/rate
differences (74) 44 - (30) 1 3 - 4
==================== ========== ============== =========== ===== ========== ============== =========== =====
Total deferred tax 608 173 (2) 779 (92) (400) (1) (493)
==================== ========== ============== =========== ===== ========== ============== =========== =====
Total tax 887 156 (2) 1,041 (560) (262) (1) (823)
==================== ========== ============== =========== ===== ========== ============== =========== =====
The current tax credit in Other comprehensive income relates to
cash flow hedges of EUR17 million (2019: EUR16 million) and
employee retirement benefit plans of EURnil (2019: EUR154
million).
Tax in the Statement of changes in equity relates to share-based
payment schemes of EUR2 million (2019: EUR1 million).
Within tax in Other comprehensive income is a tax credit of
EUR92 million (2019: tax credit of EUR184 million) that may be
reclassified to the Income statement and a tax credit of EUR64
million (2019: tax credit of EUR165 million) that will not.
b Current tax (liability)/asset
EUR million 2020 2019
============================= ===== =====
Balance at January 1 (6) 218
Income statement 279 (468)
Other comprehensive income (17) 138
Cash (45) 119
Offset against other taxes (152) -
Exchange movements and other (6) (13)
============================= ===== =====
Balance at December 31 53 (6)
============================= ===== =====
Current tax asset 101 186
Current tax liability (48) (192)
============================= ===== =====
Balance at December 31 53 (6)
============================= ===== =====
A tax repayment of EUR152 million arising from losses carried
back to an earlier period was offset, by HMRC, against liabilities
arising in relation to other taxes.
c Deferred tax asset/(liability)
Tax loss
carried
forward
Borrowings Employee Fair and
on right leaving Employee value Share-based other Other
Fixed of use indemnities benefit gain/ payment tax temporary
EUR million assets Leases assets and others plans losses schemes credits differences Total
============== ======= ====== ========== =========== ======== ======= =========== ======== =========== =====
Balance at
January
1, 2020(1) (732) (195) 24 312 323 70 19 401 34 256
Income
statement 116 (76) (2) (120) 3 - (6) 643 50 608
Other
comprehensive
income - - - 3 (4) 118 - 56 - 173
Statement of
changes
in equity - - - - - - (2) - - (2)
Exchange
movements
and other 27 23 (1) (1) (24) 7 (1) (10) (20) -
============== ======= ====== ========== =========== ======== ======= =========== ======== =========== =====
Balance at
December
31, 2020 (589) (248) 21 194 298 195 10 1,090 64 1,035
============== ======= ====== ========== =========== ======== ======= =========== ======== =========== =====
Balance at
January
1, 2019(1) (712) (148) 31 348 545 234 16 411 31 756
Income
statement 4 (26) (7) (52) (7) - 5 (10) 1 (92)
Other
comprehensive
income - - - 13 (240) (173) - - - (400)
Statement of
changes
in equity - - - - - - (1) - - (1)
Exchange
movements
and other (24) (21) - 3 25 9 (1) - 2 (7)
============== ======= ====== ========== =========== ======== ======= =========== ======== =========== =====
Balance at
December
31, 2019(1) (732) (195) 24 312 323 70 19 401 34 256
============== ======= ====== ========== =========== ======== ======= =========== ======== =========== =====
EUR million 2020 2019(1)
======================= ===== =======
Deferred tax asset 1,075 546
Deferred tax liability (40) (290)
======================= ===== =======
Balance at December 31 1,035 256
======================= ===== =======
1 Deferred taxes arising on Employee benefit plans at December
31, 2019 and January 1, 2019 have been reclassified for the effects
given in note 2.
The deferred tax assets mainly arise in Spain and the UK and are
expected to reverse beyond one year. Recognition of the deferred
tax assets is supported by the expected reversal of deferred tax
liabilities in corresponding periods, and projections of operating
performance laid out in the Management approved business plans.
d Reconciliation of the total tax charge in the income
statement
The tax credit/(charge) is calculated at the domestic rates
applicable to (losses)/pro ts in the country in which the
(losses)/profits arise. The tax credit (2019: charge) on the loss
for the year to December 31, 2020 (2019: profit) is lower (2019:
higher) than the notional tax credit (2019: charge). The
differences are explained below:
EUR million 2020 2019
========================================================= ======= =====
Accounting (loss)/profit before tax (7,810) 2,275
========================================================= ======= =====
Weighted average tax credit/(charge) of the Group(1) 1,615 (440)
Unrecognised losses and deductible temporary differences
arising in the year (342) (11)
Disposal and write down of investments (83) -
Effect of tax rate changes (74) 1
Employee benefit plans accounted for net of withholding
tax - recurring 2 7
Employee benefit plans accounted for net of withholding
tax - non-recurring - (128)
Prior year assets derecognised (176) -
Investment incentives 2 11
Effect of lower tax rate in the Canary Islands (40) (3)
Movement in respect of prior years (2) 12
Non-deductible expenses - recurring items (22) (14)
Other items 7 5
========================================================= ======= =====
Tax credit/(charge) in the income statement 887 (560)
========================================================= ======= =====
1 The expected tax credit/(charge) is calculated by aggregating
the expected tax charges arising in each company in the Group and
changes each year as tax rates and profit mix change. The corporate
tax rates for the Group's main countries of operation are Spain 25%
(2019: 25%), the UK 19% (2019: 19%) and Ireland 12.5% (2019:
12.5%).
e Payroll related taxes and UK Air Passenger Duty
The Group was also subject to other taxes paid during the year
which are as follows:
EUR million 2020 2019
====================== ==== =====
Payroll related taxes 400 555
UK Air Passenger Duty 307 967
====================== ==== =====
707 1,522
====================== ==== =====
f Factors that may affect future tax charges
Unrecognised deductible temporary differences and losses
EUR million 2020 2019
========================================= ===== ====
Income tax losses
Spanish corporate income tax losses 848 11
Openskies SASU trading losses 450 249
UK trading losses 39 25
----------------------------------------- ----- ----
1,337 285
Other losses and temporary differences
UK capital losses 350 335
Spanish deductible temporary differences 1,287 36
Irish capital losses 25 25
----------------------------------------- ----- ----
1,662 396
========================================= ===== ====
None of the unrecognised temporary differences have an expiry
date.
Unrecognised temporary differences - investment in subsidiaries
and associates
No deferred tax liability has been recognised in respect of
EUR547 million (2019: EUR2,959 million) of temporary differences
relating to subsidiaries and associates. The Group either controls
the reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future or no tax
consequences would arise from their reversal to a material
extent.
Tax rate changes
A reduction in the UK corporation tax rate to 17 per cent
(effective April 1, 2020) was substantively enacted on September 6,
2016. This reduction from 19 per cent to 17 per cent was reversed
in Finance Act 2020, which has led to the remeasurement of deferred
tax balances and will increase the Group's future current tax
charge accordingly.
g Tax related contingent liabilities
The Group has certain contingent liabilities, across all taxes,
which at December 31, 2020 amounted to EUR166 million (December 31,
2019: EUR165 million). No material losses are likely to arise from
such contingent liabilities. The tax related contingent liabilities
include 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 EUR92 million
(2019: EUR90 million), being the amount in the tax assessment with
an estimate of the interest accrued on that assessment through to
December 31, 2020.
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 Company does not expect a hearing at the National High
Court until 2022 at the earliest.
The Company disputes the technical merits of the assessment and
ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain. The Company believes that it has
strong arguments to support its appeals. The Company does not
consider it appropriate to make a provision for these amounts and
accordingly has recognised this matter as a contingent
liability.
10 Earnings per share
EUR million 2020 2019
========================================================= ======= =====
(Losses)/earnings attributable to equity holders of the
parent for basic (losses)/earnings (6,923) 1,715
Interest expense on convertible bonds - 26
========================================================= ======= =====
Diluted (losses)/earnings attributable to equity holders
of the parent and diluted (losses)/earnings per share (6,923) 1,741
========================================================= ======= =====
2020 2019
Number Number
'000 '000(1)
======================================================= ========= =========
Weighted average number of ordinary shares in issue(2) 3,528,052 3,055,638
Assumed conversion on convertible bonds - 59,398
Dilutive employee share schemes outstanding - 22,305
======================================================= ========= =========
Weighted average number for diluted earnings per share 3,528,052 3,137,341
======================================================= ========= =========
EUR cents 2020 2019(1)
=========================== ======= =======
Basic earnings per share (196.2) 56.1
=========================== ======= =======
Diluted earnings per share (196.2) 55.5
=========================== ======= =======
1 Earnings per share information has been restated for the
comparative period presented, by adjusting the weighted average
number of shares to include the impact of the rights issue (note
27). The discount element inherent in the rights issue has been
accounted for as a bonus issue of 1,071,565 thousand shares in
2019.
2 In 2020, includes 734,657 thousand shares as the weighted
average impact for 2,979,443 thousand new ordinary shares issued
through the rights issue (note 27).
The effect of the assumed conversion of the IAG EUR500 million
convertible bond 2022 and outstanding employee share schemes is
antidilutive for the year to December 31, 2020, and therefore has
not been included in the diluted earnings per share
calculation.
The calculation of basic and diluted earnings per share before
exceptional items is included in the Alternative performance
measures section.
11 Dividends
EUR million 2020 2019
====================================================== ==== ====
Cash dividend declared
Interim dividend for 2019 of 14.5 EUR cents per share - 288
Final dividend for 2019 of 17.0 EUR cents per share - 337
Special dividend for 2018 of 35.0 EUR cents per share - 695
====================================================== ==== ====
Proposed dividends on ordinary shares are subject to approval at
the Annual Shareholders' Meeting and, subject to approval, are
recognised as a liability on that date.
As a result of the impact of COVID-19, on April 2, 2020, the
Board of Directors of the Group resolved to withdraw the proposal
to the subsequent Annual Shareholders' Meeting to pay a final
dividend for 2019 of 17.0 EUR cents per share.
The dividend paid in the year to December 31, 2020 of EUR53
million relates to the withholding tax on the 2019 interim
dividend, which was proposed in October 2019.
12 Property, plant and equipment
EUR million Fleet Property Equipment Total
================================== ======= ======== ========= =======
Cost
Balance at January 1, 2019 25,296 2,923 1,505 29,724
Additions 3,946 67 147 4,160
Modification of leases 128 94 - 222
Disposals (1,319) (85) (71) (1,475)
Reclassifications 44 - (44) -
Exchange movements 1,287 163 68 1,518
================================== ======= ======== ========= =======
Balance at December 31, 2019 29,382 3,162 1,605 34,149
Additions 2,854 84 32 2,970
Modification of leases 21 16 (1) 36
Disposals (3,878) (95) (50) (4,023)
Reclassifications (4) 8 (4) -
Exchange movements (1,439) (193) (81) (1,713)
================================== ======= ======== ========= =======
December 31, 2020 26,936 2,982 1,501 31,419
================================== ======= ======== ========= =======
Depreciation and impairment
Balance at January 1, 2019 10,776 1,078 948 12,802
Depreciation charge for the year 1,710 169 90 1,969
Disposals (447) (63) (57) (567)
Reclassifications 8 - (8) -
Exchange movements 660 65 52 777
================================== ======= ======== ========= =======
Balance at December 31, 2019 12,707 1,249 1,025 14,981
Depreciation charge for the year 1,659 165 93 1,917
Impairment charge for the year(1) 820 - 22 842
Disposals (2,886) (52) (44) (2,982)
Exchange movements (729) (80) (61) (870)
================================== ======= ======== ========= =======
December 31, 2020 11,571 1,282 1,035 13,888
================================== ======= ======== ========= =======
1 For details regarding the impairment charge on fleet assets
refer to note 3 and the Alternative performance measures section.
The impairments principally arose from the permanent grounding of
specific fleet assets and accordingly their full net book value was
impaired. However, certain fleet assets have been impaired down to
their fair value, which was determined based on independent
appraisals of their market value.
Net book values
December 31, 2020 15,365 1,700 466 17,531
December 31, 2019 16,675 1,913 580 19,168
================== ====== ===== === ======
Analysis at December 31, 2020
Owned 5,457 920 382 6,759
Right of use assets (note 13) 9,124 695 56 9,875
Progress payments 710 85 28 823
Assets not in current use 74 - - 74
============================== ====== ===== === ======
Property, plant and equipment 15,365 1,700 466 17,531
============================== ====== ===== === ======
Analysis at December 31, 2019
Owned 5,321 1,028 460 6,809
Right of use assets (note 13) 9,746 774 68 10,588
Progress payments 1,525 110 52 1,687
Assets not in current use 83 1 - 84
============================== ====== ===== === ======
Property, plant and equipment 16,675 1,913 580 19,168
============================== ====== ===== === ======
The net book value of property comprises:
EUR million 2020 2019
======================================== ===== =====
Freehold 485 560
Right of use assets (note 13) 695 774
Long leasehold improvements > 50 years 297 321
Short leasehold improvements < 50 years 223 258
======================================== ===== =====
Property 1,700 1,913
======================================== ===== =====
At December 31, 2020, long-term borrowings of the Group are
secured on owned fleet assets with a net book value of EUR2,794
million (2019: EUR1,576 million).
13 Leases
a Amounts recognised in the Consolidated balance sheet
Property, plant and equipment includes the following amounts
relating to right of use assets:
EUR million Fleet Property Equipment Total
================================== ====== ======== ========= ======
Cost
Balance at January 1, 2019 12,491 734 119 13,344
Additions 1,039 13 16 1,068
Modifications of leases 128 94 - 222
Disposals (23) - - (23)
Reclassifications(1) (290) (4) (16) (310)
Exchange movements 509 45 4 558
================================== ====== ======== ========= ======
December 31, 2019 13,854 882 123 14,859
================================== ====== ======== ========= ======
Additions 1,194 58 1 1,253
Modifications of leases 21 16 (1) 36
Disposals (77) (6) (22) (105)
Reclassifications(1) (389) - 3 (386)
Exchange movements (595) (57) (5) (657)
================================== ====== ======== ========= ======
December 31, 2020 14,008 893 99 15,000
================================== ====== ======== ========= ======
Depreciation and impairment
Balance at January 1, 2019 3,056 - 36 3,092
Depreciation charge for the year 1,032 104 17 1,153
Disposals (21) - - (21)
Reclassifications(1) (123) - - (123)
Exchange movements 164 4 2 170
================================== ====== ======== ========= ======
December 31, 2019 4,108 108 55 4,271
================================== ====== ======== ========= ======
Depreciation charge for the year 1,035 103 15 1,153
Impairment charge for the year(2) 161 - - 161
Disposals (53) (5) (22) (80)
Reclassifications(1) (166) - (3) (169)
Exchange movements (201) (8) (2) (211)
================================== ====== ======== ========= ======
December 31, 2020 4,884 198 43 5,125
================================== ====== ======== ========= ======
Net book value
December 31, 2020 9,124 695 56 9,875
December 31, 2019 9,746 774 68 10,588
================================== ====== ======== ========= ======
1 Amounts with a net book value of EUR217 million (2019: EUR187
million) were reclassified from ROU assets to Owned Property, plant
and equipment at the cessation of the respective leases.
2 For details regarding the impairment charge on fleet assets
refer to note 3 and the Alternative performance measures
section.
Interest-bearing long-term borrowings includes the following
amount relating to lease liabilities:
EUR million 2020 2019
======================== ======= =======
January 1 11,046 11,123
Additions 1,179 1,017
Modifications of leases 20 182
Repayments (1,919) (1,941)
Interest expense 442 489
Exchange movements (744) 176
======================== ======= =======
December 31 10,024 11,046
======================== ======= =======
Current 1,560 1,694
Non-current 8,464 9,352
======================== ======= =======
b Amounts recognised in the Consolidated income statement
EUR million 2020 2019
============================================================= ===== =====
Amounts not included in the measurement of lease liabilities
Variable lease payments 1 28
Expenses relating to short-term leases 42 74
Expenses relating to leases of low-value assets, excluding
short-term leases of low value assets - 1
Amounts expensed as a result of the recognition of ROU
assets and lease liabilities
Interest expense on lease liabilities 442 489
Gain arising from sale and leaseback transactions (10) (1)
Depreciation charge for the year 1,153 1,153
Impairment charge for the year 161 -
============================================================= ===== =====
During 2020 the IASB issued 'COVID-19 related rent concessions -
amendment to IFRS 16 Leases' to provide a practical expedient to
lessees from applying IFRS 16 guidance on lease modification
accounting for rent concessions for those lease modifications
arising as a direct result of COVID-19. The Group has applied this
practical expedient to all such modifications in the preparation of
the consolidated financial statements. The net impact on the Income
statement for 2020 has been a credit of EUR2 million reflecting the
changes to lease payments that arose from such concessions.
c Amounts recognised in the Consolidated cash flow statement
The Group had total cash outflows for leases of EUR1,997 million
in 2020 (2019: EUR2,057 million).
The Group had total cash inflows associated with sale and
leaseback transactions of EUR898 million (2019: EUR824
million).
The Group is exposed to future cash outflows (on an undiscounted
basis) as at December 31, 2020, for which no amount has been
recognised in relation to leases not yet commenced to which the
Group is committed of EUR183 million (2019: EUR787 million).
d Maturity profile of the lease liabilities.
The maturity profile of the lease liabilities is disclosed in
note 25e.
e Extension options
The Group has certain leases which contain extension options
exercisable by the Group prior to the non-cancellable contract
period. Where practicable, the Group seeks to include extension
options in new leases to provide operational flexibility. The Group
assesses at lease commencement whether it is reasonably certain to
exercise the extension options.
The Group is exposed to future cash outflows (on an undiscounted
basis) as at December 31, 2020, for which no amount has been
recognised, for potential extension options of EUR998 million
(2019: EUR871 million) due to it not being reasonably certain that
these leases will be extended.
14 Capital expenditure commitments
Capital expenditure authorised and contracted for but not
provided for in the accounts amounts to EUR10,545 million (December
31, 2019: EUR12,830 million). The majority of capital expenditure
commitments are denominated in US dollars, and as such are subject
to changes in exchange rates.
The outstanding commitments include EUR10,485 million for the
acquisition of 26 Airbus A320s (from 2021 to 2025), 38 Airbus A321s
(from 2021 to 2024), 1 Airbus A330-300 (in 2021), 26 Airbus A350s
(from 2021 to 2024), 18 Boeing 777-9s (from 2024 to 2027), 10
Boeing 787-10s (from 2021 to 2024) and 2 Embraer E190s (in 2021).
The Group has certain rights to cancel commitments in the event of
significant delays to aircraft deliveries caused by the aircraft
manufacturers. No such rights had been exercised as at December 31,
2020.
15 Intangible assets and impairment review
a Intangible assets
Customer
loyalty Landing
EUR million Goodwill Brand programmes rights(1) Software Other Total
============================ ======== ===== =========== ========== ======== ===== =====
Cost
Balance at January 1,
2019 595 451 253 1,559 1,116 211 4,185
Additions - - - 5 232 120 357
Disposals - - - - (28) (55) (83)
Exchange movements 3 - - 52 56 6 117
============================ ======== ===== =========== ========== ======== ===== =====
Balance at December 31,
2019 598 451 253 1,616 1,376 282 4,576
Additions - - - - 141 51 192
Disposals - - - - (18) (121) (139)
Reclassifications - - - - 43 (46) (3)
Exchange movements (5) - - (61) (68) (5) (139)
============================ ======== ===== =========== ========== ======== ===== =====
December 31, 2020 593 451 253 1,555 1,474 161 4,487
============================ ======== ===== =========== ========== ======== ===== =====
Amortisation and impairment
Balance at January 1,
2019 249 - - 106 577 55 987
Amortisation charge for
the year - - - 6 131 5 142
Disposals - - - - (28) - (28)
Exchange movements - - - 3 30 - 33
============================ ======== ===== =========== ========== ======== ===== =====
Balance at December 31,
2019 249 - - 115 710 60 1,134
Amortisation charge for
the year - - - 6 151 4 161
Impairment charge for
the year - - - 15 20 - 35
Disposals - - - - (7) - (7)
Exchange movements - - - (4) (38) (2) (44)
============================ ======== ===== =========== ========== ======== ===== =====
December 31, 2020 249 - - 132 836 62 1,279
============================ ======== ===== =========== ========== ======== ===== =====
Net book values
December 31, 2020 344 451 253 1,423 638 99 3,208
December 31, 2019 349 451 253 1,501 666 222 3,442
============================ ======== ===== =========== ========== ======== ===== =====
1 The net book value includes non-UK and non-EU based landing
rights of EUR88 million (2019: EUR94 million) that have a definite
life. The remaining life of these landing rights is 15 years.
b Impairment review
The carrying amounts of intangible assets with indefinite life
and goodwill allocated to cash generating units (CGUs) of the Group
are:
Customer
Landing loyalty
EUR million Goodwill rights Brand programmes Total
================================ ======== ======= ===== =========== =====
2020
Iberia
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2020 - 423 306 - 729
================================ ======== ======= ===== =========== =====
British Airways
January 1, 2020 49 816 - - 865
Exchange movements (5) (53) - - (58)
================================ ======== ======= ===== =========== =====
December 31, 2020 44 763 - - 807
================================ ======== ======= ===== =========== =====
Vueling
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2020 28 94 35 - 157
================================ ======== ======= ===== =========== =====
Aer Lingus
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2020 272 62 110 - 444
================================ ======== ======= ===== =========== =====
IAG Loyalty
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2020 - - - 253 253
================================ ======== ======= ===== =========== =====
Other CGUs
January 1, 2020 - 12 - - 12
Impairment charge for the year - (12) - - (12)
================================ ======== ======= ===== =========== =====
December 31, 2020 - - - - -
================================ ======== ======= ===== =========== =====
December 31, 2020 344 1,342 451 253 2,390
================================ ======== ======= ===== =========== =====
Customer
Landing loyalty
EUR million Goodwill rights Brand programmes Total
================================ ======== ======= ===== =========== =====
2019
Iberia
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2019 - 423 306 - 729
================================ ======== ======= ===== =========== =====
British Airways
January 1, 2019 46 767 - - 813
Exchange movements 3 49 - - 52
================================ ======== ======= ===== =========== =====
December 31, 2019 49 816 - - 865
================================ ======== ======= ===== =========== =====
Vueling
January 1, 2019 28 89 35 - 152
Additions - 5 - - 5
================================ ======== ======= ===== =========== =====
December 31, 2019 28 94 35 - 157
================================ ======== ======= ===== =========== =====
Aer Lingus
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2019 272 62 110 - 444
================================ ======== ======= ===== =========== =====
IAG Loyalty
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2019 - - - 253 253
================================ ======== ======= ===== =========== =====
Other CGUs
================================ ======== ======= ===== =========== =====
January 1 and December 31, 2019 - 12 - - 12
================================ ======== ======= ===== =========== =====
December 31, 2019 349 1,407 451 253 2,460
================================ ======== ======= ===== =========== =====
Basis for calculating recoverable amount
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 2, 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 approved the Group
three-year business plan in the fourth quarter of the year. The
business plan cash flows used in the value-in-use calculations
reflect the Group's estimated climate related impacts that are
foreseeable and 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 reflected the
increased risks arising from COVID-19, including updated projected
cash flows for the decreased activity from 2021 through to the end
of 2023 and an increase in the pre-tax discount rates to
incorporate increased equity market volatility. For each of the
Group's CGUs the key assumptions used in the value-in-use
calculations are as follows:
2020
===================================================
British
Per cent Airways Iberia Vueling Aer Lingus IAG Loyalty
=============================== ======== ======= ======= ========== ===========
Operating margin (20)-16 (12)-11 (22)-12 (14)-13 25-27
ASK as a proportion of 2019(1) 45-95 49-98 46-107 40-100 n/a
Long-term growth rate 2.1 2.0 1.8 1.9 2.0
Pre-tax discount rate 11.2 11.6 11.5 10.4 10.3
=============================== ======== ======= ======= ========== ===========
1 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.
2019
==================================================
British
Per cent Airways Iberia Vueling Aer Lingus IAG Loyalty
============================= ======== ====== ======= ========== ===========
Operating margin 15 10-15 10-14 13-15 20-23
Average ASK growth per annum 2-4 3 1-5 2-11 n/a
Long-term growth rate 2.2 1.8 1.5 1.8 1.8
Pre-tax discount rate 8.0 9.1 9.4 8.0 8.5
============================= ======== ====== ======= ========== ===========
Within 3 years
Jet fuel price ($ per MT) 12 months 1-2 years 2-3 years and thereafter
========================== ========== ========= ========= ===============
2020 373 420 449 449
2019 639 612 598 598
========================== ========== ========= ========= ===============
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
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
in the fourth quarter of each year 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 December 31, 2020 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
per cent 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. These sensitivities, in part, incorporate the
potential impact that climate related risks would have on the
Group.
For the British Airways, Iberia and Aer Lingus CGUs, while the
recoverable amounts are estimated to exceed the carrying amounts by
EUR8,702 million, EUR1,701 million and EUR1,348 million,
respectively, the recoverable amounts would be below the carrying
amounts when applying reasonable possible changes in assumptions in
each of the following scenarios:
-- British Airways : (i) if ASKs had been five per cent lower
combined with a fuel price increase of 19 per cent; and (ii) if the
fuel price had been 36 per cent higher;
-- Iberia : (i) if ASKs had been five per cent lower combined
with a reduction of the long-term growth rate to 0.2 per cent; and
(ii) if operating margin had been two per cent lower combined with
a reduction of the long-term growth rate to 1.7 per cent; (iii) if
ASKs had been five per cent lower combined with a fuel price
increase of 8 per cent; and (iv) if the fuel price had been 20 per
cent higher; and
-- Aer Lingus : (i) if ASKs had been five per cent lower
combined with a fuel price increase of 26 per cent.
For the remainder of the reasonable possible changes in key
assumptions applied to the British Airways, Iberia and Aer Lingus
CGUs and for all the reasonable possible changes in key assumptions
applied to the remaining CGUs, no impairment arises.
For impairment charges recognised in relation to landing rights
and fleet assets stood down permanently at December 31, 2020, refer
to note 3 and the Alternative performance measures section.
16 Investments
a Investments in subsidiaries
The Group's subsidiaries at December 31, 2020 are listed in the
Group investments section.
All subsidiary undertakings are included in the consolidation.
The proportion of the voting rights in the subsidiary undertakings
held directly do not differ from the proportion of ordinary shares
held. There have been no significant changes in ownership interests
of subsidiaries during the year.
The total non-controlling interest at December 31, 2020 is EUR6
million (2019: EUR6 million).
British Airways Employee Benefit Trustee (Jersey) Limited, a
wholly-owned subsidiary of British Airways, governs the British
Airways Plc Employee Share Ownership Trust (the Trust). The Trust
is not a legal subsidiary of IAG; however, it is consolidated
within the Group results.
b Investments in associates and joint ventures
The share of assets, liabilities, revenue and profit of the
Group's associates and joint ventures, which are included in the
Group's financial statements, are as follows:
EUR million 2020 2019
==================== ==== ====
Total assets 73 122
Total liabilities (50) (92)
Revenue 22 112
Profit for the year 1 6
==================== ==== ====
The detail of the movement in Investment in associates and joint
ventures is shown as follows:
EUR million 2020 2019
========================== ==== ====
At beginning of year 31 31
Share of retained profits 1 6
Dividends received (3) (5)
Exchange movements - (1)
========================== ==== ====
29 31
========================== ==== ====
At December 31, 2020 there are no restrictions on the ability of
associates or joint ventures to transfer funds to the parent and
there are no related contingent liabilities.
At both December 31, 2020 and December 31, 2019 the investment
in Sociedad Conjunta para la Emisión y Gestión de Medios de Pago
EFC, S.A. exceeded 50 per cent ownership by the Group (50.5 per
cent). The entity is treated as a joint venture as decisions
regarding its strategy and operations require the unanimous consent
of the parties who share control, including IAG.
17 Other equity investments
Other equity investments include the following:
EUR million 2020 2019
==================== ==== ====
Listed securities
Comair Limited - 10
Unlisted securities 29 72
==================== ==== ====
29 82
==================== ==== ====
The credit relating to other equity investments was EUR1 million
(2019: EUR3 million).
18 Trade and other receivables
EUR million 2020 2019
==================================== ===== =====
Amounts falling due within one year
Trade receivables 682 2,368
Provision for expected credit loss (125) (113)
==================================== ===== =====
Net trade receivables 557 2,255
Prepayments and accrued income 596 1,040
Other non-trade receivables 196 274
==================================== ===== =====
1,349 3,569
==================================== ===== =====
Amounts falling due after one year
Prepayments and accrued income 226 258
Other non-trade receivables 2 15
==================================== ===== =====
228 273
==================================== ===== =====
Movements in the provision for expected credit loss were as
follows:
EUR million 2020 2019
======================================== ==== ====
At beginning of year 113 98
Provided during the year 18 22
Released during the year (2) (1)
Receivables written off during the year (1) (8)
Exchange movements (3) 2
======================================== ==== ====
125 113
======================================== ==== ====
Trade receivables are generally non-interest-bearing and on 30
days terms (2019: 30 days).
The credit risk exposure on the Group's trade receivables is set
out below:
December 31, 2020
30-180 180-365 > 365
EUR million Current <30 days days days days
=================================== ======= ======== ====== ======= =====
Trade receivables 345 114 88 11 124
Expected credit loss rate 0.9% 0.2% 1.1% 72.7% 91.1%
=================================== ======= ======== ====== ======= =====
Provision for expected credit loss 3 - 1 8 113
=================================== ======= ======== ====== ======= =====
December 31, 2019
30-180 180-365 > 365
EUR million Current <30 days days days days
=================================== ======= ======== ====== ======= =====
Trade receivables 1,411 198 338 78 343
Expected credit loss rate 0.03% 0.2% 0.9% 9.0% 29.7%
=================================== ======= ======== ====== ======= =====
Provision for expected credit loss 1 - 3 7 102
=================================== ======= ======== ====== ======= =====
19 Cash, cash equivalents and other current interest-bearing
deposits
EUR million 2020 2019
=========================================================== ===== =====
Cash at bank and in hand 1,882 2,320
Short-term deposits maturing within three months 3,892 1,742
=========================================================== ===== =====
Cash and cash equivalents 5,774 4,062
Current interest-bearing deposits maturing after three
months 143 2,621
=========================================================== ===== =====
Cash, cash equivalents and other interest-bearing deposits 5,917 6,683
=========================================================== ===== =====
Cash at bank is primarily held in AAA money market funds and
bank deposits. Short-term deposits are for periods up to three
months and earn interest based on the floating deposit rates.
At December 31, 2020 the Group had no outstanding bank
overdrafts (2019: nil).
Current interest-bearing deposits are made for periods in excess
of three months with maturity typically within 12 months and earn
interest based on the market rates available at the time the
deposit was made.
At December 31, 2020 Aer Lingus held EUR38 million of restricted
cash (2019: EUR41 million) within interest-bearing deposits
maturing after more than three months to be used for
employee-related obligations.
a Net debt
Movements in net debt were as follows:
Balance Balance
at January Exchange New leases at December
EUR million 1, 2020 Cash flows movements and modifications Non-cash 31, 2020
===================================== =========== ========== ========== ================== ======== ============
Bank, other loans, asset financed
liabilities and other financing
liabilities 3,208 2,589 (227) - 85 5,655
Lease liabilities 11,046 (1,536) (726) 1,179 61 10,024
===================================== =========== ========== ========== ================== ======== ============
Liabilities from financing activities 14,254 1,053 (953) 1,179 146 15,679
===================================== =========== ========== ========== ================== ======== ============
Cash and cash equivalents (4,062) (1,940) 228 - - (5,774)
Current interest-bearing deposits (2,621) 2,366 112 - - (143)
===================================== =========== ========== ========== ================== ======== ============
7,571 1,479 (613) 1,179 146 9,762
===================================== =========== ========== ========== ================== ======== ============
Balance Balance
at January Exchange New leases at December
EUR million 1, 2019 Cash flows movements and modifications Non-cash 31, 2019
===================================== =========== ========== ========== ================== ======== ============
Bank, other loans and asset
financed liabilities 1,581 1,556 (12) - 83 3,208
Lease liabilities 11,123 (1,507) 176 1,199 55 11,046
===================================== =========== ========== ========== ================== ======== ============
Liabilities from financing activities 12,704 49 164 1,199 138 14,254
===================================== =========== ========== ========== ================== ======== ============
Cash and cash equivalents (3,837) (85) (140) - - (4,062)
Current interest-bearing deposits (2,437) (103) (81) - - (2,621)
===================================== =========== ========== ========== ================== ======== ============
6,430 (139) (57) 1,199 138 7,571
===================================== =========== ========== ========== ================== ======== ============
20 Trade and other payables
EUR million 2020 2019
=================================== ===== =====
Trade creditors(1) 1,609 2,311
Other creditors 679 1,099
Other taxation and social security 149 271
Accruals and deferred income 373 663
=================================== ===== =====
2,810 4,344
=================================== ===== =====
1 Trade creditors includes EUR55 million (2019: EURnil) due to
suppliers that have signed up to supply chain financing programmes
offered by a number of partner financial institutions. Under these
programmes either or both: (i) the suppliers can elect on an
invoice-by-invoice basis to receive a discounted early payment from
the partner financial institutions rather than being paid in line
with the agreed payment terms; and/or (ii) the Group elects on an
invoice-by-invoice basis for the partner financial institution to
pay the supplier in line with the agreed payment terms and the
Group enters into payment terms with the partner financial
institution of up to 120 days with interest incurred at rates
between 2.5 per cent and 3.5 per cent.
The Group assesses the arrangement against indicators to assess
if liabilities which suppliers have transferred to the partner
financial institutions under the supplier financing programmes
continue to meet the definition of trade creditors or should be
classified as borrowings. The cash flows arising from such
arrangements are reported within cash flows from operating
activities or within cash flows from financing activities, in the
Consolidated cash flow statement, depending on whether the
associated liabilities meet the definition of trade creditors or as
borrowings.
At December 31, 2020 the liabilities met the criteria of Trade
creditors and are excluded from the Net debt table in note 19a.
Average payment days to suppliers - Spanish Group companies
Days 2020 2019
============================================== ==== ====
Average payment days for payment to suppliers 43 33
Ratio of transactions paid 36 32
Ratio of transactions outstanding for payment 135 43
============================================== ==== ====
EUR million 2020 2019
=========================== ===== =====
Total payments made 3,694 7,165
Total payments outstanding 293 114
=========================== ===== =====
21 Deferred revenue on ticket sales
Customer Sales
loyalty in advance
EUR million programmes of carriage Total
================================================= =========== ============ =======
Balance at January 1, 2020 1,917 3,569 5,486
Changes in estimates - 291 291
Revenue recognised in the income statement(1, 2) (260) (6,032) (6,292)
Loyalty points issued to customers 361 8 369
Cash received from customers(3, 4) 850 4,714 5,564
Exchange movements (143) (145) (288)
================================================= =========== ============ =======
Balance at December 31, 2020 2,725 2,405 5,130
================================================= =========== ============ =======
Analysis:
Current 2,252 2,405 4,657
Non-current 473 - 473
================================================= =========== ============ =======
2,725 2,405 5,130
================================================= =========== ============ =======
Customer Sales
loyalty in advance
EUR million programmes of carriage Total
================================================= =========== ============ ========
Balance at January 1, 2019 1,769 3,066 4,835
Changes in estimates 6 (20) (14)
Revenue recognised in the income statement(1, 2) (805) (22,691) (23,496)
Loyalty points issued to customers 844 47 891
Cash received from customers(4) - 23,029 23,029
Exchange movements 103 138 241
================================================= =========== ============ ========
Balance at December 31, 2019 1,917 3,569 5,486
================================================= =========== ============ ========
1 Where the Group acts as an agent in the provision of
redemption products and services to customers through loyalty
programmes, or in the provision of interline flights to passengers,
revenue is recognised in the Income statement net of the related
costs.
2 Included within revenue recognised in the Income statement is
an amount of EUR2,006 million previously held as deferred revenue
at January 1, 2020 (at January 1, 2019: EUR3,361 million).
3 Included within cash received from customers is an amount of
EUR830 million received from American Express upon signing of the
multi-year commercial partnership renewal with IAG Loyalty and
unwinds over the duration of the contract term as the associated
performance obligations are fulfilled.
4 Cash received from customers is net of refunds.
Deferred revenue relating to customer loyalty programmes
consists primarily of revenue allocated to performance obligations
associated with Avios. Avios are issued by the Group's airlines
through their loyalty programmes, or are sold to third parties such
as credit card providers, who issue them as part of their loyalty
programme. Avios do not have an expiry date and can be redeemed at
any time in the future. Revenue may therefore be recognised at any
time in the future.
Deferred revenue in respect of sales in advance of carriage
consists of revenue allocated to airline tickets to be used for
future travel. Typically these tickets expire within 12 months
after the planned travel date, if they are not used within that
time period, however, with the significant disruption caused by the
COVID-19 pandemic, the Group has extended the expiry period up to
24 months after the planned travel date, depending on the operating
company.
22 Other long-term liabilities
EUR million 2020 2019
============================= ==== ====
Non-current trade creditors 49 6
Accruals and deferred income 91 65
============================= ==== ====
140 71
============================= ==== ====
23 Long-term borrowings
a Current
EUR million 2020 2019
============================================ ===== =====
Bank and other loans 90 75
Bank and other loans less than 12 months(1) 329 -
Asset financed liabilities 139 74
Other financing liabilities(2) 97 -
Lease liabilities 1,560 1,694
============================================ ===== =====
Interest-bearing borrowings 2,215 1,843
============================================ ===== =====
1 Bank and other loans less than 12 months represents borrowings
with a term on inception of less than 12 months in duration.
2 Other financing liabilities include sale and repurchase
agreements entered into during the course of 2020 with regard to
emission allowances and represents the amount the Group is expected
to repurchase during the course of 2021.
b Non-current
EUR million 2020 2019
============================ ====== ======
Bank and other loans 2,950 1,879
Asset financed liabilities 2,050 1,180
Lease liabilities 8,464 9,352
============================ ====== ======
Interest-bearing borrowings 13,464 12,411
============================ ====== ======
Banks and other loans are repayable up to the year 2027.
Long-term borrowings of the Group amounting to EUR2,412 million
(2019: EUR1,520 million) are secured on owned fleet assets with a
net book value of EUR2,794 million (2019: EUR1,576 million) (note
12). Asset financing liabilities are all secured on the associated
aircraft or property, plant and equipment.
On April 12, 2020, British Airways availed itself of the
Coronavirus Corporate Finance Facility, issuing commercial paper to
the Government of the United Kingdom of EUR328 million (GBP298
million) and repayable in April 2021 for a principal value of
GBP300 million.
On May 1, 2020, Iberia and Vueling entered into floating rate
syndicated financing agreements backed by Spain's ICO for EUR750
million and EUR260 million, respectively. The facilities are
amortising from April 30, 2023 with maturity in 2025.
On May 19, 2020, British Airways entered into a syndicated
mortgage loan of EUR639 million ($750 million) secured on specific
aircraft. The loan was repaid in full on December 17, 2020.
On June 10, 2020, Iberia entered into a mortgage loan of EUR194
million ($228 million) secured on specific aircraft. The loan was
repaid in full on December 22, 2020.
On December 23, 2020, Aer Lingus entered into a floating rate
financing agreement with the Ireland Strategic Investment Fund
(ISIF) for EUR75 million. The facility is repayable in 2023.
In July 2019, two senior unsecured bonds were issued by the
Group for an aggregate principal amount of EUR1 billion; EUR500
million fixed rate 0.50 per cent due in 2023, and EUR500 million
fixed rate 1.50 per cent due in 2027.
During 2019 the Group early redeemed all of the EUR500 million
0.25 per cent convertible bonds due in 2020.
In November 2020, the Group entered into an asset-financing
structure, under which nine aircraft were sold and leased back by
December 31, 2020, with a further five aircraft expected to be sold
and leased back during 2021. These transactions mature between 2028
and 2032. This arrangement was transacted through an unconsolidated
structured entity, which in turn issued the British Airways Pass
Through Certificates, Series 2020-1, commonly referred to as
Enhanced Equipment Trust Certificates (EETCs). Accordingly as at
December 31, 2020, the Group recognised EUR472 million of Asset
financed liabilities with a further EUR351 million expected to
arise during the aforementioned sale and lease backs during
2021.
In the third quarter of 2019, the Group entered into an
asset-financing structure, under which eight aircraft were sold and
leased back, during the course of 2019 and 2020, with the
transactions maturing between 2029 and 2034. This arrangement was
transacted through an unconsolidated structured entity, which in
turn issued the British Airways Pass Through Certificates, Series
2019-1. In doing so the Group recognised EUR725 million of Asset
financed liabilities.
As at December 31, 2020, Asset financed liabilities include
cumulative amounts of EUR1,312 million (2019: EUR416 million)
associated with transactions with unconsolidated structured
entities having issued EETCs.
c Total borrowings
EUR million 2020 2019
========================================= ====== ======
Interest-bearing long-term borrowings 13,464 12,411
Bank and other loans less than 12 months 329 -
Current portion of long-term borrowings 1,886 1,843
========================================= ====== ======
Interest-bearing long-term borrowings 15,679 14,254
========================================= ====== ======
d Bank and other loans
EUR million 2020 2019
============================================================== ===== =====
Floating rate ICO guaranteed loans(1) 1,009 -
EUR500 million fixed rate 0.50 per cent bond 2023(2) 498 497
EUR500 million fixed rate 1.50 per cent bond 2027(2) 497 496
EUR500 million fixed rate 0.625 per cent convertible bond
2022(3) 480 470
CCFF pound sterling commercial paper(4) 329 -
Floating rate euro mortgage loans secured on aircraft(5) 198 226
Fixed rate unsecured bonds(6) 137 136
Fixed rate unsecured US dollar mortgage loan(7) 97 71
ISIF facility(8) 75 -
Fixed rate Chinese yuan mortgage loans secured on aircraft(9) 25 40
Fixed rate unsecured euro loans with the Spanish State
(Department of Industry)(10) 24 18
============================================================== ===== =====
3,369 1,954
Less current instalments due on bank and other loans (419) (75)
============================================================== ===== =====
2,950 1,879
============================================================== ===== =====
1 On April 30, 2020, Iberia and Vueling entered into floating
rate syndicated financing agreements of EUR750 million and EUR260
million respectively. The loans are repayable between 2023 and
2025. The ICO in Spain guarantees 70 per cent of the value of
loans. The loans contain a number of non-financial covenants to
protect the position of the banks involved, including restrictions
on the upstreaming of cash to the rest of the IAG companies.
2 In July 2019, the Group issued two tranches of senior
unsecured bonds for an aggregate principal amount of EUR1 billion,
EUR500 million due July 4, 2023 and EUR500 million due July 4,
2027. The bonds bear a fixed rate of interest of 0.5 per cent and
1.5 per cent per annum annually payable in arrears, respectively.
The bonds were issued at 99.417 per cent and 98.803 per cent of
their principal amount, respectively, and, unless previously
redeemed or purchased and cancelled, will be redeemed at 100 per
cent of their principal amount on their respective maturity
dates.
3 Senior unsecured bond convertible into ordinary shares of IAG
was issued by the Group in November 2015; EUR500 million fixed rate
0.625 per cent raising net proceeds of EUR494 million and due in
2022. The Group holds an option to redeem the convertible bond at
its principal amount, together with accrued interest, no earlier
than two years prior to the final maturity date. The bond contains
dividend protection and a total of 40,306,653 options related to
the bond were outstanding at December 31, 2020.
4 On April 12, 2020, British Airways availed itself of the
Coronavirus Corporate Finance Facility (CCFF) implemented by the
Government of the United Kingdom. Under the CCFF, British Airways
issued commercial paper to the government of the United Kingdom of
EUR328 million (GBP298 million). This loan is repayable in April
2021.
5 Floating rate euro mortgage loans are secured on specific
aircraft assets of the Group and bear interest of between 0.04 and
1.01 per cent. The loans are repayable between 2024 and 2027.
6 Total of EUR200 million fixed rate unsecured bonds between 3.5
to 3.75 per cent coupon repayable between 2022 and 2027.
7 Fixed rate unsecured US dollar mortgage loan bearing interest
between 1.38 to 2.86 per cent. The loan is repayable between 2023
and 2026.
8 On December 23, 2020, Aer Lingus entered into a floating rate
financing agreement with the Ireland Strategic Investment Fund
(ISIF) for EUR75 million. The facility is repayable in 2023.
9 Fixed rate Chinese yuan mortgage loans are secured on specific
aircraft assets of the Group and bear interest of 5.20 per cent.
The loans are repayable in 2022.
10 Fixed rate unsecured euro loans with the Spanish State
(Department of Industry) bear interest of between nil and 5.68 per
cent and are repayable between 2021 and 2028.
e Total loans, lease liabilities, other financing liabilities
and asset financed liabilities
Million 2020 2019
================================== ========= =========
Loans
Bank:
US dollar $121 $79
Pound sterling GBP299 GBP-
Euro EUR1,303 EUR380
Chinese yuan CNY 201 CNY 314
================================== ========= =========
EUR1,756 EUR491
================================== ========= =========
Fixed rate bonds:
Euro EUR1,613 EUR1,463
================================== ========= =========
EUR1,613 EUR1,463
================================== ========= =========
Asset financed liabilities
US dollar $2,080 $996
Euro EUR448 EUR319
Japanese yen Yen4,883 Yen4,867
================================== ========= =========
EUR2,189 EUR1,254
================================== ========= =========
Other financing liabilities
Euro EUR97 EUR-
================================== ========= =========
EUR97 EUR-
================================== ========= =========
Lease liabilities
US dollar $8,436 $8,408
Euro EUR1,858 EUR2,142
Japanese yen Yen74,734 Yen77,984
Pound sterling GBP608 GBP597
================================== ========= =========
EUR10,024 EUR11,046
================================== ========= =========
Total interest-bearing borrowings EUR15,679 EUR14,254
================================== ========= =========
24 Provisions
Employee
leaving
indemnities
and other
Restoration employee Legal
and handback Restructuring related claims Other
EUR million provisions provisions provisions provisions provisions Total
=============================== ============= ============= ============ =========== =========== =====
Net book value January 1, 2020 1,675 528 664 82 98 3,047
Reclassifications - - - (22) - (22)
Provisions recorded during the
year 377 320 76 42 31 846
Utilised during the year (213) (383) (27) (9) (29) (661)
Release of unused amounts (136) (27) - (7) (4) (174)
Unwinding of discount 10 - 3 1 - 14
Exchange differences (125) (6) (2) (3) (2) (138)
=============================== ============= ============= ============ =========== =========== =====
Net book value December 31,
2020 1,588 432 714 84 94 2,912
=============================== ============= ============= ============ =========== =========== =====
Analysis:
Current 270 200 62 47 47 626
Non-current 1,318 232 652 37 47 2,286
=============================== ============= ============= ============ =========== =========== =====
1,588 432 714 84 94 2,912
=============================== ============= ============= ============ =========== =========== =====
Restoration and handback provisions
The provision for restoration and handback costs is maintained
to meet the contractual maintenance and return conditions on
aircraft held under lease. The provision also includes an amount
relating to leased land and buildings where restoration costs are
contractually required at the end of the lease. Such costs are
capitalised within ROU assets. The provision is long-term in
nature, typically covering the leased asset term, which for
aircraft is up to 12 years.
During 2020, as part of certain lease modifications, these
pre-existing restoration and handback conditions have been removed
and the associated provision released to the Income statement.
Within the amounts included in the additions to this provision
is EUR37 million relating to the recognition of contractual lease
provisions, representing the estimation of the additional cost to
fulfil the handback conditions associated with the aforementioned
leased aircraft that have been permanently stood down and
impaired.
Restructuring provisions
Included within the restructuring provision is an amount of
EUR72 million that relates to the voluntary and compulsory
redundancies arising in British Airways, Aer Lingus and LEVEL from
the restructuring plans related to COVID-19. While the majority of
employees affected by these restructuring plans had left the Group
as at December 31, 2020, there remains a small portion of employees
expected to leave the Group over 2021. Refer to note 3 and the
Alternative performance measures section for further
information.
In addition, the restructuring provision includes provisions for
voluntary redundancies including the collective redundancy
programme for Iberia's Transformation Plan implemented prior to
2020, which provides for payments to affected employees until they
reach the statutory retirement age. The amount provided for has
been determined by an actuarial valuation made by independent
actuaries, and was based on the same assumptions as those made to
determine the provisions for obligations to flight crew below, with
the exception of the discount rate, which in this case was 0.00 per
cent. The payments related to this provision will continue over the
next eight years.
At December 31, 2020, EUR428 million of this provision related
to collective redundancy programmes (2019: EUR513 million).
Employee leaving indemnities and other employee related
provisions
This provision includes employees leaving indemnities relating
to staff under various contractual arrangements.
The Group recognises a provision relating to flight crew who,
having met certain conditions, have the option of being placed on
reserve and retaining their employment relationship until reaching
the statutory retirement age, or taking early retirement. The Group
is required to remunerate these employees until they reach the
statutory retirement age, and an initial provision was recognised
based on an actuarial valuation. The provision was reviewed at
December 31, 2020 with the use of independent actuaries using the
projected unit credit method, based on a discount rate consistent
with the iBoxx index of 0.37 per cent and 0.00 per cent (2019:
iBoxx index of 0.59 per cent and 0.00 per cent) depending on
whether the employees are currently active or not, the PERM/F-2000P
mortality tables, and assuming a 1.50 per cent annual increase
(2019: 1.50 per cent annual increase) in the Consumer Price Index
(CPI). This is mainly a long-term provision. The amount relating to
this provision was EUR654 million at December 31, 2020 (2019:
EUR600 million).
Legal claims provisions
Legal claims provisions include:
-- Amounts for multi-party claims from groups of employees on a
number of matters related to its operations, including claims for
additional holiday pay and for age discrimination; and
-- Amounts related to investigations by a number of competition
authorities in connection with alleged anti-competitive activity
concerning the Group's passenger and cargo businesses.
The final amount required to pay the remaining claims and fines
is subject to uncertainty (note 31).
Reclassifications from legal claims provisions include an amount
of EUR22 million relating to the theft of customer data at British
Airways in 2018, which following the issue of the penalty notice by
the UK Information Commissioner's Office on October 16, 2020 has
been reclassified to Other creditors.
Other provisions
Other provisions include a provision for the Emissions Trading
Scheme for CO(2) emitted on flights within the EU in excess of the
EU Emission Allowances granted.
25 Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market
risk (including fuel price risk, foreign currency risk and interest
rate risk), counterparty risk and liquidity risk. Further
information on the Group's financial exposure to these risks is
disclosed on note 26. The Board approves the key strategic
principles and the risk appetite, defining the amount of risk that
the Group is prepared to retain. The Group's financial risk
management focuses on the unpredictability of financial markets and
seeks to minimise the risk of incremental costs arising from
adverse financial markets movements.
The Group Treasury department is responsible for the oversight
of the financial risk management. Fuel price fluctuations, euro-US
dollar and sterling-US dollar exchange rate volatility represents
the largest financial risks facing the Group. Other foreign
exchange currencies and interest rate risks are also the subject of
the Financial Risk Management. The IAG Audit and Compliance
Committee approves the Group hedging profile and delegates to the
operating company Risk Committee to agree on the degree of
flexibility in applying the approved hedging levels. Each operating
company Risk Committee meets at least once a month to review and
approve a mandate to place hedging cover in the market including
the instruments to be used.
The Group Treasury department provides a bi-annual report on the
hedging position to the IAG Management Committee and the Audit and
Compliance Committee. The Board reviews the strategy and risk
appetite once a year.
a Fuel price risk
The Group is exposed to fuel price risk. The Group's fuel price
risk management strategy aims to provide protection against sudden
and significant increases in fuel prices while aiming that the
Group is not competitively disadvantaged in the event of a
substantial fall in the price. The Group Treasury Policies
determine the list of approved over the counter (OTC) derivative
instruments that can be contracted with approved
counterparties.
The Group strategy is to hedge a proportion of fuel consumption
up to three years within the approved hedging profile.
The following table demonstrates the sensitivity of financial
instruments to a reasonable possible change in fuel prices, with
all other variables held constant, on result before tax and
equity:
2020 2019
=================================================== ===============================================
Effect on
Increase/(decrease) Effect on result Effect on Increase/(decrease) result Effect on
in fuel price before tax equity in fuel price before tax equity
per cent EUR million EUR million per cent EUR million EUR million
=================== ================ ============ =================== ============ ============
30 189 525 30 - 1,774
(30) (219) (664) (30) - (1,824)
=================== ================ ============ =================== ============ ============
During the year to December 31, 2020, following a substantial
fall in the global price of crude oil and associated products, the
fair value of such net liability derivative instruments was EUR778
million at December 31, 2020, representing a loss of EUR650 million
since January 1, 2020, which was recognised in Other comprehensive
income. In addition, with the substantial decline in demand for air
travel and the grounding of the majority of the fleet during the
second quarter of 2020, a significant proportion of the associated
hedge relationships were no longer expected to occur and
subsequently fuel hedge accounting was discontinued. As a result of
this discontinuance, EUR1,781 million of the losses were
reclassified to the Income statement and recognised within Fuel,
oil costs and emission costs.
The loss arising from the discontinuance of fuel hedge
accounting has been recorded as an exceptional item. Refer to note
3 and the Alternative performance measures section for further
details.
b Foreign currency risk
The Group presents its consolidated financial statements in
euros, has subsidiaries with functional currencies in euro and
pound sterling, and conducts business in a number of different
countries. Consequently the Group is exposed to currency risk on
revenue, purchases and borrowings that are denominated in a
currency other than the functional currency of the entity. The
currencies in which these transactions are denominated are
primarily euro, US dollar and pound sterling. The Group generates a
surplus in most currencies in which it does business. The US dollar
is an exception as fuel purchases, maintenance expenses and debt
repayments denominated in US dollars typically create a
deficit.
The Group has a number of strategies to hedge foreign currency
risk. The operational US dollar short position is subject to the
same governance structure as the fuel hedging strategy set out
above. The Group strategy is to hedge a proportion of up to three
years within the approved hedging profile.
Each operating company hedges its net balance sheet assets and
liabilities in US dollars through a rolling hedging programme using
a number of derivative instruments to minimise the profit and loss
volatility arising from revaluation of these items into its
functional currency. British Airways utilises its euro, Japanese
yen and Chinese yuan debt repayments as a hedge of future euro,
Japanese yen and Chinese yuan revenues.
The following table demonstrates the sensitivity of the Group's
principal foreign exchange exposure to a reasonable possible change
in the US dollar, pound sterling and Japanese yen exchange rates,
with all other variables held constant, on result before tax and
equity:
Effect Effect Effect
on Strengthening/ on on
Strengthening/ result Effect (weakening) result Effect Strengthening/ result
(weakening) before on in pound before on (weakening) before Effect
in US dollar tax equity sterling tax equity in Japanese tax on equity
rate EUR EUR rate EUR EUR yen rate EUR EUR
per cent million million per cent million million per cent million million
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
2020 10 885 297 10 162 (167) 10 (10) (42)
(10) (931) (359) (10) (161) 157 (10) 10 42
2019 10 22 388 10 (23) (178) 10 (1) (58)
(10) - (365) (10) 20 171 (10) 2 58
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
At December 31, 2020, the fair value of foreign currency net
liability derivatives instruments was EUR321 million, representing
a loss of EUR430 million, since January 1, 2020, which was
recognised in Other comprehensive income. Similar to the fuel price
risk above, a significant proportion of the hedge relationships
associated with fuel foreign currency derivatives and revenue
foreign currency derivatives were no longer expected to occur and
subsequently were discontinued. As a result of this discontinuance,
EUR116 million of the gains associated with the fuel foreign
currency derivatives and EUR56 million of the losses associated
with the revenue foreign currency derivatives were reclassified to
the Income statement and recognised within Fuel, oil costs and
emission costs and within Passenger revenue, respectively.
The gain arising from the discontinuance of foreign currency
hedge accounting has been recorded as an exceptional item. Refer to
note 3 and the Alternative performance measures section for further
details.
c Interest rate risk
The Group is exposed to changes in interest rates on financial
debt, leases, sale and lease backs and on cash deposits.
Interest rate risk on floating rate debt is managed through a
list of approved OTC derivative instruments that can be contracted
with approved counterparties. After taking into account the impact
of these derivatives, 64 per cent of the Group's borrowings were at
fixed rates and 36 per cent were at floating rates.
All cash deposits are generally on tenors less than one year.
The interest rate is predominantly fixed for the tenor of the
deposit.
The following table demonstrates the sensitivity of the Group's
interest rate exposure to a reasonable possible change in the US
dollar, euro and sterling interest rates, on result before tax and
equity:
Effect Effect Effect
Strengthening/ on Strengthening/ on Strengthening/ on
(weakening) result Effect (weakening) result Effect (weakening) result
in before on in before on in sterling before Effect
US interest tax equity euro interest tax equity interest tax on equity
rate EUR EUR rate EUR EUR rate EUR EUR
Basis points million million Basis points million million Basis points million million
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
2020 50 - - 50 9 (8) 50 - -
(50) - - (50) (9) 7 (50) - -
2019 50 - 19 50 (2) 16 50 2 -
(50) - (19) (50) 2 (13) (50) (2) -
===== ============== ======== ======== ============== ======== ======== ============== ======== =========
For details regarding the Group's management of interest rate
benchmark reform, refer to note 25h.
d Counterparty risk
The Group is exposed to the non-performance by its
counterparties in respect of financial assets receivable. The Group
has policies and procedures to monitor the risk by assigning limits
to each counterparty by underlying exposure and by operating
company. The underlying exposures are monitored on a daily basis
and the overall exposure limit by counterparty is periodically
reviewed by using available market information.
The financial assets recognised in the financial statements, net
of impairment losses (if any), represent the Group's maximum
exposure to credit risk, without taking account any guarantees in
place or other credit enhancements.
At December 31, 2020 the Group's credit risk position, allocated
by region, in respect of treasury managed cash and derivatives was
as follows:
Mark-to-market
of treasury controlled
financial
instruments allocated
by geography
=========================
Region 2020 2019
================= ============ ===========
United Kingdom 53% 41%
Spain 3% 3%
Ireland 7% 3%
Rest of Eurozone 16% 30%
Rest of world 21% 23%
================= ============ ===========
e Liquidity risk
The Group invests cash in interest-bearing accounts, time
deposits and money market funds, choosing instruments with
appropriate maturities or liquidity to retain sufficient headroom
to readily generate cash inflows required to manage liquidity risk.
The Group has also committed revolving credit facilities.
At December 31, 2020 the Group had undrawn overdraft facilities
of EUR52 million (2019: EUR13 million). The Group held undrawn
uncommitted money market lines of EURnil (2019: EURnil).
The Group held undrawn general and committed aircraft financing
facilities:
2020
========================
Million Currency EUR equivalent
======================================================= ======== ==============
General facilities(1)
Euro facilities expiring between January and June 2021 EUR126 126
Euro facilities expiring between January and July 2022 EUR95 95
US dollar facility expiring June 2021 $786 643
US dollar facility expiring May 2022 $50 41
======================================================= ======== ==============
905
Committed aircraft facilities
US dollar facility expiring March 2021(2) $428 351
US dollar facilities expiring July 2023(3) $1,013 829
======================================================= ======== ==============
1,180
======================================================= ======== ==============
2019
========================
Million Currency EUR equivalent
======================================================= ======== ==============
General facilities(1)
Euro facilities expiring between January and June 2020 EUR129 129
US dollar facility expiring June 2020 $1,330 1,196
======================================================= ======== ==============
1,325
Committed aircraft facilities
US dollar facilities expiring December 2021(3, 4) $1,217 1,096
======================================================= ======== ==============
1 The general facilities can be drawn at any time at the
discretion of the Group subject to the provision of up to three
days' notice of the intended utilisation, depending on the
facility.
2 The aircraft facility maturing in 2021 is available for
specific committed aircraft deliveries and further information is
given in note 23b.
3 The aircraft facilities maturing in 2023 (2019: maturing in
2021) are available for specific committed aircraft deliveries and
requires the Group to give three months' notice to the counterparty
of its intention to utilise the facilities.
4 The figures relating to the US dollar facilities expiring in
December 2021 have been updated to better reflect the amounts
available to the Group at December 31, 2019.
The following table analyses the Group's (outflows) and inflows
in respect of financial liabilities and derivative financial
instruments into relevant maturity groupings based on the remaining
period at December 31 to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows
and include interest.
Within 6-12 1-2 2-5 More than Total
EUR million 6 months months years years 5 years 2020
======================================= ========= ======= ======= ======= ========= ========
Interest-bearing loans and borrowings:
Asset financing liabilities (101) (97) (193) (571) (1,673) (2,635)
Lease liabilities (901) (919) (1,500) (4,122) (5,962) (13,404)
Fixed rate borrowings (360) (37) (631) (666) (587) (2,281)
Floating rate borrowings (78) (32) (58) (1,179) (41) (1,388)
Other financing liabilities (97) - - - - (97)
Trade and other payables (2,810) - - - - (2,810)
Derivative financial instruments
(assets):
Forward contracts 73 41 33 8 - 155
Fuel derivatives 6 2 1 - - 9
Derivative financial instruments
(liabilities):
Interest rate swaps (13) (13) (25) (14) (2) (67)
Forward contracts (370) (91) (115) (56) - (632)
Fuel derivatives (423) (314) (108) (4) - (849)
======================================= ========= ======= ======= ======= ========= ========
December 31, 2020 (5,074) (1,460) (2,596) (6,604) (8,265) (23,999)
======================================= ========= ======= ======= ======= ========= ========
Within 6-12 1-2 2-5 More than Total
EUR million 6 months months years years 5 years 2019
======================================= ========= ======= ======= ======= ========= ========
Interest-bearing loans and borrowings:
Asset finance obligations (56) (49) (95) (289) (988) (1,477)
Lease liabilities (1,073) (957) (1,753) (4,505) (6,289) (14,577)
Fixed rate borrowings (20) (31) (46) (1,158) (599) (1,854)
Floating rate borrowings (13) (17) (30) (110) (67) (237)
Trade and other payables (3,881) - 1 - - (3,880)
Derivative financial instruments
(assets):
Aircraft lease hedges - - - - - -
Interest rate derivatives 1 1 1 2 - 5
Foreign exchange contracts 115 116 157 96 - 484
Fuel derivatives 66 25 12 2 - 105
Derivative financial instruments
(liabilities):
Aircraft lease hedges - - - - - -
Interest rate derivatives (9) (19) (18) (22) (1) (69)
Foreign exchange contracts (47) (43) (62) (86) - (238)
Fuel derivatives (61) (73) (90) (11) - (235)
======================================= ========= ======= ======= ======= ========= ========
December 31, 2019 (4,978) (1,047) (1,923) (6,081) (7,944) (21,973)
======================================= ========= ======= ======= ======= ========= ========
f Offsetting financial assets and liabilities
The Group enters into derivative transactions under ISDA
(International Swaps and Derivatives Association) documentation. In
general, under such agreements the amounts owed by each
counterparty on a single day in respect of all transactions
outstanding are aggregated into a single net amount that is payable
by one party to the other.
The following financial assets and liabilities are subject to
offsetting, enforceable master netting arrangements and similar
agreements.
December 31, 2020
Gross Net amounts Related
amounts of financial amounts
Gross set off instruments not offset
value in the in the in the
of financial balance balance balance
EUR million instruments sheet(1) sheet sheet(1) Net amount
================================= ============= ========= ============= =========== ==========
Financial assets
Derivative financial assets 165 (1) 164 (13) 151
Financial liabilities
Derivative financial liabilities 1,537 (67) 1,470 (37) 1,433
================================= ============= ========= ============= =========== ==========
1 The Group has pledged cash and cash equivalents as collateral
against certain of its derivative financial liabilities. As
December 31, 2020, the Group recognised EUR66 million of collateral
(2019: EURnil) offset in the balance sheet and EUR24 million (2019:
EURnil) not offset in the balance sheet.
December 31, 2019
Gross Net amounts Related
amounts of financial amounts
Gross set off instruments not offset
value in the in the in the
of financial balance balance balance
EUR million instruments sheet sheet sheet Net amount
================================= ============= ======== ============= =========== ==========
Financial assets
Derivative financial assets 550 42 592 (9) 583
Financial liabilities
Derivative financial liabilities 580 (42) 538 (9) 529
================================= ============= ======== ============= =========== ==========
g Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, to maintain an
optimal capital structure, to reduce the cost of capital and to
provide returns to shareholders.
The Group monitors capital on the basis of the net debt to
EBITDA ratio. For the year to December 31, 2020, the net debt to
EBITDA was minus 4.3 times (2019: 1.4 times). The definition and
calculation for this performance measure is included in the
Alternative performance measures section.
Further detail on liquidity and capital resources and capital
risk management is disclosed in the going concern section in note
2.
h Managing interest rate benchmark reform and associated
risks
Overview
A reform of major interest rate benchmarks is being undertaken
globally, including the replacement of certain interbank offered
rates (IBORs) with alternative nearly risk-free rates (referred to
as 'IBOR reform'). The Group has exposures to IBORs on its
financial instruments that will be replaced or reformed as part of
these market-wide initiatives. The Group anticipates that IBOR
reform will impact its risk management and hedge accounting.
Group Treasury monitors and manages the Group's transition to
alternative rates. Group Treasury tracks which contracts reference
IBOR, whether such contracts will need to be amended, and how to
manage communication about IBOR reform with counterparties.
Derivatives
The Group holds interest rate swaps for risk management purposes
which are designated in cash flow hedge relationships. The interest
rate swaps have floating legs that are indexed to both US dollar
and sterling LIBOR.
Hedge accounting
The Group has evaluated the extent to which its cash flow
hedging relationships are subject to uncertainty driven by IBOR
reform as at December 31, 2020. As part of this evaluation, the
Group has applied the hedging relief provided by the IFRS 9
amendments for IBOR reform phase one. Certain of the Group's hedged
items and hedging instruments continue to be indexed to the
aforementioned LIBORs. These benchmark rates are quoted each day
and the IBOR cash flows are exchanged with counterparties as usual.
However, certain of these LIBOR cash flow hedging relationships
extend beyond the anticipated cessation date. There is uncertainty
about when and how replacement may occur with respect to the
relevant hedged items and hedging instruments. Such uncertainty may
impact the hedging relationship.
Hedging relationships impacted by IBOR reform may experience
ineffectiveness attributable to market participant's expectations
of when the change in rates will occur, which may differ between
the hedged item and the hedging instrument.
The Group's exposure to both US dollar and sterling LIBOR
designated in hedging relationships had a nominal amount of EUR775
million as at December 31, 2020.
26 Financial instruments
a Financial assets and liabilities by category
The detail of the Group's nancial instruments at December 31,
2020 and December 31, 2019 by nature and classi cation for
measurement purposes is as follows:
December 31, 2020
Financial assets
===========================================
Total
carrying
Fair amount
Fair value value by
through through Non- balance
Amortised Other comprehensive Income financial sheet
EUR million cost income statement assets item
========================================= ========= ==================== ========== ========== =========
Non-current assets
Other equity investments - 29 - - 29
Derivative financial instruments - - 42 - 42
Other non-current assets 119 10 - 99 228
========================================= ========= ==================== ========== ========== =========
Current assets
Trade receivables 557 - - - 557
Other current assets 350 - - 442 792
Derivative financial instruments - - 122 - 122
Other current interest-bearing deposits 143 - - - 143
Cash and cash equivalents 5,774 - - - 5,774
========================================= ========= ==================== ========== ========== =========
Financial liabilities
============================================
Total
carrying
Fair amount
Fair value value by
through through Non- balance
Amortised Other comprehensive income financial sheet
EUR million cost income statement liabilities item
======================================== ========== ==================== ========== ============ =========
Non-current liabilities
Lease liabilities 8,464 - - - 8,464
Interest-bearing long-term borrowings 5,000 - - - 5,000
Derivative financial instruments - - 310 - 310
Other long-term liabilities 80 - - 533 613
======================================== ========== ==================== ========== ============ =========
Current liabilities
Lease liabilities 1,560 - - - 1,560
Current portion of long-term borrowings 655 - - - 655
Trade and other payables 2,572 - - 238 2,810
Derivative financial instruments - - 1,160 - 1,160
---------------------------------------- ---------- -------------------- ---------- ------------ ---------
December 31, 2019
Financial assets
===========================================
Total
carrying
Fair value Fair value amount
through through Non- by balance
Amortised Other comprehensive income financial sheet
EUR million cost income statement assets item
======================================== ========= ==================== ========== ========== ===========
Non-current assets
Other equity investments - 82 - - 82
Derivative financial instruments - - 268 - 268
Other non-current assets 133 - - 140 273
======================================== ========= ==================== ========== ========== ===========
Current assets
Trade receivables 2,255 - - - 2,255
Other current assets 414 - - 900 1,314
Derivative financial instruments - - 324 - 324
Other current interest-bearing deposits 2,621 - - - 2,621
Cash and cash equivalents 4,062 - - - 4,062
======================================== ========= ==================== ========== ========== ===========
Financial liabilities
===========================================
Total
carrying
amount
Fair value Fair value by
through through Non- balance
Amortised Other comprehensive Income financial sheet
EUR million cost income statement liabilities item
======================================== ========= ==================== ========== ============ =========
Non-current liabilities
Lease liabilities 9,352 - - - 9,352
Interest-bearing long-term borrowings 3,059 - - - 3,059
Derivative financial instruments - - 286 - 286
Other long-term liabilities 12 - - 59 71
======================================== ========= ==================== ========== ============ =========
Current liabilities
Lease liabilities 1,694 - - - 1,694
Current portion of long-term borrowings 149 - - - 149
Trade and other payables 3,881 - - 463 4,344
Derivative financial instruments - - 252 - 252
======================================== ========= ==================== ========== ============ =========
b Fair value of financial assets and financial liabilities
The fair values of the Group's financial instruments are
disclosed in hierarchy levels depending on the nature of the inputs
used in determining the fair values and using the following methods
and assumptions:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets and liabilities. A market is regarded as active if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service, or regulatory
agency, and those prices represent actual and regularly occurring
market transactions on an arm's length basis. Level 1 methodologies
(market values at the balance sheet date) were used to determine
the fair value of listed asset investments classified as equity
investments and listed interest-bearing borrowings.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not
traded in an active market is determined by valuation techniques.
These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity
specific estimates. Derivative instruments are measured based on
the market value of instruments with similar terms and conditions
at the balance sheet date using forward pricing models. The fair
value of the Group's interest-bearing borrowings including leases
is determined by discounting the remaining contractual cash flows
at the relevant market interest rates at the balance sheet
date.
Level 3: Inputs for the asset or liability that are not based on
observable market data. The principal method of such valuation is
performed using a valuation model that considers the present value
of the dividend cash flows expected to be generated by the
associated assets.
The fair value of cash and cash equivalents, other current
interest-bearing deposits, trade receivables, other current assets
and trade and other payables approximate their carrying value
largely due to the short-term maturities of these instruments.
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2020 are as follows:
Carrying
Fair value value
========================== ========
Level Level Level
EUR million 1 2 3 Total Total
======================================= ===== ===== ===== ===== ========
Financial assets
Other equity investments - - 29 29 29
Derivative financial assets:
Interest rate swaps(1) - 1 - 1 1
Foreign exchange contracts(1) - 154 - 154 154
Fuel derivatives(1) - 9 - 9 9
Financial liabilities
Interest-bearing loans and borrowings:
Asset financed liabilities - 2,417 - 2,417 2,189
Fixed rate borrowings 1,510 560 - 2,070 2,163
Floating rate borrowings - 1,206 - 1,206 1,206
Other financing liabilities - 97 - 97 97
Derivative financial liabilities:
Interest rate derivatives(2) - 63 - 63 63
Foreign exchange contracts(2) - 620 - 620 620
Fuel derivatives(2) - 787 - 787 787
======================================= ===== ===== ===== ===== ========
1 Current portion of derivative financial assets is EUR122 million
2 Current portion of derivative financial liabilities is EUR1,177 million
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2019 are set out below:
Carrying
Fair value value
========================== ========
Level Level Level
EUR million 1 2 3 Total Total
======================================= ===== ===== ===== ===== ========
Financial assets
Other equity investments 10 - 72 82 82
Derivative financial assets:
Interest rate swaps(1) - 1 - 1 1
Foreign exchange contracts(1) - 488 - 488 488
Fuel derivatives(1) - 103 - 103 103
Financial liabilities
Interest-bearing loans and borrowings:
Asset financed liabilities - 1,623 - 1,623 1,254
Fixed rate borrowings 1,640 136 - 1,776 1,728
Floating rate borrowings - 226 - 226 226
Derivative financial liabilities:
Interest rate derivatives(2) - 67 - 67 67
Foreign exchange contracts(2) - 240 - 240 240
Fuel derivatives(2) - 231 - 231 231
======================================= ===== ===== ===== ===== ========
1 Current portion of derivative financial assets is EUR324 million.
2 Current portion of derivative financial liabilities is EUR252 million.
There have been no transfers between levels of fair value
hierarchy during the year.
The financial instruments listed in the previous table are
measured at fair value in the consolidated financial statements,
with the exception of interest-bearing borrowings, which are
measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3
financial assets:
EUR million 2020 2019
================================================ ==== ====
Opening balance for the year 72 63
Additions 3 6
Losses recognised in other comprehensive income (44) -
Exchange movements (2) 3
================================================ ==== ====
Closing balance for the year 29 72
================================================ ==== ====
d Hedges
Cash flow hedges
At December 31, 2020 the Group's principal risk management
activities that were hedging future forecast transactions were:
-- Future loan repayments in foreign currency (predominantly US
dollar loan repayments), hedging foreign exchange fluctuations on
revenue cash inflows. Remeasurement gains and losses on the loans
are recognised in equity and transferred to the income statement
within revenue when the loan is repaid (generally in instalments
over the life of the loan).
-- Foreign exchange contracts, hedging foreign currency exchange
risk on revenue cash inflows and certain operational payments.
Remeasurement gains and losses on the derivatives are recognised in
equity and transferred to the income statement or balance sheet to
match against the related cash inflow or outflow. Reclassification
gains and losses on derivatives, arising from the discontinuance of
hedge accounting, are recognised in the income statement within
fuel, oil costs and emissions charges when the future transaction
is no longer expected to occur.
-- Forward crude, gas oil and jet kerosene derivative contracts,
hedging price risk on fuel expenditure. Remeasurement gains and
losses on the derivatives are recognised in equity and transferred
to the income statement within fuel, oil costs and emissions
charges to match against the related fuel cash outflow.
Reclassification gains and losses on derivatives, arising from the
discontinuance of hedge accounting, are recognised in the income
statement within fuel, oil costs and emissions charges when the
future transaction is no longer expected to occur.
-- Interest rate contracts, hedging interest rate risk on
floating rate debt and certain operational payments.
The amounts included in equity including the periods over which
the related cash flows are expected to occur are summarised
below:
(Gains)/losses in respect of cash flow hedges included
within equity
EUR million 2020 2019
============================================================ ===== ====
Loan repayments to hedge future revenue 220 141
Foreign exchange contracts to hedge future revenue and
expenditure(1) 168 (80)
Crude, gas oil and jet kerosene derivative contracts(1) 295 113
Derivatives used to hedge interest rates(1) 66 72
Instruments for which hedge accounting no longer applies(1) 276 355
============================================================ ===== ====
1,025 601
Related deferred tax credit (168) (94)
============================================================ ===== ====
Total amount included within equity 857 507
============================================================ ===== ====
1 The carrying value of derivative instruments recognised in
assets and liabilities is analysed in parts a and b above.
The notional amounts of significant financial instruments used
as cash flow hedging instruments are set out below:
Total
Notional principal amounts Hedge Within December
(EUR million) range 1 year 1-2 years 2-5 years 31, 2020
===================================== ======= ======= ========= ========= =========
Foreign exchange contracts to hedge
future revenue and expenditure from 1.15 -
US dollars to pound sterling(1) 1.50 2,402 1,321 442 4,165
Foreign exchange contracts to hedge
future revenue and expenditure from 0.74 -
US dollars to euros(1) 1.37 1,009 960 155 2,124
===================================== ======= ======= ========= ========= =========
1 Represents the value of the hedged item.
Total
Notional principal amounts Hedge Within December
(EUR million) range 1 year 1-2 years 2-5 years 31, 2019
===================================== ========== ======= ========= ========= =========
Foreign exchange contracts to hedge
future revenue and expenditure from
US dollars to pound sterling(1) 1.17-1.51 3,493 1,810 1,359 6,662
Foreign exchange contracts to hedge
future revenue and expenditure from 0.74 -
US dollars to euros(1) 1.39 1,397 1,091 483 2,971
===================================== ========== ======= ========= ========= =========
1 Represents the value of the hedged item.
Total
For the year to December 31, recognised
2020 (gains)/
Amounts Discontinuance
associated of hedge Other
Amounts with ineffectiveness accounting amounts Amounts
recognised recognised reclassified reclassified reclassified
in Other in the to the to the to the
comprehensive Income Income Income Balance
(EUR million) income(1) statement(2) statement losses statement sheet
============================= ============= ==================== ============== ========== ============ ============
Loan repayments to hedge
future
revenue 123 - (22) 101 (19) -
Foreign exchange contracts
to hedge future revenue and
expenditure 88 - 54 142 55 32
Crude, gas oil and jet
kerosene
derivative contracts 2,369 2 (1,757) 614 (461) -
Derivatives used to hedge
interest rates 59 - - 59 (30) (32)
Instruments for which hedge
accounting no longer applies - - - - (63) -
============================= ============= ==================== ============== ========== ============ ============
2,639 2 (1,725) 916 (518) -
============================= ============= ==================== ============== ========== ============ ============
1 Amounts recognised in Other comprehensive income represent
gains and losses on the hedging instrument.
2 Ineffectiveness recognised in the Income statement is
presented as Realised and Unrealised gains and losses on
derivatives not qualifying for hedge accounting within
non-operating items.
Total
recognised
For the year to December 31, 2019 (gains)/
Amounts
associated
Amounts with ineffectiveness Amounts Amounts
recognised recognised reclassified reclassified
in Other in the to the to the
comprehensive Income Income Balance
(EUR million) income(1) statement(2) losses statement sheet
==================================== ============== ===================== =========== ============= =============
Loan repayments to hedge future
revenue (106) - (106) (20) -
Foreign exchange contracts to hedge
future revenue and expenditure 20 - 20 99 7
Crude, gas oil and jet kerosene
derivative
contracts (622) 8 (614) (178) -
Derivatives used to hedge interest
rates 56 - 56 (11) -
Instruments for which hedge
accounting
no longer applies (38) - (38) (54) -
==================================== ============== ===================== =========== ============= =============
(690) 8 (682) (164) 7
==================================== ============== ===================== =========== ============= =============
1 Amounts recognised in Other comprehensive income represent
gains and losses on the hedging instrument.
2 Ineffectiveness recognised in the Income statement is
presented as Realised and Unrealised gains and losses on
derivatives not qualifying for hedge accounting within
non-operating items.
The losses associated with the discontinuance of hedge
accounting recognised in the Income statement and the subsequent
fair value movements of those derivative instruments recorded in
the Income statement through to the earlier of the balance sheet
date and the maturity date of the derivative are set out below:
EUR million 2020 2019
============================================================== ===== ====
Losses associated with the discontinuance of hedge accounting
recognised in the Income statement 1,725 -
Fair value movements subsequently recorded in the Income
statement 31 -
============================================================== ===== ====
Total effect of discontinuance of hedge accounting in the
Income statement(1) 1,756 -
============================================================== ===== ====
1 Refer to note 3 and the Alternative performance measures section.
The Group has no significant fair value hedges at December 31,
2020 and 2019.
27 Share capital, share premium and treasury shares
Ordinary
Number share Share
of shares capital premium
Allotted, called up and fully paid '000s EUR million EUR million
=================================================== ========== ============ ============
January 1, 2019: Ordinary shares of EUR0.50 each 1,992,033 996 6,022
Special 2018 dividend of EUR0.35 per share (695)
=================================================== ========== ============ ============
January 1, 2020: Ordinary shares of EUR0.50 each 1,992,033 996 5,327
Share capital reduction (797)
Rights issue 2,979,443 298 2,443
=================================================== ========== ============ ============
December 31, 2020: Ordinary shares of EUR0.10 each 4,971,476 497 7,770
=================================================== ========== ============ ============
a Share capital reduction
On September 8, 2020, the Company undertook a share capital
reduction of EUR797 million, that reduced the nominal value of each
ordinary share from EUR0.50 per share to EUR0.10 per share. A
corresponding amount has been recognised within Capital reserves
(note 29).
b Rights issue
On October 2, 2020, the Company raised EUR2,741 million (and
incurred related transaction costs of EUR70 million as detailed in
Note 29) through a rights issue of 2,979,443,376 new ordinary
shares at a price of 92 EUR cents per share on the basis of 3
shares for every 2 existing shares.
In accordance with accounting standards, the discount element
inherent in the rights issue has been accounted for as a bonus
issue of 1,071,565 thousand shares. Earnings per share information
(note 10) has been restated for the comparative period presented,
by adjusting the weighted average number of shares to include the
impact of the bonus shares.
c Treasury shares
A total of 2.6 million shares were issued to employees during
the year as a result of vesting of employee share schemes. At
December 31, 2020 the Group held 5.1 million shares (2019: 7.7
million) which represented 0.10 per cent of the issued share
capital of the Company.
28 Share-based payments
The Group operates share-based payment schemes as part of the
total remuneration package provided to employees. These schemes
comprise both share option schemes where employees acquire shares
at an option price and share award plans whereby shares are issued
to employees at no cost, subject to the achievement by the Group of
specified performance targets.
a IAG Performance Share Plan
The IAG Performance Share Plan (PSP) is granted to senior
executives and managers of the Group who are most directly involved
in shaping and delivering business success over the medium to long
term. Since 2015, awards have been made as nil-cost options, with a
two-year holding period following the three-year performance
period, before options can be exercised. All awards since 2015 have
three independent performance measures with equal weighting: Total
Shareholder Return (TSR) relative to the STOXX Europe 600 Travel
and Leisure Index (for 2020 awards) or MSCI European Transportation
Index (for prior to 2020 awards), earnings per share, and Return on
Invested Capital.
In 2020, the outstanding PSP awards granted to participants
other than Executive Directors from 2018 onwards were modified, and
the resulting incremental fair value granted of GBP1.61 per award
is recognised over the remaining vesting period.
b IAG Incentive Award Deferral Plan
The IAG Incentive Award Deferral Plan (IADP) is granted to
qualifying employees based on performance and service tests. It
will be awarded when an incentive award is triggered subject to the
employee remaining in employment with the Group for three years
after the grant date. The relevant population will receive 50 per
cent of their incentive award up front in cash, and the remaining
50 per cent in shares after three years through the IADP.
c Share-based payment schemes summary
Vested
Outstanding Rights Outstanding and exercisable
at January Granted issue Lapsed Vested at December December
1, 2020 number adjustment number number 31, 2020 31, 2020
'000s '000s '000s '000s '000s '000s '000s
========================= =========== ======= =========== ======= ======= ============ ================
Performance Share Plans 19,178 7,388 11,323 3,275 1,814 32,800 1,299
Incentive Award Deferral
Plans 4,473 1,694 2,795 12 583 8,367 14
========================= =========== ======= =========== ======= ======= ============ ================
23,651 9,082 14,118 3,287 2,397 41,167 1,313
========================= =========== ======= =========== ======= ======= ============ ================
The weighted average share price at the date of exercise of
options exercised during the year to December 31, 2020 was GBP3.89
(2019: not applicable).
The fair value of equity-settled share-based payment plans
determined using the Monte-Carlo valuation model, taking into
account the terms and conditions upon which the plans were granted,
used the following assumptions:
December December
31, 31,
2020 2019
==================================================== ======== ========
Expected share price volatility (per cent) 35 35
Expected comparator group volatility (per cent) 20 20
Expected comparator group correlation (per cent) 70 55
Expected life of options (years) 4.6 4.8
Weighted average share price at date of grant (GBP) 4.59 5.67
==================================================== ======== ========
Weighted average fair value (GBP) 1.84 1.93
==================================================== ======== ========
Volatility was calculated with reference to the Group's weekly
pound sterling share price volatility. The expected volatility
reflects the assumption that the historical volatility is
indicative of future trends, which may not necessarily be the
actual outcome. The fair value of the PSP also takes into account a
market condition of TSR as compared to strategic competitors. No
other features of share-based payment plans granted were
incorporated into the measurement of fair value.
The Group recognised a share-based payment charge credit of EUR8
million for the year to December 31, 2020 (2019: EUR34
million).
29 Other reserves and non-controlling interests
For the year to December 31, 2020
Other reserves
======================================================================================
Equity
Unrealised portion
gains Cost of Total
and of hedging Currency convertible Merger Capital other Non-controlling
EUR million losses(1) reserve(2) translation(3) bond(4) reserve(5) reserves(6) reserves interest
================= ========== ========== ============== =========== ========== =========== ======== ===============
January 1, 2020 (464) 60 160 62 (2,467) 70 (2,579) 6
Other
comprehensive
loss
for the year:
Cash flow hedges
reclassified
and reported in
net loss:
Passenger
revenue 50 - - - - - 50 -
Fuel and oil
costs 356 - - - - - 356 -
Currency
differences 18 - - - - - 18 -
Finance costs 12 - - - - - 12 -
Discontinuance
of hedge
accounting 1,435 - - - - - 1,435 -
Net change in
fair value
of cash flow
hedges (2,216) - - - - - (2,216) -
Net change in
fair value
of other equity
investments (53) - - - - - (53) -
Net change in
fair value
of cost of
hedging - 10 - - - - 10 -
Cost of hedging
reclassified
and reported in
the net
profit - (19) - - - - (19) -
Currency
translation
differences - - (192) - - - (192) -
Hedges
reclassified and
reported in
property,
plant and
equipment (5) (13) - - - - (18) -
Share capital
reduction - - - - - 797 797 -
================= ========== ========== ============== =========== ========== =========== ======== ===============
December 31, 2020 (867) 38 (32) 62 (2,467) 867 (2,399) 6
================= ========== ========== ============== =========== ========== =========== ======== ===============
Other reserves
=====================================================================================
Equity
Unrealised portion
gains Cost of Redeemed Total
and of hedging Currency convertible Merger capital other Non-controlling
EUR million losses(1) reserve(2) translation(3) bond(4) reserve(5) reserve(6) reserves interest
============== ========== ========== ============== =========== ========== ========== ======== ===============
January 1,
2019 (1,130) 6 (136) 101 (2,467) 70 (3,556) 6
Other
comprehensive
income
for the year:
Cash flow
hedges
reclassified
and reported
in net profit:
Passenger
revenue 55 - - - - - 55 -
Fuel and oil
costs 106 - - - - - 106 -
Currency
differences (26) - - - - - (26) -
Finance
costs 6 - - - - - 6 -
Net change in
fair value of
cash flow
hedges 540 - - - - - 590 -
Net change in
fair value of
other equity
investments (8) - - - - - (8) -
Net change in
fair value of
cost of
hedging - 68 - - - - 18 -
Cost of
hedging
reclassified
and reported
in the net
profit - (10) - - - - (10) -
Currency
translation
differences - - 296 - - - 296 -
Hedges
reclassified
and reported
in property,
plant and
equipment (7) (4) - - - - (11) -
Redemption of
convertible
bond - - - (39) - - (39) -
============== ========== ========== ============== =========== ========== ========== ======== ===============
December 31,
2019 (464) 60 160 62 (2,467) 70 (2,579) 6
============== ========== ========== ============== =========== ========== ========== ======== ===============
1 The unrealised gains and losses reserve records fair value
changes on equity investments and the portion of the gain or loss
on a hedging instrument in a cash flow hedge that is determined to
be an effective hedge. The amounts at December 31, 2020 that relate
to the fair value changes on equity instruments and to the cash
flow hedge reserve were EUR9 million credit and EUR891 million
charge respectively.
2 The cost of hedging reserve records, amongst others, fair
value changes on the time value of options.
3 The currency translation reserve records exchange differences
arising from the translation of the financial statements of
non-euro functional currency subsidiaries and investments accounted
for under the equity method into the Group's reporting currency of
euros. The movement through this reserve is affected by the
fluctuations in the pound sterling to euro foreign exchange
translation rate.
4 The equity portion of convertible bond reserve represents the
equity portion of convertible bonds issued. At December 31, 2019,
this related to the EUR500 million fixed rate 0.625 per cent
convertible bond (note 23). During 2019 the Group exercised its
option to early redeem the EUR500 million fixed rate 0.25 per cent
convertible bond with no conversion to ordinary shares.
5 The merger reserve originated from the merger transaction
between British Airways and Iberia. The balance represents the
difference between the fair value of the Group on the transaction
date, and the fair value of Iberia and the book value of British
Airways (including its reserves).
6 Capital reserves include a Redeemed capital reserve of EUR70
million (2019: EUR70 million) associated with the decrease in share
capital relating to cancelled shares and a Share capital reduction
reserve of EUR797 million (2019: nil) associated with a reduction
in the nominal value of the Company's share capital (note 27).
30 Employee benefit obligations
The Group operates a variety of post-employment benefit
arrangements, covering both defined contribution and defined
benefit schemes. The Group also has a scheme for flight crew who
meet certain conditions and therefore have the option of being
placed on reserve and retaining their employment relationship until
reaching the statutory retirement age, or taking early retirement
(note 24).
Defined contribution schemes
The Group operates a number of defined contribution schemes for
its employees.
Costs recognised in respect of defined contribution pension
plans in Spain, UK and Ireland for the year to December 31, 2020
were EUR235 million (2019: EUR262 million).
Defined benefit schemes
APS and NAPS
The principal funded defined benefit pension schemes within the
Group are the Airways Pension Scheme (APS) and the New Airways
Pension Scheme (NAPS), both of which are in the UK and are closed
to new members. NAPS has been closed to new members since 2004 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).
As part of the closure of NAPS to future accrual in 2018, British
Airways agreed to make certain additional transition payments to
NAPS members if the deficit had reduced more than expected at
either the 2018 or 2021 valuations. No payment was triggered by the
2018 valuation and no allowance for such payments has been made in
the valuation of the defined benefit obligation on the expected
outcome of the 2021 valuation. The NAPS actuarial valuation at
March 31, 2018 resulted in a deficit of EUR2,736 million.
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. The APS actuarial
valuation at March 31, 2018 resulted in a surplus of EUR683
million.
APS and NAPS are governed by separate Trustee Boards. Although
APS and NAPS have separate Trustee Boards, much of the business of
the two schemes is common. Some main Board and committee meetings
are held in tandem although each Trustee Board reaches its
decisions independently. There are three sub committees which are
separately responsible for the governance, operation and
investments of each scheme. British Airways Pension Trustees
Limited holds the assets of both schemes on behalf of their
respective Trustees.
Deficit payment plans are agreed with the Trustee of each scheme
every three years based on the actuarial valuation rather than the
IAS 19 accounting valuation. In October 2019, the latest deficit
recovery plan was agreed as at March 31, 2018 with respect to NAPS
(see note 30i below). The actuarial valuations performed as at
March 31, 2018 for APS and NAPS are different to the valuation
performed as at December 31, 2019 under IAS 19 'Employee Benefits'
mainly due to timing differences of the measurement dates and to
the specific scheme assumptions in the actuarial valuation compared
with IAS 19 guidance used in the accounting valuation assumptions.
For example, IAS 19 requires the discount rate to be based on
corporate bond yields regardless of how the assets are actually
invested, which may not result in the calculations in this report
being a best estimate of the cost to the Group of providing
benefits under either Scheme. The investment strategy of each
Scheme is likely to change over its life, so the relationship
between the discount rate and the expected rate of return on each
Scheme's assets may also change.
Other plans
British Airways provides certain additional post-retirement
healthcare benefits to eligible employees in the US through the US
Post-Retirement Medical Benefit plan (US PRMB) which is considered
to be a defined benefit scheme. In addition, Aer Lingus operates
certain defined benefit plans, both funded and unfunded.
The defined benefit plans expose the Company to actuarial risks,
such as longevity risk, interest rate risk, inflation risk and
market (investment) risk, including currency risk.
Cash payments
Cash payments in respect to pension obligations comprise normal
employer contributions by the Group; deficit contributions based on
the agreed deficit payment plan with APS and NAPS; and cash sweep
payments relating to additional payments made conditional on the
level of cash in British Airways. Total payments for the year to
December 31, 2020 net of service costs were EUR313 million (2019:
EUR865 million) being the employer contributions of EUR318 million
(2019: EUR870 million) less the current service cost of EUR5
million (2019: EUR5 million) (note 30b).
On December 18, 2020 British Airways reached agreement with the
Trustee of NAPS to defer deficit contributions on an interim basis
for the period between October 1, 2020 and January 31, 2021. On
February 19, 2021 British Airways reached further agreement with
the Trustee of NAPS to defer deficit contributions previously
agreed in October 2019 on the March 31, 2018 valuation, through to
September 30, 2021. Under this deferral agreement, the deferred
payments will be incorporated into the future deficit payment plan
and associated deficit contributions arising from the triennial
valuation of the NAPS scheme as at March 31, 2021. If the future
deficit payment plan has not been agreed by September 30, 2021, the
default position is that British Airways will return to making
payments of EUR41 million (GBP38 million) per month from October
2021.
a Employee benefit schemes recognised on the Balance Sheet
2020
=====================================
EUR million APS NAPS Other(1) Total
==================================== ======= ======== ======== ========
Scheme assets at fair value 8,537 22,240 408 31,185
Present value of scheme liabilities (8,143) (22,151) (714) (31,008)
==================================== ======= ======== ======== ========
Net pension asset/(liability) 394 89 (306) 177
Effect of the asset ceiling(2) (124) (479) - (603)
Other employee benefit obligations - - (11) (11)
==================================== ======= ======== ======== ========
December 31, 2020 270 (390) (317) (437)
==================================== ======= ======== ======== ========
Represented by:
Employee benefit assets 282
Employee benefit obligations (719)
==================================== ======= ======== ======== ========
(437)
==================================== ======= ======== ======== ========
2019(3)
=====================================
EUR million APS NAPS Other(1) Total
==================================== ======= ======== ======== ========
Scheme assets at fair value 8,830 22,423 428 31,681
Present value of scheme liabilities (8,401) (21,650) (731) (30,782)
==================================== ======= ======== ======== ========
Net pension asset/(liability) 429 773 (303) 899
Effect of the asset ceiling(2) (127) (847) - (974)
Other employee benefit obligations - - (11) (11)
==================================== ======= ======== ======== ========
December 31, 2019 302 (74) (314) (86)
==================================== ======= ======== ======== ========
Represented by:
Employee benefit assets 314
Employee benefit obligations (400)
==================================== ======= ======== ======== ========
(86)
==================================== ======= ======== ======== ========
1 The present value of scheme liabilities for the US PRMB was
EUR12 million at December 31, 2020 (2019: EUR15 million).
2 APS and NAPS have an accounting surplus under IAS 19, which
would be available to the Group as a refund upon wind up of the
scheme. This refund is restricted due to withholding taxes that
would be payable by the Trustee.
3 Refer to note 2 for information relation to the
reclassification from the Employee benefit obligations to deferred
taxes at December 31, 2019.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
EUR million 2020 2019
========================================= ==== ====
Defined benefit plans:
Current service cost 5 5
Past service cost(1, 2) 7 665
========================================= ==== ====
12 670
Defined contribution plans 235 262
========================================= ==== ====
Pension costs recorded as employee costs 247 932
========================================= ==== ====
1 Refer to the Alternative performance measures section for
amounts recorded within exceptional items in 2019.
2 Includes a past service credit of EURnil (2019: EUR7 million)
relating to schemes other than APS and NAPS.
Pension costs charged as finance costs are:
EUR million 2020 2019
========================================== ===== =====
Interest income on scheme assets (599) (775)
Interest expense on scheme liabilities 581 710
Interest expense on asset ceiling 14 39
========================================== ===== =====
Net financing income relating to pensions (4) (26)
========================================== ===== =====
c Remeasurements recognised in the Statement of other
comprehensive income
EUR million 2020 2019(1)
============================================================= ======= =======
Return on plan assets excluding interest income (2,288) (1,916)
Remeasurement of plan liabilities from changes in financial
assumptions 3,633 3,423
Remeasurement of experience (gains)/losses (355) 193
Remeasurement of the APS and NAPS asset ceilings (320) (1,027)
Exchange movements 8 (13)
============================================================= ======= =======
Pension remeasurements charged to Other comprehensive income 678 660
============================================================= ======= =======
1 Refer to note 2 for information relation to the
reclassification from the Employee benefit obligations to deferred
taxes at December 31, 2019.
d Fair value of scheme assets
A reconciliation of the opening and closing balances of the fair
value of scheme assets is set out below:
EUR million 2020 2019
================================================ ======= =======
January 1 31,681 27,600
Interest income 599 775
Return on plan assets excluding interest income 2,288 1,916
Employer contributions(1) 313 870
Employee contributions 14 6
Benefits paid (1,573) (1,269)
Exchange movements (2,137) 1,783
================================================ ======= =======
December 31 31,185 31,681
================================================ ======= =======
1 Includes employer contributions to APS of EUR2 million (2019:
EUR5 million) and to NAPS of EUR303 million (2019: EUR816 million)
of which deficit funding payments represented EURnil for APS (2019:
EURnil) and EUR296 million for NAPS (2019: EUR797 million).
For both APS and NAPS, the Trustee has ultimate responsibility
for decision making on investments matters, including the
asset-liability matching strategy. The latter is a form of
investing designed to match the movement in pension plan assets
with the movement in the projected benefit obligation over time.
The Trustees' investment committee adopts an annual business plan
which sets out investment objectives and work required to support
achievement of these objectives. The committee also deals with the
monitoring of performance and activities, including work on
developing the strategic benchmark to improve the risk return
profile of the scheme where possible, as well as having a trigger
based dynamic governance process to be able to take advantage of
opportunities as they arise. The investment committee reviews the
existing investment restrictions, performance benchmarks and
targets, as well as continuing to develop the de-risking and
liability hedging portfolio.
Both schemes use derivative instruments for investment purposes
and to manage exposures to financial risks, such as interest rate,
foreign exchange and liquidity risks arising in the normal course
of business. Exposure to interest rate risk is managed through the
use of Inflation-Linked Swap contracts. Foreign exchange forward
contracts are entered into to mitigate the risk of currency
fluctuations.
Scheme assets held by all defined benefit schemes operated by
the Group at December 31 comprise:
EUR million 2020 2019
====================================== ====== ======
Return seeking investments - equities
====== ======
UK 1,465 2,310
Rest of world 4,705 4,774
====== ======
6,170 7,084
Return seeking investments - other
====== ======
Private equity 1,062 1,035
Property 1,798 2,135
Alternative investments 880 1,081
====== ======
3,740 4,251
Liability matching investments
====== ======
UK fixed bonds 6,868 6,356
Rest of world fixed bonds 93 93
UK index-linked bonds 6,513 6,266
Rest of world index-linked bonds 11 120
====== ======
13,485 12,835
Other
Cash and cash equivalents 947 689
Derivatives (228) (344)
Insurance contract 1,660 1,740
Longevity swap 4,424 4,547
Other 987 879
====================================== ====== ======
31,185 31,681
====================================== ====== ======
All equities and bonds have quoted prices in active markets.
For APS and NAPS, the composition of the scheme assets is:
December 31, December 31,
2020 2019
============== ==============
EUR million APS NAPS APS NAPS
========================================= ====== ====== ====== ======
Return seeking investments 138 9,576 347 10,844
Liability matching investments 2,286 11,092 1,897 10,828
========================================= ====== ====== ====== ======
2,424 20,668 2,244 21,672
Insurance contract and related longevity
swap 6,058 - 6,260 -
Other 55 1,572 326 751
========================================= ====== ====== ====== ======
Fair value of scheme assets 8,537 22,240 8,830 22,423
========================================= ====== ====== ====== ======
The strategic benchmark for asset allocations differentiate
between 'return seeking assets' and 'liability matching assets'
depending on the maturity of each scheme. At December 31, 2020, the
benchmark for NAPS was 42.3 per cent (2019: 46 per cent) in return
seeking assets and 57.8 per cent (2019: 54 per cent) in liability
matching investments. Bandwidths are set around these strategic
benchmarks that allow for tactical asset allocation decisions,
providing parameters for the Investment Committee and their
investment managers to work within. APS no longer has a 'strategic
benchmark' as instead, APS now runs off its liquidation portfolio
to a liability matching portfolio of bonds and cash. The actual
asset allocation for APS at December 31, 2020 was 1.4 per cent
(2019: 4 per cent) in return seeking assets and 98.6 per cent
(2019: 96 per cent) in liability matching investments.
APS has an insurance contract with Rothesay Life which covers 24
per cent (2019: 24 per cent) of the pensioner liabilities for an
agreed list of members. The insurance contract is based on future
increases to pensions in line with inflation and will match future
obligations on that basis for that part of the scheme. The
insurance contract can only be used to pay or fund employee
benefits under the scheme. APS also has secured a longevity swap
contract with Rothesay Life, which covers an additional 20 per cent
(2019: 20 per cent) of the pensioner liabilities for the same
members covered by the insurance contract above. The value of the
contract is based on the difference between the value of the
payments expected to be received under this contract and the
pensions payable by the scheme under the contract. The fees are
linked to LIBOR, and an assumed future LIBOR rate has been derived
based on swap prices at December 31, 2020.
During 2018 the Trustee of APS secured a buy-in contract with
Legal & General. The buy-in contract covers all members in
receipt of pension from APS at March 31, 2018, excluding dependent
children receiving a pension at that date and members in receipt of
equivalent pension (EPB) only benefits, who are alive on October 1,
2018. Benefits coming into payment for retirements after March 31,
2018 are not covered. The contract covers benefits payable from
October 1, 2018 onwards. The policy covers approximately 60 per
cent of all benefits APS expects to pay out in future. Along with
existing insurance products (the asset swap and longevity swaps
with Rothesay Life), APS is now 90 per cent protected against all
longevity risk and fully protected in relation to all pensions that
were already being paid as at March 31, 2018. It is also more than
90 per cent protected against interest rates and inflation (on a
Retail Price Index (RPI) basis).
e Present value of scheme liabilities
A reconciliation of the opening and closing balances of the
present value of the defined benefit obligations is set out
below:
EUR million 2020 2019
============================================ ======= =======
January 1 30,782 25,383
Current service cost 5 5
Past service cost/(credit) 7 665
Interest expense 581 710
Remeasurements - financial assumptions 3,633 3,423
Remeasurements of experience (gains)/losses (355) 193
Benefits paid (1,573) (1,269)
Employee contributions 14 6
Exchange movements (2,086) 1,666
============================================ ======= =======
December 31 31,008 30,782
============================================ ======= =======
The defined benefit obligation comprises EUR24 million (2019:
EUR30 million) arising from unfunded plans and EUR30,984 million
(2019: EUR30,752 million) from plans that are wholly or partly
funded.
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling used in
calculating the IAS 19 irrecoverable surplus in APS is set out
below:
EUR million 2020 2019(1)
=================== ===== =======
January 1 974 1,868
Interest expense 14 39
Remeasurements (320) (1,027)
Exchange movements (65) 94
=================== ===== =======
December 31 603 974
=================== ===== =======
1 Refer to note 2 for information relation to the
reclassification from the Employee benefit obligations to deferred
taxes at December 31, 2019. As at January 1, 2019 the
reclassification had the effect of increasing the asset ceiling by
EUR503 million to EUR1,868 million. As at December 31, 2019, the
reclassification had the effect of increasing the remeasurements by
EUR246 million to EUR1,027 million.
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial
valuations were as follows:
2020 2019
==================== ====================
Other Other
Per cent per annum APS NAPS schemes APS NAPS schemes
================================ ==== ==== ======== ==== ==== ========
0.5 - 0.8 -
Discount rate(1) 1.20 1.40 2.4 1.85 2.05 3.2
Rate of increase in pensionable
pay(2) 2.95 - 2.5 2.90 - 2.5
Rate of increase of pensions 1.1 - 1.2 -
in payment(3) 2.95 2.25 3.5 2.90 2.15 3.5
2.5 - 2.5 -
RPI rate of inflation 2.95 2.80 2.7 2.90 - 2.8
1.1 - 1.2 -
CPI rate of inflation 2.25 2.25 3.0 - 2.15 3.0
================================ ==== ==== ======== ==== ==== ========
1 Discount rate is determined by reference to the yield on high
quality corporate bonds of currency and term consistent with the
scheme liabilities.
2 Rate of increase in pensionable pay is assumed to be in line with increases in RPI.
3 It has been assumed that the rate of increase of pensions in
payment will be in line with CPI for NAPS and APS as at December
31, 2020.
Rate of increase in healthcare costs is based on medical trend
rates of 6.25 per cent grading down to 5.00 per cent over five
years (2019: 6.50 per cent to 5.00 per cent over five years).
In the UK, mortality rates for APS and NAPS are calculated using
the standard SAPS mortality tables produced by the CMI. The
standard mortality tables were selected based on the actual recent
mortality experience of members and were adjusted to allow for
future mortality changes. The current longevities underlying the
values of the scheme liabilities were as follows:
Mortality assumptions 2020 2019
================================= ==== ====
Life expectancy at age 60 for a:
- male currently aged 60 28.2 28.2
- male currently aged 40 29.9 29.9
- female currently aged 60 29.3 29.0
- female currently aged 40 31.8 31.6
================================= ==== ====
At December 31, 2020, the weighted-average duration of the
defined benefit obligation was 12 years for APS (2019: 12 years)
and 20 years for NAPS (2019: 19 years).
In the US, mortality rates were based on the MP-2020 mortality
tables.
h Sensitivity analysis
Reasonable possible changes at the reporting date to significant
actuarial assumptions, holding other assumptions constant, would
have affected the present value of scheme liabilities by the
amounts shown:
(Decrease)/increase
in scheme liabilities
==========================
Other
EUR million APS NAPS schemes
==================================================== ====== ====== ==========
Discount rate (decrease of 5 basis points) (22) (429) 16
Future salary growth (increase of 10 basis points) - - 7
Future pension growth (increase of 10 basis points) (33) (374) 3
Future mortality rate (one year increase in life
expectancy) (33) (826) 5
==================================================== ====== ====== ==========
Although the analysis does not take into account the full
distribution of cash flows expected under the plan, it does provide
an approximation of the sensitivity of the assumptions shown.
i Funding
Pension contributions for APS and NAPS were determined by
actuarial valuations made at March 31, 2018, using assumptions and
methodologies agreed between the Group and Trustee of each scheme.
At the date of the actuarial valuation, the actuarial deficit of
NAPS amounted to EUR2,736 million. In order to address the deficit
in the scheme, the Group has also committed to the following
undiscounted deficit payments:
EUR million NAPS
========================================= =====
Within 12 months 124
2-5 years 1,156
========================================== =====
Total expected deficit payments for NAPS 1,280
========================================== =====
The Group has determined that the minimum funding requirements
set out above for NAPS will not be restricted. The present value of
the contributions payable is expected to be available as a refund
or a reduction in future contributions after they are paid into the
plan. This determination has been made independently for each plan,
subject to withholding taxes that would be payable by the
Trustee.
Deficit payments in respect of local arrangements outside of the
UK have been determined in accordance with local practice.
In total, the Group expects to pay EUR126 million in employer
contributions and deficit payments to the two significant
post-retirement benefit plans in 2021. This is made up of EUR125
million of deficit payments for NAPS after giving consideration to
the aforementioned contribution deferral agreement and ongoing
employer contributions of EUR1 million for APS.
Under the contribution deferral agreement between British
Airways and the Trustee of NAPS, in the period up to December 31,
2023, no dividend payment is permitted from British Airways to IAG.
From 2024 onwards, any dividends paid by British Airways will be
matched by contributions to NAPS of 50 per cent of the value of
dividends paid. Any such payments to NAPS will reduce the
outstanding repayment balance and are capped at that level. The
requirement to make such payments to NAPS ceases after deferred
contributions have been repaid.
31 Contingent liabilities and guarantees
Details of contingent liabilities are set out below. The Group
does not consider it probable that there will be an outflow of
economic resources with regard to these proceedings and accordingly
no provision for these proceedings has been recognised.
Contingent liabilities associated with income and deferred taxes
are presented note 9. For information pertaining to previously
reported contingent liabilities associated with the Airways Pension
Scheme, refer to note 30. For information pertaining to previous
contingent liabilities associated with the theft of customer data
at British Airways that have been recognised as legal claims
provisions refer to note 24.
There are a number of other legal and regulatory proceedings
against the Group in a number of jurisdictions which at December
31, 2020 amounted to EUR56 million (December 31, 2019: EUR53
million).
The Group also has guarantees and indemnities entered into as
part of the normal course of business, which at December 31, 2020
are not expected to result in material losses for the Group.
32 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 with the level
of eligibility increased to 80 per cent of wage costs and a maximum
of GBP2,500 per month.
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 is expected to
run through to March 31, 2021. For those qualifying employees
(earning less than EUR1,462 per week), the government will
reimburse wage costs up to a maximum of EUR350 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 during 2020 amounted to EUR344 million
(2019: EURnil).
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 is expected to run through to May 31, 2021. Under this
plan, employment is temporarily suspended and those designated
employees are paid directly by the government and there is no
remittance made to the Group. The Group is obliged to continue to
pay the associated social security costs.
Had those designated employees not been temporarily suspended
during 2020, the Group would have incurred further employee costs
of EUR214 million (2019: EURnil).
The Coronavirus Corporate Finance Facility (CCFF) - recognised
within Short-term borrowings
On April 12, 2020, British Airways availed itself of the CCFF
implemented by the Government of the United Kingdom. Under the
CCFF, British Airways received EUR328 million (GBP298 million),
with interest incurred at the prevailing market rate. Refer to note
23 for further details.
Syndicated financing agreements - recognised within Long-term
borrowings
On April 30, 2020, Iberia and Vueling entered into syndicated
financing agreements of EUR750 million and EUR260 million,
respectively, with interest incurred at the prevailing market rate.
The Instituto de Crédito Oficial ('ICO') in Spain has guaranteed 70
per cent of both financial agreements. Refer to note 23 for further
details.
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 under the ISIF. Refer to note 23 for
further details.
The UK Export Finance (UKEF) - not recognised as at December 31,
2020
On December 31, 2020, British Airways entered into a 5 year term
loan Export Development Guarantee Facility of EUR2.2 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF.
33 Related party transactions
The following transactions took place with related parties for
the financial years to December 31:
EUR million 2020 2019
=========================================== ==== ====
Sales of goods and services
Sales to associates and joint ventures(1) 12 6
Sales to significant shareholders(2) 23 32
Purchases of goods and services
Purchases from associates(3) 42 76
Purchases from significant shareholders(2) 80 149
=========================================== ==== ====
Receivables from related parties
Amounts owed by associates(4) 1 2
Amounts owed by significant shareholders(5) 1 8
Payables to related parties
Amounts owed to associates(6) 2 3
Amounts owed to significant shareholders(5) 118
============================================
1 Sales to associates: Consisted primarily of sales for airline
related services to Dunwoody Airline Services (Holding) Limited
(Dunwoody) of EUR9 million (2019: EUR4 million), EUR1 million
(2019: EURnil) to Viajes Ame S.A. and EUR1 million (2019: EUR1
million) to Serpista, S.A. and Multiservicios Aeroportuarios,
S.A.
2 Sales to and purchases from significant shareholders related
to interline services with Qatar Airways.
3 Purchases from associates: Consisted primarily of EUR23
million of airport auxiliary services purchased from Multiservicios
Aeroportuarios, S.A. (2019: EUR50 million), EUR9 million of
handling services provided by Dunwoody (2019: EUR10 million) and
EUR7 million of maintenance services received from Serpista, S.A.
(2019: EUR16 million).
4 Amounts owed by associates: Consisted primarily of EUR1
million of services provided to Multiservicios Aeroportuarios,
S.A., Serpista, S.A., Dunwoody and Empresa Hispano Cubana de
Mantenimiento de Aeronaves, Ibeca, S.A. (2019: EUR1 million of
services provided to Multiservicios Aeroportuarios, S.A. and EUR1
million of services provided to Dunwoody, Iberia Cards and Empresa
Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).
5 Amounts owed by and to significant shareholders related to Qatar Airways.
6 Amounts owed to associates: Consisted primarily of EUR2
million due to Multiservicios Aeroportuarios, S.A., Empresa Hispano
Cubana de Mantenimiento de Aeronaves, Ibeca, S.A., Viajes Ame S.A,
Serpista, S.A. and Dunwoody (2019: EUR1 million due to Dunwoody and
EUR2 million due to Multiservicios Aeroportuarios, S.A., Serpista,
S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves,
Ibeca, S.A.).
During the year to December 31, 2020 British Airways met certain
costs of administering its retirement benefit plans, including the
provision of support services to the Trustees. Costs borne on
behalf of the retirement benefit plans amounted to EUR7 million
(2019: EUR9 million) in relation to the costs of the Pension
Protection Fund levy.
The Group has transactions with related parties that are
conducted in the normal course of the airline business, which
include the provision of airline and related services. All such
transactions are carried out on an arm's length basis.
For the year to December 31, 2020, the Group has not made any
provision for expected credit loss arising relating to amounts owed
by related parties (2019: nil).
Significant shareholders
In this instance, significant shareholders are those parties who
have the power to participate in the financial and operating policy
decisions of the Group, as a result of their shareholdings in the
Group, but who do not have control over these policies.
At December 31, 2020 the Group had cash deposit balances with
shareholders holding a participation of between 3 to 5 per cent, of
EURnil (2019: EURnil).
Board of Directors and Management Committee remuneration
Compensation received by the Group's Board of Directors and
Management Committee, in 2020 and 2019 is as follows:
Year to December
31
==================
EUR million 2020 2019
=============================== ======== ========
Base salary, fees and benefits
Board of Directors
Short-term benefits 3 5
Share based payments - 3
Management Committee
Short-term benefits 5 8
Share based payments - 5
=============================== ======== ========
For the year to December 31, 2020 the Board of Directors
includes remuneration for three Executive Directors (December 31,
2019: three Executive Directors). The Management Committee includes
remuneration for 14 members (December 31, 2019: 12 members).
The Company provides life insurance for all executive directors
and the Management Committee. For the year to December 31, 2020 the
Company's obligation was EUR38,000 (2019: EUR63,000).
At December 31, 2020 the transfer value of accrued pensions
covered under defined benefit pension obligation schemes, relating
to the current members of the Management Committee totalled EUR1
million (2019: EUR1 million).
No loan or credit transactions were outstanding with Directors
or offices of the Group at December 31, 2020 (2019: nil).
34 Post balance sheet events
On January 19, 2021, the Group amended the original agreement
announced on November 4, 2019, under which the Group had agreed to
acquire the entire issued share capital of Air Europa. The
amendment agreement reduces the total expected consideration for
the acquisition to EUR500 million, which would be payable on the
sixth anniversary of the completion of the acquisition. The
acquisition is subject to the completion of negotiations with
Sociedad Estatal de Participaciones Industriales in Spain and
approval from the European Commission. Until the completion of
these negotiations and receipt of the relevant approvals, the
acquisition does not meet the recognition criteria under IFRS 3
Business combinations, and no accounting has been made for the
transaction in these consolidated financial statements.
On February 19, 2021 British Airways reached further agreement
with the Trustee of NAPS to extend the deferral of deficit
contributions through to September 30, 2021. The deferral of such
contributions will amount to EUR330 million (GBP300 million). Under
the contribution deferral agreement between British Airways and the
Trustee of NAPS, in the period up to December 31, 2023, no dividend
payment is permitted from British Airways to IAG. From 2024
onwards, any dividends paid by British Airways will be matched by
contributions to NAPS of 50 per cent of the value of dividends
paid. Any such payments to NAPS will reduce the outstanding
repayment balance and are capped at that level. The requirement to
make such payments to NAPS ceases after deferred contributions have
been repaid.
On February 22, 2021, British Airways entered into a 5 year term
loan Export Development Guarantee Facility of EUR2.2 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF.
ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of
alternative performance measures (APMs), some of which have been
identified as key performance indicators of the Group. These
measures are not defined under International Financial Reporting
Standards (IFRS), should be considered in addition to IFRS
measurements and may differ to definitions given by regulatory
bodies applicable to the Group. They are used to measure the
outcome of the Group's strategy based on 'Unrivalled customer
proposition', 'Value accretive and sustainable growth' and
'Efficiency and innovation'.
The definition of each APM, together with a reconciliation to
the nearest measure prepared in accordance with IFRS is presented
below.
a Changes to APMs in 2020
The Group has not adjusted its APMs policy for the impact of
COVID-19. However, under the existing exceptional items definition,
certain costs arising from the impact of COVID-19 have been
classified as exceptional items.
During 2020, the Group has made two changes to its disclosures
and treatment of APMs compared with those disclosed in the Annual
Report and Accounts for the year to December 31, 2019:
-- (Loss)/profit after tax before exceptional items - For the
year to December 31, 2019, the Group presented exceptional items on
the face of the Income statement using a three column approach to
reflect the results of the Group on a pre and post exceptional
basis to enable users to better understand the performance of the
Group. During 2020, following the consideration of regulatory
guidance, the Group has re-presented the Income statement to
reflect a single column approach. Accordingly, for 2020,
exceptional items and the associated narrative have been
incorporated into this APM section of the consolidated financial
statements. This disclosure has further been disaggregated by
reportable operating segment to enable a greater understanding of
the performance of each of the reportable operating segments of the
Group; and
-- Pro forma financial information - The Group adopted IFRS 16
'Leases' on January 1, 2019 and applied the modified retrospective
transition approach. In doing so, the comparative figures for 2018
were not restated. Accordingly, to provide a consistent basis for
comparison with 2019, the Group introduced Pro forma financial
information for 2018. As comparative figures for 2018 are no longer
required, this pro forma information is no longer required.
b (Loss)/profit after tax before exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or incidence in
understanding the entity's financial performance. The exceptional
items include: significant discontinuance of hedge accounting;
significant restructuring; significant settlement agreements with
the Group's pension schemes; significant changes in the long term
fleet plans that result in the impairment of fleet assets and the
recognition of associated provisions; and, legal settlements.
The table below reconciles the statutory income statement to the
income statement before exceptional items of the Group:
Year to December 31
==========================================================================
Before Before
exceptional exceptional
Statutory Exceptional items Statutory Exceptional items
EUR million 2020 items 2020 2019 items 2019
=================================== ========= =========== ============ ========= =========== ============
Passenger revenue(1) 5,512 (62) 5,574 22,468 22,468
Cargo revenue 1,306 1,306 1,117 1,117
Other revenue 988 988 1,921 1,921
----------------------------------- --------- ----------- ------------ --------- ----------- ------------
Total revenue 7,806 (62) 7,868 25,506 25,506
=================================== ========= =========== ============ ========= =========== ============
Employee costs(2, 6) 3,560 313 3,247 5,634 672 4,962
Fuel, oil costs and emissions
charges(1) 3,735 1,694 2,041 6,021 6,021
Handling, catering and other
operating costs 1,340 1,340 2,972 2,972
Landing fees and en-route charges 918 918 2,221 2,221
Engineering and other aircraft
costs(3) 1,456 108 1,348 2,092 2,092
Property, IT and other costs(4) 782 28 754 811 811
Selling costs 405 405 1,038 1,038
Depreciation, amortisation and
impairment(5) 2,955 856 2,099 2,111 2,111
Currency differences 81 81 (7) (7)
----------------------------------- --------- ----------- ------------ --------- ----------- ------------
Total expenditure on operations 15,232 2,999 12,233 22,893 672 22,221
=================================== ========= =========== ============ ========= =========== ============
Operating (loss)/profit (7,426) (3,061) (4,365) 2,613 (672) 3,285
Finance costs (670) (670) (611) (611)
Finance income 41 41 50 50
Net financing credit relating
to pensions 4 4 26 26
Net currency retranslation credits 245 245 201 201
Other non-operating charges (4) (4) (4) (4)
----------------------------------- --------- ----------- ------------ --------- ----------- ------------
Total net non-operating costs (384) (384) (338) (338)
=================================== ========= =========== ============ ========= =========== ============
(Loss)/profit before tax (7,810) (3,061) (4,749) 2,275 (672) 2,947
Tax 887 463 424 (560) (560)
(Loss)/profit after tax for
the year (6,923) (2,598) (4,325) 1,715 (672) 2,387
=================================== ========= =========== ============ ========= =========== ============
Three months to December 31
=================================== ==========================================================================
Before Before
exceptional exceptional
Statutory Exceptional items Statutory Exceptional items
EUR million 2020 items 2020 2019 items 2019
=================================== ========= =========== ============ ========= =========== ============
Passenger revenue(1) 684 (2) 686 5,390 5,390
Cargo revenue 389 389 292 292
Other revenue 228 228 532 532
=================================== ========= =========== ============ ========= =========== ============
Total revenue 1,301 (2) 1,303 6,214 6,214
=================================== ========= =========== ============ ========= =========== ============
Employee costs(2, 6) 693 44 649 1,921 672 1,249
Fuel, oil costs and emissions
charges(1) 453 95 358 1,452 1,452
Handling, catering and other
operating costs 260 260 736 736
Landing fees and en-route charges 181 181 522 522
Engineering and other aircraft
costs(3) 321 25 296 505 505
Property, IT and other costs(4) 185 185 229 229
Selling costs 65 65 225 225
Depreciation, amortisation and
impairment(5) 620 140 480 557 557
Currency differences (6) (6) (26) (26)
----------------------------------- --------- ----------- ------------ --------- ----------- ------------
Total expenditure on operations 2,772 304 2,468 6,121 672 5,449
=================================== ========= =========== ============ ========= =========== ============
Operating (loss)/profit (1,471) (306) (1,165) 93 (672) 765
Finance costs (167) (167) (165) (165)
Finance income 14 14 17 17
Net financing credit relating
to pensions - - 7 7
Net currency retranslation credits 62 62 108 108
Other non-operating charges (47) (47) (54) (54)
----------------------------------- --------- ----------- ------------ --------- ----------- ------------
Total net non-operating costs (138) (138) (87) (87)
=================================== ========= =========== ============ ========= =========== ============
(Loss)/profit before tax (1,609) (306) (1,303) 6 (672) 678
Tax 253 99 154 (105) (105)
(Loss)/profit after tax for
the year (1,356) (207) (1,149) (99) (672) 573
=================================== ========= =========== ============ ========= =========== ============
The rationale for each exceptional item is given below. In 2020
all items were associated with the impact of COVID-19, except the
settlement provision in relation to the theft of customer data at
British Airways in 2018 (part 4).
1 Discontinuation of hedge accounting
The exceptional charge of EUR1,756 million represented by an
expense of EUR62 million relating to revenue foreign currency
derivatives, an expense of EUR1,781 million relating to fuel
derivatives and a credit of EUR87 million related to the associated
fuel foreign currency derivatives. These amounts relate to the
discontinuance of hedge accounting of the associated foreign
currency and fuel derivatives on forecast revenue and fuel
consumption. These losses have arisen from the substantial
deterioration in demand for air travel caused by COVID-19, which
has caused a significant level of hedged passenger revenue
transactions and fuel purchases in US dollars to no longer be
expected to occur based on the Group's operating forecasts
prevailing at the Balance sheet date. The Group's risk management
strategy has been to build up these hedges gradually over a
three-year period when the level of forecast passenger revenue and
fuel consumption were higher than current expectations.
Accordingly, the hedge accounting for these transactions has been
discontinued and the losses recognised in the Income statement. The
exceptional charge relating to revenue derivatives and fuel
derivatives have been recorded in the Income statement within
Passenger revenue and Fuel, oil and emission charges,
respectively.
The related tax credit was EUR273 million, with EUR11 million
being attributable to the charge to Passenger revenue and EUR262
million being attributable to Fuel, oil costs and emissions
charges.
2 Restructuring costs
The exceptional charge of EUR319 million (comprising EUR313
million of employee severance pay and EUR6 million of associated
legal costs) represent the Group-wide restructuring programme,
which right-sizes the Group for the near term. While the
restructuring programme affects all of the Group's operating
companies, the exceptional charges in the year to December 31, 2020
relate to British Airways, Aer Lingus, Iberia and LEVEL only, due
to the status of negotiations with employees and their
representatives. The exceptional charge has been recorded within
Employee costs and Property, IT and other costs.
The related tax credit was EUR53 million.
3 Engineering and other aircraft costs
The exceptional charge of EUR108 million includes an inventory
write-down expense of EUR71 million and a charge relating to
contractual lease provisions of EUR37 million. The inventory
write-down expense represents those expendable inventories that,
given the asset impairments, are no longer expected to be utilised.
The charge relating to the recognition of contractual lease
provisions represents the estimation of the additional cost to
fulfil the hand back conditions associated with the leased aircraft
that have been permanently stood down and impaired, which are
discussed further below. The exceptional charge has been recorded
within Engineering and other aircraft costs.
The related tax credit was EUR14 million.
4 Settlement provision
The exceptional charge of EUR22 million represents the fine
issued by the Information Commissioner's Office in the United
Kingdom, relating to the theft of customer data at British Airways
in 2018. The exceptional charge has been recorded within Property,
IT and other costs in the Income statement, with a corresponding
amount recorded in Provisions.
There is no tax impact on the recognition of this charge.
5 Impairment of fleet and associated assets
The total exceptional impairment expense of EUR856 million is
represented by an impairment of fleet assets of EUR837 million and
an impairment of other assets of EUR19 million. The fleet
impairment relates to 82 aircraft, their associated engines and
rotable inventories that have been stood down permanently and 2
further aircraft which have been impaired down to their recoverable
value at December 31, 2020, which includes 32 Boeing 747 aircraft,
23 Airbus A320 aircraft, 15 Airbus A340 aircraft, 4 Airbus A330-200
aircraft, 2 Airbus A318 aircraft, 1 Airbus A321 aircraft, 1 Airbus
A319 aircraft, 2 Boeing 777-200 aircraft and 4 Embraer E170
aircraft. Of the fleet impairment, EUR676 million is recorded
within Property, plant and equipment relating to owned aircraft and
EUR161 million is recorded within Right of use assets relating to
leased aircraft.
Included within the impairment of other assets is an amount of
EUR15 million relating to the landing rights, classified within
Intangible assets, that were held by the operations of LEVEL in
Paris. Following the decision to cease the operations of LEVEL in
Paris, these landing rights have been recorded at the lower of
their carrying value and their recoverable value.
The exceptional impairment expenses have been recorded within
Depreciation, amortisation and impairment in the Income
statement.
The related tax credit was EUR123 million.
The impairment expense has arisen from the substantial
deterioration in current and forecast demand for air travel caused
by the COVID-19 outbreak, which has led the Group to re-assess the
medium- and long-term capacity and utilisation of the fleet.
Subsequent to these impairments, all assets are held at their
recoverable amounts.
6 Employee benefit obligations
The exceptional expense of EUR672 million recognised in the year
to December 31, 2019 related to the past service cost of the
Airways Pension Scheme ('APS') settlement agreement described in
note 30. This amount arose from the increase in the IAS 19 defined
benefit liability of APS following the settlement agreement between
the Trustee Directors of APS and British Airways which was approved
by the High Court in November 2019. The settlement agreement
established higher pensions in payment growth assumptions in future
years, resulting in a non-cash increase to the IAS 19 defined
benefit liability. The exceptional charge was recorded within
Employee costs.
The table below provides a reconciliation of the
post-exceptional to pre-exceptional condensed alternative income
statement by operating segment for the years to 31 December 2020
and 2019:
Year to December 31, 2020
============== =======================================================================================================================================================================================
British Airways British Airways
(GBP) (EUR) Iberia Vueling Aer Lingus
=================================== =================================== =================================== =================================== ===================================
Before Before Before Before Before
Exceptional exceptional Exceptional exceptional Exceptional exceptional Exceptional exceptional Exceptional exceptional
EUR million Statutory items items Statutory items items Statutory items items Statutory items items Statutory items items
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Passenger
revenue 2,840 (54) 2,894 3,309 (59) 3,368 1,160 - 1,160 569 - 569 379 (3) 382
Cargo revenue 890 - 890 998 - 998 240 - 240 - - - 88 - 88
Other revenue 217 - 217 251 - 251 859 - 859 5 - 5 - - -
-------------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Total revenue 3,947 (54) 4,001 4,558 (59) 4,617 2,259 - 2,259 574 - 574 467 (3) 470
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Employee costs 1,916 221 1,695 2,168 243 1,925 798 14 784 196 - 196 217 24 193
Fuel, oil
costs
and emissions
charges 1,996 837 1,159 2,317 984 1,333 716 344 372 314 154 160 286 144 142
Depreciation,
amortisation
and
impairment 1,475 399 1,076 1,659 445 1,214 612 242 370 345 68 277 157 24 133
Other
operating
costs 2,440 42 2,398 2,792 47 2,745 1,544 52 1,492 594 30 564 370 7 363
-------------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Total
expenditure
on operations 7,827 1,499 6,328 8,936 1,719 7,217 3,670 652 3,018 1,449 252 1,197 1,030 199 831
-------------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Operating loss (3,880) (1,553) (2,327) (4,378) (1,778) (2,600) (1,411) (652) (759) (875) (252) (623) (563) (202) (361)
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Operating
margin
(%) (98.3)% (58.2)% - - (62.5)% (33.6)% (152.3)% (108.5)% (120.4)% (76.8)%
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Year to December 31, 2019
============== =======================================================================================================================================================================================
British Airways British Airways
(GBP) (EUR) Iberia Vueling Aer Lingus
=================================== =================================== =================================== =================================== ===================================
Before Before Before Before Before
Exceptional exceptional Exceptional exceptional Exceptional exceptional Exceptional exceptional Exceptional exceptional
EUR million Statutory items items Statutory items items Statutory items items Statutory items items Statutory items items
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Passenger
revenue 11,899 - 11,899 13,525 - 13,525 4,053 - 4,053 2,437 - 2,437 2,060 - 2,060
Cargo revenue 711 - 711 808 - 808 291 - 291 - - - 54 - 54
Other revenue 680 - 680 773 - 773 1,301 - 1,301 18 - 18 11 - 11
-------------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Total revenue 13,290 - 13,290 15,106 - 15,106 5,645 - 5,645 2,455 - 2,455 2,125 - 2,125
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Employee costs 3,112 583 2,529 3,549 672 2,877 1,164 - 1,164 301 - 301 405 - 405
Fuel, oil
costs and
emissions
charges 3,237 - 3,237 3,679 - 3,679 1,202 - 1,202 548 - 548 460 - 460
Depreciation,
amortisation
and
impairment 1,106 - 1,106 1,258 - 1,258 390 - 390 250 - 250 130 - 130
Other
operating
costs 4,497 - 4,497 5,110 - 5,110 2,392 - 2,392 1,116 - 1,116 854 - 854
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Total
expenditure
on operations 11,952 583 11,369 13,596 672 12,924 5,148 - 5,148 2,215 - 2,215 1,849 - 1,849
-------------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- --------- ----------- -----------
Operating
profit 1,338 (583) 1,921 1,510 (672) 2,182 497 - 497 240 - 240 276 - 276
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
Operating 10.1 14.5 8.8 8.8 9.8 9.8 13.0 13.0
margin (%) % % - - % % % % % %
============== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== =========== ========= =========== ===========
c Basic earnings per share before exceptional items and adjusted
earnings per share (KPI)
Earnings are based on results before exceptional items after tax
and adjusted for earnings attributable to equity holders and
interest on convertible bonds, divided by the weighted average
number of ordinary shares, adjusted for the dilutive impact of the
assumed conversion of the bonds and employee share schemes
outstanding. The effect of the assumed conversion of the IAG EUR500
million convertible bond 2022 and outstanding employee share
schemes is antidilutive for the year to December 31, 2020, and
therefore has not been included in the diluted earnings per share
calculation.
EUR million Note 2020 2019(1)
======================================================= ==== ======= =======
(Loss)/profit after tax attributable to equity holders
of the parent b (6,923) 1,715
Exceptional items b (2,598) (672)
======================================================= ==== ======= =======
(Loss)/profit after tax attributable to equity holders
of the parent before exceptional items (4,325) 2,387
Interest expense on convertible bonds - 26
======================================================= ==== ======= =======
Adjusted (loss)/earnings (4,325) 2,413
======================================================= ==== ======= =======
Weighted average number of shares used for basic
earnings per share(2) 10 3,528 3,056
Weighted average number of shares used for diluted
earnings per share 10 3,528 3,137
Basic (loss)/earnings per share before exceptional
items (EUR cents) (122.6) 78.1
======================================================= ==== ======= =======
Adjusted (loss)/earnings per share (EUR cents) (122.6) 76.9
======================================================= ==== ======= =======
1 Earnings per share information has been restated for the
comparative period presented, by adjusting the weighted average
number of shares to include the impact of the rights issue (note
27). The discount element inherent in the rights issue has been
accounted for as a bonus issue of 1,071,565 thousand shares in
2019.
2 In 2020, includes 734,657 thousand shares as the weighted
average impact for 2,979,443 thousand new ordinary shares issued
through the rights issue (note 27).
d 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.
2020 ccy 2020
EUR million Note Reported adjustment(1) ccy 2019
=========================================== ===== ========= ============== ======= =======
Total expenditure on operations b 15,232 (122) 15,110 22,893
Less: exceptional items within expenditure
on operations b 2,999 2,999 672
Less: fuel, oil costs and emission
charges before exceptional items b 2,041 (29) 2,012 6,021
=========================================== ===== ========= ============== ======= =======
Non-fuel costs 10,192 (93) 10,099 16,200
Less: Non-flight specific costs 851 1 852 1,654
Airline non-fuel costs 9,341 (94) 9,247 14,546
================================================== ========= ============== ======= =======
ASKs 113,195 113,195 337,754
Airline non-fuel unit costs per ASK
(EUR cents) 8.25 8.17 4.31
================================================== ========= ============== ======= =======
1 Refer to note h for the definition of the ccy adjustment
e Levered free cash flow (KPI)
Levered free cash flow represents the cash generated by the
underlying businesses before shareholder returns and is defined as
the net increase in cash and cash equivalents taken from the Cash
flow statement, adjusting for movements in Current interest-bearing
deposits, less the cash inflows from the rights issue and adding
back the cash outflows associated with dividends paid and the
acquisition of treasury shares. The Group believes that this
measure is useful to the users of the financial statements in
understanding the underlying cash generating ability of the Group
that is available to return to shareholders, to improve leverage
and/or to undertake inorganic growth opportunities.
EUR million 2020 2019
=============================================================== ======= =====
Net Increase in cash and cash equivalents 1,940 85
=============================================================== ======= =====
Less: (Decrease)/increase in current interest-bearing deposits (2,366) 103
Less: Net proceeds from rights issue (2,674) -
Add: Dividends paid 53 1,308
=============================================================== ======= =====
Levered free cash flow (3,047) 1,496
=============================================================== ======= =====
f Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with
IFRS, the Group reviews net debt to EBITDA to assess its level of
net debt in comparison to the underlying earnings generated by the
Group in order to evaluate the underlying business performance of
the Group. This measure is used to monitor the Group's leverage and
to assess financial headroom.
Net debt is defined as long-term borrowings (both current and
non-current), less cash, cash equivalents and current
interest-bearing deposits.
EBITDA is defined as operating profit before exceptional items,
interest, taxation, depreciation, amortisation and impairment. The
Group believes that this additional measure, which is used
internally to assess the Group's financial capacity, is useful to
the users of the financial statements in helping them to see how
the Group's financial capacity has changed over the year. It is a
measure of the profitability of the Group and of the core operating
cash flows generated by the business model.
EUR million Note 2020 2019
=============================================== ==== ======= =======
Interest-bearing long-term borrowings 23 15,679 14,254
Less: Cash and cash equivalents 19 (5,774) (4,062)
Less: Current interest-bearing deposits 19 (143) (2,621)
=============================================== ==== ======= =======
Net debt 9,762 7,571
=============================================== ==== ======= =======
Operating (loss)/profit b (7,426) 2,613
Add: Exceptional items b 3,061 672
Add: Depreciation, amortisation and impairment b 2,099 2,111
=============================================== ==== ======= =======
EBITDA (2,266) 5,396
=============================================== ==== ======= =======
Net debt to EBITDA (4.3) 1.4
=============================================== ==== ======= =======
g Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives
an indication of the Group's capital efficiency relative to the
capital invested as well as the ability to fund growth and to pay
dividends. 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.
EUR million Note 2020 2019
======================================================== ==== ======= =======
EBITDA f (2,266) 5,396
Less: Fleet depreciation multiplied by inflation
adjustment (1,921) (2,040)
Less: Other property, plant and equipment depreciation (258) (259)
Less: Software intangible amortisation (151) (131)
======================================================== ==== ======= =======
(4,596) 2,966
======================================================== ==== ======= =======
Invested capital
Average fleet value(2) 12 16,020 15,598
Less: average progress payments(3) 12 (1,117) (1,297)
======================================================== ==== ======= =======
Fleet book value less progress payments 14,903 14,301
Inflation adjustment(1) 1.18 1.19
======================================================== ==== ======= =======
17,520 17,065
Average net book value of other property, plant and
equipment(4) 12 2,329 2,448
Average net book value of software intangible assets(5) 14 652 603
======================================================== ==== ======= =======
Total invested capital 20,501 20,116
======================================================== ==== ======= =======
Return on Invested Capital (22.4)% 14.7 %
======================================================== ==== ======= =======
1 Presented to two decimal places and calculated using a 1.5 per
cent inflation (December 31, 2019: 1.5 per cent inflation) rate
over the weighted average age of the fleet December 31, 2020: 9.8
years (December 31, 2019: 11.9 years).
2 The average net book value of aircraft is calculated from an
amount of EUR16,675 million at December 31, 2019 and EUR15,365
million at December 31, 2020.
3 The average net book value of progress payments is calculated
from an amount of EUR1,525 million at December 31, 2019 and EUR710
million at December 31, 2020.
4 The average net book value of other property, plant and
equipment is calculated from an amount of EUR2,493 million at
December 31, 2019 and EUR2,166 million at December 31, 2020.
5 The average net book value of software intangible assets is
calculated from an amount of EUR666 million at December 31, 2019
and EUR638 million at December 31, 2020.
h 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 2020 figures are
stated at a constant currency basis, they have applied the 2019
rates stated below:
Foreign exchange rates
Average Closing
========== ==========
2020 2019 2020 2019
============================ ==== ==== ==== ====
Euro to pound sterling 1.13 1.13 1.10 1.18
US dollar to the euro 1.13 1.12 1.22 1.11
US dollar to pound sterling 1.27 1.27 1.35 1.31
============================ ==== ==== ==== ====
Group Investments
Subsidiaries
British Airways
Percentage
Principal Country of of equity
Name and address activity incorporation owned
------------------------------------------------- --------------------- --------------- ----------
Avios Group (AGL) Limited*
Astral Towers, Betts Way, London Road, Crawley,
West Sussex, RH10 9XY Airline marketing England 100%
------------------------------------------------- --------------------- --------------- ----------
BA and AA Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Call Centre India Private Limited (callBA)
F-42, East of Kailash, New-Delhi, 110065 Call centre India 100%
------------------------------------------------- --------------------- --------------- ----------
BA Cityflyer Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Airline operations England 100%
------------------------------------------------- --------------------- --------------- ----------
BA European Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Excepted Group Life Scheme Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Life insurance England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Healthcare Trust Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Healthcare England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Holdco Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Number One Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
------------------------------------------------- --------------------- --------------- ----------
BA Number Two Limited
IFC 5, St Helier, JE1 1ST Dormant Jersey 100%
------------------------------------------------- --------------------- --------------- ----------
Bealine Plc
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
------------------------------------------------- --------------------- --------------- ----------
BritAir Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways (BA) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways 777 Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft leasing England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Associated Companies Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Holding company England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Avionic Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Capital Limited
Queensway House, Hilgrove Street, St Helier,
JE1 1ES Aircraft financing Jersey 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Holdings B.V.
Strawinskylaan 3105, Atrium, Amsterdam, 1077ZX Holding company Netherlands 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Holidays Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Tour operator England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Interior Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft leasing England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Maintenance Cardiff Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB Aircraft maintenance England 100%
------------------------------------------------- --------------------- --------------- ----------
British Airways Pension Trustees (No 2) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Trustee company England 100%
------------------------------------------------- --------------------- --------------- ----------
British Midland Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Former airline England 100%
------------------------------------------------- --------------------- --------------- ----------
British Midland Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Dormant England 100%
------------------------------------------------- --------------------- --------------- ----------
Diamond Insurance Company Limited
1st Floor, Rose House, 51-59 Circular Road,
Douglas, IM1 1RE Dormant Isle of Man 100%
------------------------------------------------- --------------------- --------------- ----------
Flyline Tele Sales & Services GmbH
Hermann Koehl-Strasse 3, 28199, Bremen Call centre Germany 100%
------------------------------------------------- --------------------- --------------- ----------
Gatwick Ground Services Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Ground services England 100%
------------------------------------------------- --------------------- --------------- ----------
Overseas Air Travel Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Transport England 100%
------------------------------------------------- --------------------- --------------- ----------
Speedbird Insurance Company Limited*
Canon's Court, 22 Victoria Street, Hamilton,
HM 12 Insurance Bermuda 100%
------------------------------------------------- --------------------- --------------- ----------
British Mediterranean Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB Former airline England 99%
================================================= ===================== =============== ==========
Iberia
Percentage
Country of of equity
Name and address Principal activity incorporation owned
================================================== ======================= =============== ==========
Compañía Explotación Aviones
Cargueros Cargosur, S.A.
Calle Martínez Villergas 49, Madrid,
28027 Cargo transport Spain 100%
================================================== ======================= =============== ==========
Compañía Operadora de Corto y
Medio Radio Iberia Express, S.A.*
Calle Alcañiz 23, Madrid, 28006 Airline operations Spain 100%
================================================== ======================= =============== ==========
Iberia Líneas Aéreas de España,
S.A. Operadora*
Calle Martínez Villergas 49, Madrid, Airline operations
28027 and maintenance Spain 100% 1
================================================== ======================= =============== ==========
Iberia México, S.A.*
Ejército Nacional 439, Mexico City, Storage and custody
11510 services Mexico 100%
================================================== ======================= =============== ==========
Iberia Operadora UK Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Dormant England 100%
================================================== ======================= =============== ==========
Iberia Tecnología, S.A.*
Calle Martínez Villergas 49, Madrid,
28027 Aircraft maintenance Spain 100%
================================================== ======================= =============== ==========
Auxiliar Logística Aeroportuaria,
S.A.* Airport logistics
Centro de Carga Aérea, Parcela 2 and cargo terminal
P5, Nave 6, Madrid, 28042 management Spain 75%
================================================== ======================= =============== ==========
Compañía Auxiliar al Cargo Exprés,
S.A.*
Centro de Carga Aérea, Parcela 2
P5, Nave 6, Madrid, 28042 Cargo transport Spain 75%
================================================== ======================= =============== ==========
Iberia Desarrollo Barcelona, S.L.*
Avenida de les Garrigues 38-44, Edificio
B, Airport infrastructure
El Prat de Llobregat, Barcelona, 08220 development Spain 75%
================================================== ======================= =============== ==========
Aer Lingus
Percentage
Country of of equity
Name and address Principal activity incorporation owned
============================================== =================== =============== ==========
Provision of human
resources support
Aer Lingus (Ireland) Limited to fellow group Republic
Dublin Airport, Dublin companies of Ireland 100%
============================================== =================== =============== ==========
Aer Lingus 2009 DCS Trustee Limited Republic
Dublin Airport, Dublin Dormant of Ireland 100%
============================================== =================== =============== ==========
Aer Lingus Beachey Limited
Penthouse Suite, Analyst House, Peel Road,
IM1 4LZ Dormant Isle of Man 100%
============================================== =================== =============== ==========
Aer Lingus Group DAC* Republic
Dublin Airport, Dublin Holding company of Ireland 100% 2
============================================== =================== =============== ==========
Aer Lingus Limited* Republic
Dublin Airport, Dublin Airline operations of Ireland 100%
============================================== =================== =============== ==========
Aer Lingus (UK) Limited
Aer Lingus Base, Belfast City Airport,
Sydenham Bypass, Belfast, Co. Antrim, BT3 Northern
9JH Dormant Ireland 100%
============================================== =================== =============== ==========
ALG Trustee Limited
33-37 Athol Street, Douglas, IM1 1LB Trustee Isle of Man 100%
============================================== =================== =============== ==========
Dirnan Insurance Company Limited
Canon's Court, 22 Victoria Street, Hamilton,
Bermuda, HM 12 Insurance Bermuda 100%
============================================== =================== =============== ==========
Santain Developments Limited Republic
Dublin Airport, Dublin Dormant of Ireland 100%
============================================== =================== =============== ==========
IAG Loyalty
Percentage
Country of of equity
Name and address Principal activity incorporation owned
======================================= =================== =============== ==========
Avios South Africa Proprietary Limited
Block C, 1 Marignane Drive, Bonaero
Park, Gauteng, 1619 Dormant South Africa 100%
======================================= =================== =============== ==========
IAG Loyalty Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Dormant England 100%
======================================= =================== =============== ==========
IAG Cargo
Percentage
Country of of equity
Name and address Principal activity incorporation owned
========================================== =================== =============== ==========
Routestack Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Shipping solutions England 100%
========================================== =================== =============== ==========
Zenda Group Limited
Carrus Cargo Centre, PO Box 99, Sealand
Road, London Heathrow Airport, Hounslow,
Middlesex, TW6 2JS Shipping solutions England 100%
========================================== =================== =============== ==========
Vueling
Percentage
Country of of equity
Name and address Principal activity incorporation owned
========================================= =================== =============== ==========
Yellow Handling, S.L.U
Plaça Pla de l'Estany 5, Parque de
Negocios Mas Blau II, Ground handling
El Prat de Llobregat, Barcelona, 08820 services Spain 100%
========================================= =================== =============== ==========
Vueling Airlines, S.A.*
Plaça Pla de l'Estany 5, Parque de
Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820 Airline operations Spain 99.5%
========================================= =================== =============== ==========
LEVEL
Percentage
Country of of equity
Name and address Principal activity incorporation owned
======================================= =================== =============== ==========
FLYLEVEL UK Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Airline operations England 100%
======================================= =================== =============== ==========
Openskies SASU
3 Rue le Corbusier, Rungis, 94150 Airline operations France 100%
======================================= =================== =============== ==========
International Consolidated Airlines Group, S.A.
Percentage
Country of of equity
Name and address Principal activity incorporation owned
================================================ ========================= =============== ==========
AERL Holding Limited
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Holding company England 100%
================================================ ========================= =============== ==========
British Airways Plc*
Waterside, PO Box 365, Harmondsworth,
UB7 0GB Airline operations England 100% 3
================================================ ========================= =============== ==========
FLY LEVEL, S.L.
Camino de la Muñoza s/n, El Caserío,
Iberia Zona Industrial 2, Madrid, 28042 Airline operations Spain 100%
================================================ ========================= =============== ==========
IAG Cargo Limited*
Carrus Cargo Centre, PO Box 99, Sealand
Road, London Heathrow
Airport, Hounslow, TW6 2JS Air freight operations England 100%
================================================ ========================= =============== ==========
IAG Connect Limited
Waterside, PO Box 365, Harmondsworth, Inflight eCommerce Republic
UB7 0GB platform of Ireland 100%
================================================ ========================= =============== ==========
IAG GBS Limited*
Waterside, PO Box 365, Harmondsworth, IT, finance, procurement
UB7 0GB services England 100%
================================================ ========================= =============== ==========
IAG GBS Poland sp z.o.o.* IT, finance, procurement
Ul. Opolska 114, Krakow, 31-323 services Poland 100%
================================================ ========================= =============== ==========
IB Opco Holding, S.L.
Calle Martínez Villergas 49, Madrid,
28027 Holding company Spain 100% 1
================================================ ========================= =============== ==========
Veloz Holdco, S.L.
Plaça Pla de l'Estany 5, Parque de
Negocios Mas Blau II,
El Prat de Llobregat, Barcelona, 08820 Holding company Spain 100%
================================================ ========================= =============== ==========
* Principal subsidiaries
1 The Group holds 49.9% of both the total nominal share capital
and the total number of voting rights in IB Opco Holding, S.L. (and
thus, indirectly, in Iberia Líneas Aéreas de España, S.A.
Operadora), such stake having almost 100% of the economic rights in
these companies. The remaining shares, representing 50.1% of the
total nominal share capital and the total number of voting rights
belong to a Spanish company incorporated for the purposes of
implementing the Iberia nationality structure.
2 The Group holds 49.75% of the total number of voting rights
and the majority of the economic rights in Aer Lingus Group DAC.
The remaining voting rights, representing 50.25 per cent,
correspond to a trust established for implementing the Aer Lingus
nationality structure.
3 The Group holds 49.9% of the total number of voting rights and
99.65% of the total nominal share capital in British Airways Plc,
such stake having almost 100% of the economic rights. The remaining
nominal share capital and voting rights, representing 0.35% and
50.1% respectively, are held by a trust established for the
purposes of implementing the British Airways nationality
structure.
Associates
Percentage
Country of equity
Name and address of incorporation owned
======================================================= ================== ==========
Empresa Hispano Cubana de Mantenimiento de Aeronaves,
Ibeca, S.A.
Avenida de Vantroi y Final,
Jose Martí Airport, Havana Cuba 50%
======================================================= ================== ==========
Empresa Logística de Carga Aérea, S.A.
Carretera de Wajay km 15,
Jose Martí Airport, Havana Cuba 50%
======================================================= ================== ==========
Multiservicios Aeroportuarios, S.A.
Avenida de Manoteras 46, 2-- planta, Madrid, 28050 Spain 49%
======================================================= ================== ==========
Dunwoody Airline Services Limited
Building 70, Argosy Road, East Midlands Airport,
Castle Donnington, Derby, DE74 2SA England 40%
======================================================= ================== ==========
Serpista, S.A.
Calle Cardenal Marcelo Spínola 10, Madrid, 28016 Spain 39%
======================================================= ================== ==========
Air Miles España, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
======================================================= ================== ==========
Inloyalty by Travel Club, S.L.U.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
======================================================= ================== ==========
Viajes Ame, S.A.
Avenida de Bruselas 20, Alcobendas, Madrid, 28108 Spain 26.7%
======================================================= ================== ==========
DeepAir Solutions Limited
Ground Floor North, 86 Brook Street, London, W1K 5AY England 24.75%
======================================================= ================== ==========
Joint ventures
Percentage
Country of equity
Name and address of incorporation owned
====================================================== ================== ==========
Sociedad Conjunta para la Emisión y Gestión
de Medios de Pago EFC, S.A.
Calle de O'Donnell 12, Madrid, 28009 Spain 50.5%
====================================================== ================== ==========
Other equity investments
The Group's principal other equity investments are as
follows:
Percentage Shareholder's Profit/(loss)
Country of equity funds before
Name and address of Incorporation owned Currency (million) tax (million)
============================================= ================== ========== ======== ============= ==============
Servicios de Instrucción de Vuelo,
S.L.
Camino de la Muñoza s/n, El
Caserío,
Iberia Zona Industrial 2, Madrid, 28042 Spain 19.9% EUR (71) (10)
============================================= ================== ========== ======== ============= ==============
The Airline Group Limited
5th Floor, Brettenham House South,
Lancaster Place,
London, WC2N 7EN England 16.68% GBP 287 25
============================================= ================== ========== ======== ============= ==============
Importwise Limited
International House, 12 Constance Street,
London, E16 2DQ England 14.8% GBP 52 19
============================================= ================== ========== ======== ============= ==============
Comair Limited
1 Marignane Drive, Bonaero Park,
Johannesburg, South
1619 Africa 11.49% ZAR 760 (2,091)
============================================= ================== ========== ======== ============= ==============
Travel Quinto Centenario, S.A.
Calle Alemanes 3, Sevilla, 41004 Spain 10% EUR n/a n/a
============================================= ================== ========== ======== ============= ==============
i6 Group Limited
Farnborough Airport, Ively Road,
Farnborough,
Hampshire, GU14 6XA England 7.42% GBP 6 (1)
============================================= ================== ========== ======== ============= ==============
Monese Limited
1 King Street, London, EC2V 8AU England 6.45% GBP (16) (29)
============================================= ================== ========== ======== ============= ==============
Statement of directors' responsibilities
LIABILITY STATEMENT OF DIRECTORS FOR THE PURPOSES ENVISAGED
UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19
OCTOBER (REAL DECRETO 1362/2007).
At a meeting held on February 25, 2021, the directors of
International Consolidated Airlines Group, S.A. state that, to the
best of their knowledge, the consolidated financial statements for
the year to December 31, 2020 prepared in accordance with the
applicable international accounting standards, offer a true and
fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole, and the interim consolidated
management report includes a fair review of the required
information.
February 25, 2021
Javier Ferrán Larraz Luis Gallego Martín
Chairman Chief Executive Officer
Giles Agutter Peggy Bruzelius
Eva Castillo Sanz Margaret Ewing
Heather Ann McSharry Robin Phillips
Emilio Saracho Rodríguez de Torres Lucy Nicola Shaw
Alberto Terol Esteban
AIRCRAFT FLEET
Changes
Total Total since
December December December
31, 31, 31, Future
Right
Owned of use 2020 2019 2019 deliveries Options
================ ===== ======= ========= ========= ========= =========== =======
Airbus A318 - - - 1 (1) - -
Airbus A319 13 36 49 57 (8) - -
Airbus A320 60 172 232 254 (22) 26 76
Airbus A321 19 53 72 66 6 38 14
Airbus A330-200 2 17 19 24 (5) - -
Airbus A330-300 4 14 18 16 2 1 -
Airbus A340-600 - - - 15 (15) - -
Airbus A350 10 7 17 9 8 26 52
Airbus A380 2 10 12 12 - - -
Boeing 747-400 - - - 32 (32) - -
Boeing 777-200 36 7 43 46 (3) - -
Boeing 777-300 2 14 16 12 4 - -
Boeing 777-9 - - - - - 18 24
Boeing 787-8 - 12 12 12 - - -
Boeing 787-9 1 17 18 18 - - -
Boeing 787-10 2 - 2 - 2 10 -
Embraer E170 1 - 1 6 (5) - -
Embraer E190 9 13 22 18 4 2 -
================ ===== ======= ========= ========= ========= =========== =======
Group total 161 372 533 598 (65) 121 166
================ ===== ======= ========= ========= ========= =========== =======
During 2020 the Group recorded impairments for 84 aircraft, of
which 63 were still held by the Group at December 31, 2020. The
Group also held 9 other aircraft not in service, pending
disposal.
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END
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