TIDMIAG
RNS Number : 7344U
International Cons Airlines Group
31 July 2020
SIX MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (July 31,
2020) presented Group consolidated results for the six months to
June 30, 2020.
The results for the six months were significantly impacted by
the outbreak of COVID-19, which has had a devastating impact on the
global airline and travel sectors, particularly from late February
2020 onwards.
COVID-19 situation and management actions:
-- Most Group aircraft grounded in quarter 2, with small
programme of passenger flights for essential travel and
repatriation
-- 1,875 additional cargo flights operated in quarter 2 to
transport critical equipment and essential supplies
-- Additional operating procedures implemented to protect
customers and staff including facemask use and additional
cleaning
-- Liquidity boosted by actions including accessing Spain's
Instituto de Crédito Oficial (ICO) facility and UK's Coronavirus
Corporate Finance Facility (CCFF). Also, British Airways' Revolving
Credit Facility extended and additional one-year bridge aircraft
financing facilities agreed and implemented in quarter 2
-- Multi-year renewal signed with American Express on July 24,
including EUR830 million payment, a significant part of which is
Avios pre-purchase
-- Cash operating costs for quarter 2 reduced to EUR205 million
per week, with April and May slightly lower than previously
estimated at EUR195 million per week, despite additional cost of
operating cargo-only flights
-- Current capacity planning scenario for an increase through
quarter 3 and quarter 4, to -74 per cent and -46 per cent versus
2019 respectively, but plans highly uncertain and subject to easing
lockdowns and travel restrictions
-- Based on our current capacity planning scenario, IAG would
reach breakeven in terms of Net cash flows from operating
activities during quarter 4 2020
-- Government wage support schemes accessed in main employee
bases and other measures agreed to reduce employee costs due to
much-reduced flying programme
-- Capital spending for 2020 reduced by EUR1.5 billion, against
the original plan, with 2020 fleet capital expenditure covered by
committed financing
-- Deliveries of 68 new aircraft due in 2020 to 2022 deferred
and certain legacy aircraft retired early, including 32 Boeing 747s
and 15 Airbus A340-600s
-- IAG expects it will take until at least 2023 for passenger
demand to recover to 2019 levels and is restructuring its cost-base
to reduce each airline's size, with consultations being undertaken
locally as required
-- Active discussions remain ongoing with Globalia regarding a
potential restructuring of the Air Europa acquisition, taking into
account the impact of the COVID-19 pandemic. Any agreed transaction
would remain subject to regulatory clearances
IAG period highlights on results:
-- Passenger capacity operated in quarter 2 down 95.3 per cent
on 2019 and for the six months down 56.2 per cent on 2019
-- Second quarter operating loss EUR1,365 million before
exceptional items (2019 operating profit: EUR960 million)
-- Operating loss before exceptional items for the half year
EUR1,900 million (2019 operating profit: EUR1,095 million)
-- Exceptional charge in the half year of EUR2,137 million on
derecognition of fuel and foreign exchange hedges for 2020 and
impairment of fleet
-- Loss after tax before exceptional items for the half year
EUR1,965 million, and 2020 statutory loss after tax and exceptional
items: EUR3,806 million (2019 profit: EUR806 million)
-- Cash of EUR6,016 million at June 30, 2020 down EUR667 million
on December 31, 2019. Committed and undrawn general and aircraft
facilities were EUR2.1 billion, bringing total liquidity to EUR8.1
billion
Proposed capital increase:
-- Proposed capital increase of up to EUR2.75 billion, to be
supported by irrevocable commitment from largest shareholder and
underwritten, subject to approval at General Shareholders' Meeting
in September
Performance summary:
Six months to June 30
---------------------------
Higher
/
Highlights EUR million 2020 2019 (1) (lower)
Passenger revenue 4,151 10,586 (60.8)%
Total revenue 5,326 12,026 (55.7)%
------------------------------------------------- ------- -------- --------
Operating (loss)/profit before exceptional items (1,900) 1,095 nm
Exceptional items (2,137) - -
------------------------------------------------- ------- -------- --------
Operating (loss)/profit after exceptional items (4,037) 1,095 nm
Available seat kilometres (ASK million) 71,625 163,431 (56.2)%
Passenger revenue per ASK (EUR cents) 5.80 6.48 (10.5)%
Non-fuel costs per ASK (EUR cents) 8.26 4.89 68.8 %
------------------------------------------------- ------- -------- --------
Higher
/
Alternative performance measures 2020 2019 (lower)
(Loss)/profit after tax before exceptional items
(EUR million) (1,965) 806 nm
Adjusted (loss)/earnings per share (EUR cents) (99.0) 39.2 nm
------------------------------------------------- ------- -------- --------
Net debt (EUR million)(2) 10,463 7,571 38.2 %
Net debt to EBITDA(2) 4.2 1.4 2.8x
------------------------------------------------- ------- -------- --------
Higher
/
Statutory results EUR million 2020 2019 (lower)
(Loss)/profit after tax and exceptional items (3,806) 806 nm
Basic (loss)/earnings per share (EUR cents) (191.7) 40.6 nm
------------------------------------------------- ------- -------- --------
Cash and interest-bearing deposits (2) 6,016 6,683 (10.0)%
Interest-bearing long-term borrowings (2) 16,479 14,254 15.6 %
------------------------------------------------- ------- -------- --------
For definitions refer to the Alternative performance measures section.
(1) The 2019 results include a reclassification of the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the period to June 30, 2019 was EUR63
million. Further information is given in note 1.
(2) The prior year comparative is December 31, 2019.
Willie Walsh, IAG Chief Executive Officer, said:
"In quarter 2 we're reporting a record operating loss of
EUR1,365 million before exceptional items compared to an operating
profit of EUR960 million last year. Total operating losses
including exceptional items relating to the early retirement of
British Airways' Boeing 747s and Iberia's Airbus A340s came to
EUR2,177 million.
"We operated 1,875 cargo-only flights using passenger aircraft
in quarter 2 which was an important cash contributor to the
Group.
"All IAG airlines made substantial losses. As a result of
government travel restrictions, quarter 2 passenger traffic fell by
98.4 per cent on a capacity reduction in the quarter of 95.3 per
cent. We have seen evidence that demand recovers when government
restrictions are lifted. Our airlines have put in place measures to
provide additional reassurance to their customers and employees on
board and at the airport.
"We continue to expect that it will take until at least 2023 for
passenger demand to recover to 2019 levels. Each airline has taken
actions to adjust their business and reduce their cost base to
reflect forecast demand in their markets not just to get through
this crisis but to ensure they remain competitive in a structurally
changed industry.
"IAG continues to take action to strengthen its balance sheet
and liquidity position including more than halving its operating
cash costs and significantly reducing its capital spending. At the
end of June liquidity stood at EUR8.1 billion. Based on our current
capacity planning scenario, we would reach breakeven in terms of
Net cash flows from operating activities during quarter 4 2020.
"Subject to shareholder approval at our AGM on September 8, IAG
will undertake a capital increase of up to EUR2.75 billion which
will enhance the Group's resilience, balance sheet and liquidity
position. We're delighted that our largest shareholder, Qatar
Airways, has already committed to support the proposed capital
raising. This will best position IAG to continue executing its
strategic objectives and capitalise on its existing market leading
position and future growth and consolidation opportunities."
Trading outlook
As announced on February 28, 2020, given the uncertainty on the
impact and duration of COVID-19, IAG is not currently providing
profit guidance for 2020.
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
Disclaimer relating to capital increase:
The securities offered as part of the capital increase referred
to in this document will not be registered under the U.S.
Securities Act of 1933, amended and may not be offered or sold in
the United States (including its territories and possessions, any
state of the United States and the District of Columbia) absent
registration or an applicable exemption from registration
requirements in the United States. The offering of such securities
may also be restricted or prohibited in certain other
jurisdictions, including Australia, Canada, Hong Kong, Japan, New
Zealand, Singapore, South Africa, Switzerland and the United Arab
Emirates .
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 Report 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
Six months to June 30
---------------------------------------------
Before
exceptional
items Exceptional Total Total Higher/
EUR million 2020 items 2020 2019(1) (lower)
Passenger revenue 4,151 (38) 4,113 10,586 (60.8)%
10.6
Cargo revenue 615 615 556 %
Other revenue 560 560 884 (36.7)%
------------------------------------------- ------------ ----------- ------- --------- --------
Total revenue 5,326 (38) 5,288 12,026 (55.7)%
------------------------------------------- ------------ ----------- ------- --------- --------
Employee costs 1,890 1,890 2,492 (24.2)%
Fuel, oil costs and emissions charges 1,313 1,269 2,582 2,936 (55.3)%
Handling, catering and other operating
costs 853 853 1,413 (39.6)%
Landing fees and en-route charges 539 539 1,081 (50.1)%
Engineering and other aircraft costs 766 77 843 1,031 (25.7)%
Property, IT and other costs 406 22 428 380 6.8 %
Selling costs 268 268 551 (51.4)%
Depreciation, amortisation and impairment 1,114 731 1,845 1,035 7.6 %
Currency differences 77 77 12 nm
------------------------------------------- ------------ ----------- ------- --------- --------
Total expenditure on operations 7,226 2,099 9,325 10,931 (33.9)%
------------------------------------------- ------------ ----------- ------- --------- --------
Operating (loss)/profit (1,900) (2,137) (4,037) 1,095 nm
21.7
Finance costs (342) (342) (281) %
Finance income 23 23 22 4.5 %
Net financing credit relating to pensions 3 3 13 (76.9)%
Net currency retranslation credits 97 97 138 (29.7)%
Other non-operating credits 50 50 20 nm
------------------------------------------- ------------ ----------- ------- --------- --------
92.0
Total net non-operating costs (169) (169) (88) %
------------------------------------------- ------------ ----------- ------- --------- --------
(Loss)/profit before tax (2,069) (2,137) (4,206) 1,007 nm
Tax 104 296 400 (201) nm
------------------------------------------- ------------ ----------- ------- --------- --------
(Loss)/profit after tax for the period (1,965) (1,841) (3,806) 806 nm
------------------------------------------- ------------ ----------- ------- --------- --------
Higher/
Operating figures 2020 2019 (lower)
Available seat kilometres (ASK million) 71,625 163,431 (56.2)%
Revenue passenger kilometres (RPK million) 52,772 135,684 (61.1)%
Seat factor (per cent) 73.7 83.0 (9.3)pts
Passenger numbers (thousands) 20,385 55,886 (63.5)%
Cargo tonne kilometres (CTK million) 1,751 2,802 (37.5)%
Sold cargo tonnes (thousands) 232 346 (32.9)%
Sectors 155,265 376,034 (58.7)%
Block hours (hours) 492,515 1,102,024 (55.3)%
------------------------------------------- ------------ ----------- ------- --------- --------
Average manpower equivalent(2) 63,501 65,027 (2.3)%
Aircraft in service 548 588 (6.8)%
------------------------------------------- ------------ ----------- ------- --------- --------
Passenger revenue per RPK (EUR cents) 7.87 7.80 0.8 %
Passenger revenue per ASK (EUR cents) 5.80 6.48 (10.5)%
77.0
Cargo revenue per CTK (EUR cents) 35.12 19.84 %
Fuel cost per ASK (EUR cents) 1.83 1.80 2.0 %
68.8
Non-fuel costs per ASK (EUR cents) 8.26 4.89 %
50.8
Total cost per ASK (EUR cents) 10.09 6.69 %
------------------------------------------- ------------ ----------- ------- --------- --------
(1) The 2019 results include a reclassification of the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the six months to June 30, 2019 was EUR63
million. Further information is given in note 1.
(2) Included in the average manpower equivalent are 8,182
manpower equivalent on the Temporary Redundancy Plan arrangements
in Spain.
CONSOLIDATED INCOME STATEMENT
Three months to June 30
--------------------------------------------
Before
exceptional
items Exceptional Total Total Higher/
EUR million 2020 items 2020 2019(1) (lower)
Passenger revenue 198 (38) 160 5,963 (96.7)%
31.3
Cargo revenue 369 369 281 %
Other revenue 174 174 487 (64.3)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Total revenue 741 (38) 703 6,731 (89.0)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Employee costs 656 656 1,288 (49.1)%
Fuel, oil costs and emissions charges 104 (56) 48 1,570 (93.4)%
Handling, catering and other operating
costs 201 201 749 (73.2)%
Landing fees and en-route charges 88 88 596 (85.2)%
Engineering and other aircraft costs 262 77 339 546 (52.0)%
Property, IT and other costs 181 22 203 211 (14.2)%
Selling costs 57 57 270 (78.9)%
Depreciation, amortisation and impairment 544 731 1,275 520 4.6 %
Currency differences 13 13 21 (38.1)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Total expenditure on operations 2,106 774 2,880 5,771 (63.5)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Operating (loss)/profit (1,365) (812) (2,177) 960 nm
32.6
Finance costs (191) (191) (144) %
Finance income 12 12 12 -
Net financing credit relating to pensions 2 2 7 (71.4)%
Net currency retranslation credits 20 20 68 (70.6)%
Other non-operating credits 10 10 18 (44.4)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Total net non-operating costs (147) (147) (39) nm
------------------------------------------- ------------ ----------- ------- -------- ---------
(Loss)/profit before tax (1,512) (812) (2,324) 921 nm
Tax 103 98 201 (185) nm
------------------------------------------- ------------ ----------- ------- -------- ---------
(Loss)/profit after tax for the period (1,409) (714) (2,123) 736 nm
------------------------------------------- ------------ ----------- ------- -------- ---------
Higher/
Operating figures 2020 2019(1) (lower)
Available seat kilometres (ASK million) 4,103 88,008 (95.3)%
Revenue passenger kilometres (RPK million) 1,155 74,806 (98.5)%
Seat factor (per cent) 28.2 85.0 (56.8)pts
Passenger numbers (thousands) 508 31,504 (98.4)%
Cargo tonne kilometres (CTK million) 578 1,409 (59.0)%
Sold cargo tonnes (thousands) 84 172 (51.2)%
Sectors 11,296 207,024 (94.5)%
Block hours (hours) 58,271 600,662 (90.3)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Average manpower equivalent(2) 63,532 66,402 (4.3)%
------------------------------------------- ------------ ----------- ------- -------- ---------
Passenger revenue per RPK (EUR cents) 17.14 7.97 nm
Passenger revenue per ASK (EUR cents) 4.83 6.78 (28.8)%
Cargo revenue per CTK (EUR cents) 63.84 19.94 nm
Fuel cost per ASK (EUR cents) 2.53 1.78 42.1%
Non-fuel costs per ASK (EUR cents) 48.79 4.77 nm
Total cost per ASK (EUR cents) 51.33 6.56 nm
------------------------------------------- ------------ ----------- ------- -------- ---------
(1) The 2019 results include a reclassification of the costs the
Group incurs in relation to compensation for flight delays and
cancellations as a deduction from revenue as opposed to an
operating expense. There is no change in operating profit. The
amount reclassified for the three months to June 30, 2019 was EUR40
million. Further information is given in note 1.
(2) Included in the average manpower equivalent are 16,201
manpower equivalent on the Temporary Redundancy Plan arrangements
in Spain.
COVID-19 Summary - six months to June 30
The results for the six months to June 30, 2020, were
significantly impacted by the outbreak and escalation of COVID-19.
In January and most of February the direct impact was mainly in the
Asia and Pacific region, with suspension of services to China at
the end of January and other capacity reductions in the Asia
Pacific region. 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 last year. The Group was able to operate
additional cargo flights to assist in moving medical items and
essential supplies, leading to record cargo revenue for the
quarter.
The Group has taken action to preserve cash and boost liquidity.
Cost savings have included the impact of employee furlough and
equivalent schemes following measures taken by national
governments, which were applied from April and these, together with
other employee cost reductions and supplier cost reductions, have
offset some of the impact of the significant fall in passenger
revenue. The Group has also agreed and implemented additional
borrowing and facilities. Additional non-aircraft debt of EUR1,010
million was drawn down in Spain as part of the Instituto de Crédito
Oficial ('ICO') facility and British Airways issued commercial
paper worth EUR330 million using the UK's Coronavirus Corporate
Finance Facility (CCFF). The main British Airways Revolving Credit
Facility was extended by one year to June 2021 and other credit
facilities have also been added within the Group. The Group also
agreed additional one-year aircraft financing facilities for old
and new aircraft, with a total value of EUR870 million. The Group
has agreed to defer 68 aircraft scheduled for delivery over the
period 2020 to 2022, and, together with reductions in non-aircraft
capital expenditure, has reduced its total capital expenditure for
2020 by EUR1.5 billion from the level planned at the start of the
year.
Commodity fuel prices have fallen sharply since the start of the
year and despite some recovery in recent weeks are still only
slightly over half the level at the start of the year. The fall in
fuel prices has led to significant losses on fuel hedging
derivatives, which would normally be offset against lower costs for
purchasing jet fuel. The impact of COVID-19 has led to a
significant reduction in the requirement to purchase jet fuel, with
only a skeleton flying programme operated in quarter 2 and a
significantly reduced programme expected for the second half of the
year. As a consequence the Group has recognised an exceptional
charge for the six months to June 30, 2020 of EUR1,269 million
relating to overhedging, being the losses on fuel hedging
derivatives maturing in 2020 for which there will be no matching
volume of fuel purchased, together with related foreign currency
gains, calculated using the forward fuel curve and exchange rates
at June 30, 2020. This overhedging loss has fallen slightly since
the EUR1,325 million at March 31, 2020, as the rise in fuel prices
during quarter 2 has broadly offset the impact of expected lower
fuel requirements in the second half, in line with latest capacity
plans.
The Group expects that it will take until at least 2023 for
passenger demand to reach the levels of 2019. As a result the Group
has taken the decision to retire legacy aircraft early and stand
down some additional aircraft in advance of the end of lease
contracts. British Airways expects that it will no longer need to
operate any further Boeing 747 flights and hence the fleet and
associated inventory has been fully impaired, pending disposal.
Similarly Iberia has recognised an impairment in respect of its
Airbus A340-600 fleet. For more details on impairments see note 3.
These fleet plans remain subject to employee consultation as
appropriate and decisions to dispose of the aircraft will only be
taken once those processes have concluded.
Strategic overview - other developments
The Group is actively involved in restructuring its cost-base to
adjust to significantly lower levels of demand, with demand not
expected to reach 2019 levels until 2023 at the earliest. As at the
end of quarter 2 a number of employee consultation processes were
in progress, but none was sufficiently advanced to result in
restructuring provisions being made. As at July 29, 1,600 employees
at British Airways had opted to take voluntary redundancy.
Basis of preparation
In light of the COVID-19 pandemic the Group has undertaken
scenario modelling, as detailed in note 1 of the consolidated
interim financial statements, and the Directors have a reasonable
expectation that the Group has sufficient liquidity for the
foreseeable future and accordingly the Directors have adopted the
going concern basis in preparing the consolidated interim financial
statements. However, due to the uncertainty created by COVID-19 and
potential for future waves of the pandemic and the impact on travel
restrictions and/or demand, the Group is not able to provide
certainty that there could not be more severe downside scenarios
than those it has considered, including the stresses it has
considered in relation to factors such as the impact on yield,
capacity operated, cost mitigations achieved and fuel price
variations. Whilst such scenarios are not considered likely, in the
event that such a scenario were to occur the Group will likely need
to secure additional funding over and above that which is
contractually committed at July 30, 2020. Refer to note 1 of the
consolidated interim financial statements for further
information.
Principal risks and uncertainties
The Group has continued to maintain and operate its structure
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".
As the pandemic outbreak has persisted, some of the principal
risks have evolved in impact and likelihood. As a result,
additional mitigating actions have been identified and implemented
to respond and 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 the
results of modelling of potential scenarios, outlining the impact
of further stress on the Group as summarised in note 1.
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. No new principal risks were identified through the risk
management assessment discussions across the business.
-- Airports, infrastructure and critical third parties.
Restrictions at hubs and airports have required capacity
adjustments, including fleet adjustments and new operating
procedures to recommence flying. 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.
-- Data and cyber security. The Group has maintained its planned
investment in cyber security, and taken steps to mitigate IT and
other risks as a result of remote working.
-- 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. 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. The economic impact of COVID-19 is
expected to be significant if longer in duration, the Group will
adjust its future capacity plans accordingly, retaining flexibility
to adapt as required.
-- Debt funding and financial risk. Financial markets have not
operated normally since the spread of COVID-19, although the Group
has been able to renew and extend credit facilities and agree new
aircraft leases, as well as introduce additional one-year funding
facilities in advance of an improvement in market conditions and
the anticipated availability of regular aircraft financing
arrangements. The Group has an established process to monitor
financial and counterparty risk on an ongoing basis.
The Board and its sub committees have been appraised of
regulatory, competitor and governmental responses on an ongoing
basis. The Group also continues to evaluate and monitor the
arrangements over Brexit as the UK prepares to end the transition
period with the European Union on December 31, 2020.
Operating and market environment
Average commodity fuel prices for the six months to June 30,
2020, were significantly lower than the first half of 2019 as
prices fell during March and remain well below last year's levels.
Foreign exchange rates for the euro and pound sterling against the
US dollar were both approximately 3 per cent weaker than the same
period last year.
IAG's results are impacted by exchange rates used for the
translation of British Airways' and IAG Loyalty's financial results
from pound sterling to the Group's reporting currency of euro. For
the six months to June 30, 2020, the net impact of translation on
the operating result was EUR16 million favourable.
From a transactional perspective, the Group's financial
performance is impacted by fluctuations in exchange rates,
primarily from the US dollar, euro and pound sterling. The Group
normally generates a surplus in most currencies in which it does
business, except for the US dollar, as capital expenditure, debt
repayments and fuel purchases typically create a deficit. The Group
hedges a portion of its transaction exposures. The net transaction
impact on the operating result was adverse by EUR68 million for the
period, increasing revenues by EUR51 million and costs by EUR119
million.
The net impact of translation and transaction exchange on the
operating result for the Group was EUR52 million adverse.
Capacity
In the six months to June 30, 2020, IAG capacity, measured in
available seat kilometres (ASKs), was lower by 56.2 per cent with
the impact of the COVID-19 pandemic felt across all regions.
Prior to the main impact of COVID-19 from late February onwards,
Aer Lingus capacity was broadly flat for January and February with
increases in North Atlantic routes, from the route to Minneapolis
launched in July 2019, and increased frequencies to Boston and San
Francisco, offset by reductions in shorthaul capacity. British
Airways capacity was flat for January and February, with increases
from new destinations including Dammam, Islamabad and Pittsburgh,
offset by COVID-19 related cancellations to destinations in Asia
Pacific. LEVEL longhaul capacity growth reflected the annualisation
of new routes launched in 2019 to Santiago de Chile and New York
JFK and additional frequencies on routes to the French Caribbean.
Iberia increased its capacity in January and February primarily on
its Latin American routes with a new route to Guayaquil, Ecuador
and additional frequencies on routes to Colombia, Peru and Brazil.
Vueling reduced its capacity in January and February primarily in
Italy as it continued to focus on its core markets, prior to the
spread of COVID-19.
During quarter 2 Aer Lingus capacity was driven by cargo needs
with flights operating regularly to New York, Chicago and Boston in
addition to flights from China carrying back Personal Protective
Equipment (PPE). British Airways operated flights daily to a number
of US cities including New York, Boston and Washington, mainly for
cargo purposes. Towards the end of the quarter, activity in the
Caribbean started to pick up with a number of charter flights
operating to Barbados and Antigua. Hong Kong is the only
destination in Asia Pacific where flights have been operating
regularly (with some limited flights to Beijing and Singapore).
British Airways operated very limited shorthaul flights, with a
small increase in June. Iberia longhaul operations in April and May
were mainly for repatriation flights from South America including
Argentina, Chile and Peru. Minimum operations were maintained by
Iberia for domestic and shorthaul routes to keep main European
cities connected including Paris, Brussels and London. LEVEL
longhaul operations were cancelled, with the exception of one
repatriation flight from Buenos Aires, due to travel restrictions
on the routes operated. On June 19, 2020 the operations of LEVEL
Europe operating out of Vienna and Amsterdam were ceased. On July
8, 2020, LEVEL France announced its intention to commence
consultations with the unions of its employees regarding the
proposed cessation of its operations out of Paris Orly. LEVEL Spain
operating out of Barcelona remains unaffected. Vueling operations
in the quarter were mainly focused on domestic flights, connecting
the peninsula with the islands.
Unit measures have been rendered much less meaningful than usual
by the significant reduction in capacity operated, particularly in
quarter 2, but the unit measures for the six months are included in
the commentary below for completeness.
Revenue
Passenger revenue for the six months to June 30, 2020, fell 60.8
per cent from the previous year, with quarter 2 down 96.7 per cent.
Passenger unit revenue (passenger revenue per ASK) decreased 13.9
per cent at constant currency ('ccy'), due primarily to lower
yields (passenger revenue per revenue passenger kilometre) and
lower passenger seat factors from March onwards, associated with
the impact of COVID-19.
Cargo revenue was 10.6 per cent higher than in 2019 and was up
11.0 per cent at constant currency, with cargo revenue boosted
significantly by the additional flights operated for moving medical
equipment and supplies, with an additional 1,875 cargo flights
operated in quarter 2. Cargo revenue for quarter 2 was a record
EUR369 million, up from EUR281 million in quarter 2 2019. Cargo
carried for the six months to June 30, 2020, measured in cargo
tonne kilometres (CTKs), fell by 37.5 per cent, due to the
reduction in passenger schedules, but yields were significantly
higher, as the additional flights carried no passengers and had no
associated passenger revenue and hence the cost of operating such
flights had to be met entirely from cargo revenue.
Other revenue fell by 36.7 per cent and by 39.0 per cent at ccy,
as the growth of the Group's non-airline businesses was also
impacted by COVID-19 from March.
Costs
Employee costs for the six months to June 30 decreased by EUR602
million compared with 2019. Approximately half of this reduction
was as a result of furlough and equivalent temporary cost reduction
schemes, together with reductions to either hours worked or pay in
quarter 2. Reductions were made at all levels and in all functions
within the Group. Despite all these measures, the reduction in
employee costs of 24.2 per cent was outweighed by the 56.2 per cent
reduction in passenger capacity and as a consequence employee unit
costs at ccy rose 71.1 per cent.
Fuel costs (excluding the exceptional charge for overhedging)
reduced by 55.3 per cent, reflecting the reduced capacity operated.
Fuel unit costs at ccy were down 1.9 per cent on 2019, linked to
continued efficiencies and the net impact of commodity prices
across the period and hedging losses versus the previous year.
Supplier costs decreased by 34.9 per cent, linked to
volume-related savings due to the lower capacity operated, together
with a reduction in non-essential expenditure as a result of
COVID-19. The savings were lower than the reduction in volume,
reflecting fixed costs and the rapid escalation of the virus in
March, which led to capacity falling at a greater level than it was
possible to reduce costs. Supplier unit costs for the six months to
June 30, 2020, were up 41.0 per cent at ccy.
Ownership costs before exceptional items increased 7.6 per cent
on the previous year, in line with the fleet replacement programme.
The number of aircraft in service decreased from 598 in December
2019 to 548 at the end of June 2020, with the reduction mainly
reflecting the Boeing 747s in British Airways and Airbus A340-600s
in Iberia, which will lead to a reduction in depreciation in future
quarters, following the impairments described below. The majority
of the in-service fleet was grounded from March. Ownership costs
before exceptional items on a unit basis and at ccy were up 144 per
cent on 2019, as the grounded aircraft continue to have
depreciation charged.
Overall airline non-fuel unit costs at ccy were up 66.3 per cent
versus a year ago, linked to the significant capacity
reduction.
Operating loss before exceptional items
The Group's operating loss before exceptional items for the six
months to June 30, 2020, was EUR1,900 million (2019: operating
profit of EUR1,095 million), representing a deterioration of
EUR2,995 million versus 2019.
Exceptional items
Exceptional items are detailed in note 3. Exceptional items have
been recognised in respect of the impact of overhedging in respect
of the COVID-19 related capacity reductions, being the net of fuel
and foreign currency overhedging (a loss of EUR1,269 million), and
passenger revenue (a loss of EUR38 million). In additional there is
an exceptional impairment expense of EUR731 million related to
fleet and other assets, together with an associated inventory
impairment expense of EUR71 million and expenses relating to
contractual end of lease payments also in respect of surplus
aircraft of EUR6 million. An exceptional expense of EUR22 million
has been recorded in respect of a provision in relation to the
theft of customer data at British Airways in 2018.
There were no exceptional items in the six months to June 30,
2019.
Net non-operating costs, taxation and profit after tax
The Group's net non-operating costs for the six months to June
30, 2020, were EUR169 million compared with EUR88 million in 2019,
mainly relating to arrangement fees and interest for new debt and
facilities and costs associated with restructuring certain
derivative contracts, for which the cashflows have been deferred to
2021 or later.
The tax credit for the period was EUR104 million before
exceptional items (2019: tax charge of EUR201 million), with an
effective tax rate for the Group of 5 per cent (2019: 20 per cent).
The effective tax rate in the period was different to the expected
rate of 20 per cent due to not recognising tax credits in respect
of certain current and prior period losses and deductible temporary
differences, and due to the cancellation of the UK rate reduction
and its impact on UK deferred tax balances.
The loss after tax and exceptional items for the six months to
June 30, 2020 was EUR3,806 million (2019: profit after tax EUR806
million), driven by the impact of COVID-19 on operating profit,
together with the exceptional items relating to the overhedged
position on fuel and the impairment of fleet assets, which were
also the result of COVID-19.
Cash and leverage
The Group's cash position of EUR6,016 million was EUR667 million
lower than December 31, 2019. Net debt at the end of the period,
including the debt associated with right of use assets, was
EUR10,463 million compared with EUR7,571 million at December 31,
2019. Net debt to EBITDA, based on the 12 months to June 30, 2020,
was 4.2 times, versus 1.4 times at the end of December 2019.
Other recent developments
On July 24, 2020, the Group announced that IAG Loyalty had
signed a multi-year renewal extending its worldwide commercial
partnership with American Express. Under the agreements, American
Express will make a payment of approximately EUR830 million (GBP750
million) to IAG Loyalty, a significant part of which is a
pre-purchase of Avios points that American Express will utilise in
the UK and worldwide for its British Airways co-branded cards and
Membership Rewards Programme.
Having reached nine years in office last January (the maximum
term recommended in the UK corporate governance code), Antonio
Vázquez has announced his intention to retire in early January
2021, stepping down from his position as member and Chairman of the
Board of Directors. On July 30, the Board unanimously approved the
appointment of independent director Javier Ferrán as his
successor.
Antonio Vázquez will continue to chair the Board of Directors
for the remainder of 2020 subject to his proposed re-election as
director being approved by the next IAG's Annual General
Shareholders Meeting. This will enable him to support the
succession of the Group's Chief Executive and allow for the orderly
transition of chairman.
INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial
Statements
January 1, 2020 - June 30, 2020
CONSOLIDATED INCOME STATEMENT
Six months to June 30
----------------------------------------------
Before
exceptional
items Exceptional Total Total
EUR million 2020 items 2020 2019(1)
--------------------------------------------- ------------- ------------ ------- --------
Passenger revenue 4,151 (38) 4,113 10,586
Cargo revenue 615 615 556
Other revenue 560 560 884
--------------------------------------------- ------------- ------------ ------- --------
Total revenue 5,326 (38) 5,288 12,026
--------------------------------------------- ------------- ------------ ------- --------
Employee costs 1,890 1,890 2,492
Fuel, oil costs and emissions charges 1,313 1,269 2,582 2,936
Handling, catering and other operating
costs 853 853 1,413
Landing fees and en-route charges 539 539 1,081
Engineering and other aircraft costs 766 77 843 1,031
Property, IT and other costs 406 22 428 380
Selling costs 268 268 551
Depreciation, amortisation and impairment 1,114 731 1,845 1,035
Currency differences 77 77 12
--------------------------------------------- ------------- ------------ ------- --------
Total expenditure on operations 7,226 2,099 9,325 10,931
--------------------------------------------- ------------- ------------ ------- --------
Operating (loss)/profit (1,900) (2,137) (4,037) 1,095
Finance costs (342) (342) (281)
Finance income 23 23 22
Net financing credit relating to pensions 3 3 13
Net currency retranslation credits 97 97 138
Other non-operating credits 50 50 20
--------------------------------------------- ------------- ------------ ------- --------
Total net non-operating costs (169) (169) (88)
--------------------------------------------- ------------- ------------ ------- --------
(Loss)/profit before tax (2,069) (2,137) (4,206) 1,007
Tax 104 296 400 (201)
--------------------------------------------- ------------- ------------ ------- --------
(Loss)/profit after tax for the period (1,965) (1,841) (3,806) 806
--------------------------------------------- ------------- ------------ ------- --------
Attributable to:
Equity holders of the parent (1,965) (3,806) 806
Non-controlling interest - - -
--------------------------------------------- ------------- ------------ ------- --------
(1,965) (3,806) 806
--------------------------------------------- ------------- ------------ ------- --------
Basic (loss)/earnings per share (EUR
cents) (99.0) (191.7) 40.6
--------------------------------------------- ------------- ------------ ------- --------
Diluted (loss)/earnings per share (EUR
cents) (99.0) (191.7) 39.2
--------------------------------------------- ------------- ------------ ------- --------
(1) The 2019 Income statement includes a reclassification to conform to
the current period presentation of compensation for flight delays and cancellations
as a deduction from revenue as opposed to an operating expense. There is
no change in operating profit. The amount reclassified for the six months
to June 30, 2019 was EUR63 million. Further information is given in note
1.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June
30
--------------------
EUR million 2020 2019
------------------------------------------------------------ ----------- -------
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity (2,500) 554
Reclassified and reported in net profit 1,265 56
Fair value movements on cost of hedging - 43
Cost of hedging reclassified and reported in net profit (8) -
Currency translation differences (146) 35
Items that will not be reclassified to net profit
Fair value movements on equity instruments (10) (5)
Fair value movements on cash flow hedges 172 (1)
Fair value movements on cost of hedging 20 -
Remeasurements of post-employment benefit obligations (994) (68)
------------------------------------------------------------ ----------- -------
Total other comprehensive (loss)/income for the period,
net of tax (2,201) 614
------------------------------------------------------------ ----------- -------
(Loss)/profit after tax for the period (3,806) 806
Total comprehensive (loss)/income for the period (6,007) 1,420
------------------------------------------------------------ ----------- -------
Total comprehensive (loss)/income is attributable to:
Equity holders of the parent (6,007) 1,420
Non-controlling interest - -
------------------------------------------------------------ ----------- -------
(6,007) 1,420
------------------------------------------------------------ ----------- -------
Items in the consolidated Statement of other comprehensive income above
are disclosed net of tax.
CONSOLIDATED BALANCE SHEET
December
June 30, 31,
EUR million 2020 2019(1)
--------------------------------------------------------- --------- ---------
Non-current assets
Property, plant and equipment 17,782 19,168
Intangible assets 3,330 3,442
Investments accounted for using the equity method 31 31
Other equity investments 71 82
Employee benefit assets 331 314
Derivative financial instruments 518 268
Deferred tax assets 724 546
Other non-current assets 247 273
--------------------------------------------------------- --------- ---------
23,034 24,124
--------------------------------------------------------- --------- ---------
Current assets
Inventories 418 565
Trade receivables 791 2,255
Other current assets 1,021 1,314
Current tax receivable 251 186
Derivative financial instruments 569 324
Other current interest-bearing deposits 1,320 2,621
Cash and cash equivalents 4,696 4,062
--------------------------------------------------------- --------- ---------
9,066 11,327
--------------------------------------------------------- --------- ---------
Total assets 32,100 35,451
--------------------------------------------------------- --------- ---------
Shareholders' equity
Issued share capital 996 996
Share premium 5,327 5,327
Treasury shares (45) (60)
Other reserves (5,499) 560
--------------------------------------------------------- --------- ---------
Total shareholders' equity 779 6,823
--------------------------------------------------------- --------- ---------
Non-controlling interest 6 6
--------------------------------------------------------- --------- ---------
Total equity 785 6,829
--------------------------------------------------------- --------- ---------
Non-current liabilities
Interest-bearing long-term borrowings 13,659 12,411
Employee benefit obligations 1,225 400
Deferred tax liability 59 290
Provisions 2,231 2,416
Derivative financial instruments 741 286
Other long-term liabilities 116 71
--------------------------------------------------------- --------- ---------
18,031 15,874
--------------------------------------------------------- --------- ---------
Current liabilities
Current portion of long-term borrowings 2,820 1,843
Trade and other payables 3,422 4,344
Deferred revenue on ticket sales 4,624 5,486
Derivative financial instruments 1,699 252
Current tax payable - 192
Provisions 719 631
--------------------------------------------------------- --------- ---------
13,284 12,748
--------------------------------------------------------- --------- ---------
Total liabilities 31,315 28,622
--------------------------------------------------------- --------- ---------
Total equity and liabilities 32,100 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 1 for further information.
CONSOLIDATED CASH FLOW STATEMENT
Six months to June
30
--------------------
EUR million 2020 2019
------------------------------------------------------------------ --------- ---------
Cash flows from operating activities
Operating (loss)/profit (4,037) 1,095
Depreciation, amortisation and impairment 1,845 1,035
Movement in working capital 447 1,579
Decrease/(increase) in trade receivables, inventories
and other current assets 1,615 (609)
(Decrease)/increase in trade and other payables and deferred
revenue on ticket sales (1,168) 2,188
Payments related to restructuring (87) (89)
Employer contributions to pension schemes (182) (368)
Pension scheme service costs 3 3
Provisions and other non-cash movements 352 165
Unrealised loss on derecognition of fuel and foreign exchange
hedges 621 -
Interest paid (263) (213)
Interest received 11 19
Tax (paid)/received (6) 61
------------------------------------------------------------------ --------- ---------
Net cash flows from operating activities (1,296) 3,287
------------------------------------------------------------------ --------- ---------
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible
assets (1,340) (1,509)
Sale of property, plant and equipment and intangible assets 400 458
Decrease/(increase) in other current interest-bearing deposits 1,215 (799)
Other investing movements (1) (1)
------------------------------------------------------------------ --------- ---------
Net cash flows from investing activities 274 (1,851)
------------------------------------------------------------------ --------- ---------
Cash flows from financing activities
Proceeds from long-term borrowings 2,709 441
Repayment of borrowings (77) (68)
Repayment of lease liabilities (778) (823)
Dividend paid (52) (52)
------------------------------------------------------------------ --------- ---------
Net cash flows from financing activities 1,802 (502)
------------------------------------------------------------------ --------- ---------
Net increase in cash and cash equivalents 780 934
Net foreign exchange differences (146) 33
Cash and cash equivalents at 1 January 4,062 3,837
------------------------------------------------------------------ --------- ---------
Cash and cash equivalents at period end 4,696 4,804
------------------------------------------------------------------ --------- ---------
Interest-bearing deposits maturing after more than three
months 1,320 3,227
------------------------------------------------------------------ --------- ---------
Cash, cash equivalents and other interest-bearing deposits 6,016 8,031
------------------------------------------------------------------ --------- ---------
At June 30, 2020 Aer Lingus held EUR40 million of restricted
cash (2019: EUR42 million) within interest-bearing deposits
maturing after more than three months to be used for employee
related obligations.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2020
Issued
share Share Treasury Other Total shareholders' Non-controlling Total
EUR million capital premium shares reserves equity interest equity
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
January 1, 2020 996 5,327 (60) 560 6,823 6 6,829
Total comprehensive loss
for the period (net of tax) - - - (6,007) (6,007) - (6,007)
Hedges reclassified and
reported
in property, plant and
equipment - - - (30) (30) - (30)
Cost of share-based payments - - - (4) (4) - (4)
Vesting of share-based payment
schemes - - 15 (18) (3) - (3)
June 30, 2020 996 5,327 (45) (5,499) 779 6 785
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
For the six months to June 30, 2019
Issued
share Share Treasury Other Total shareholders' Non-controlling Total
EUR million capital premium shares reserves equity interest equity
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
At January 1, 2019 996 6,022 (68) (786) 6,164 6 6,170
Total comprehensive income
for the period (net of tax) - - - 1,420 1,420 - 1,420
Hedges reclassified and
reported
in property, plant and
equipment - - - (1) (1) - (1)
Cost of share-based payments - - - 19 19 - 19
Vesting of share-based payment
schemes - - 8 (14) (6) - (6)
Dividend - (695) - (327) (1,022) - (1,022)
June 30, 2019 996 5,327 (60) 311 6,574 6 6,580
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
1. CORPORATE INFORMATION AND BASIS OF PREPARATION
International Consolidated Airlines Group S.A. (hereinafter
'International Airlines Group', 'IAG' or the 'Group') is a leading
European airline group, formed to hold the interests of airline and
ancillary operations. IAG is a Spanish company registered in Madrid
and was incorporated on December 17, 2009. On January 21, 2011
British Airways Plc and Iberia Líneas Aéreas de España S.A.
Operadora (hereinafter 'British Airways' and 'Iberia' respectively)
completed a merger transaction becoming the first two airlines of
the Group. Vueling Airlines S.A. ('Vueling') was acquired on April
26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18,
2015.
IAG shares are traded on the London Stock Exchange's main market
for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'),
through the Spanish Stock Exchanges Interconnection System (Mercado
Continuo Español).
The condensed consolidated interim financial statements were
prepared in accordance with IAS 34 and authorised for issue by the
Board of Directors on July 30, 2020. The condensed consolidated
interim financial statements herein are not the Company's statutory
accounts and are unaudited.
The same basis of preparation and accounting policies set out in
the IAG Annual Report and Accounts for the year to December 31,
2019 have been applied in the preparation of these condensed
consolidated interim financial statements, except for those in note
2. IAG's financial statements for the year to December 31, 2019
have been filed with the Registro Mercantil de Madrid, and are in
accordance with the International Financial Reporting Standards as
adopted by the European Union (IFRSs as adopted by the EU) and with
those of the Standing Interpretations issued by the IFRS
Interpretations Committee of the International Accounting Standards
Board (IASB). The report of the auditors on those financial
statements was unqualified.
The prior year Income statement and Balance sheet include
reclassifications that were made to conform to the current period
presentation as follows:
-- In September 2019, the IFRS Interpretations Committee
('IFRIC') clarified that under IFRS 15 compensation payments for
flight delays and cancellations form compensation for passenger
losses and accordingly should be recognised as variable
compensation and deducted from revenue. This clarification had led
the Group to change its accounting policy during the fourth quarter
of 2019, which previously classified this compensation as an
operating expense. Accordingly, the Group has reclassified the
comparative six months to June 30, 2019 to reflect EUR63 million of
compensation costs as a deduction from Passenger revenue and a
corresponding reduction within Handling, catering and other
operating costs; and
-- Deferred tax assets arising on the restriction of surpluses
to reflect minimum funding requirements of the British Airways APS
and NAPS defined benefit schemes, as detailed in note 15,
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. At
December 31, 2019, the reclassification had the effect of reducing
Deferred tax liabilities by EUR282 million, reducing the Employee
benefit assets by EUR210 million and increasing the Employee
benefit obligations by EUR72 million. At January 1, 2019, the
reclassification had the effect of reducing Deferred tax
liabilities by EUR372 million, increasing Deferred tax assets by
EUR131 million, reducing the Employee benefit assets by EUR365
million and increasing the Employee benefit obligations by EUR138
million. There is no impact to Profit after tax for the period,
Other comprehensive income for the period, Net assets or the
Statement of changes in equity in any period presented.
Going concern
As detailed in the Financial Review at June 30, 2020, the Group
has cash of EUR6.0 billion and a further EUR2.1 billion of
committed and undrawn general and aircraft facilities. Liquidity
was boosted by, amongst other actions, accessing Spain's Instituto
de Crédito Oficial (ICO) facility and the UK's Coronavirus
Corporate Finance Facility (CCFF). In addition, one-year bridge
financing facilities for old and new aircraft were agreed. These
actions raised an additional EUR2.2 billion of liquidity in the
period. The Group also has a large and valuable portfolio of
airport landing rights. Nevertheless, given the economic
uncertainty of the COVID-19 pandemic, the Group has modelled two
scenarios in its assessment of going concern over the period to
December 31, 2021, referred to below as the Base Case and the
Downside Case.
The Base Case takes into account the Board's and management's
views on the anticipated impact and recovery from the COVID-19
pandemic on the Group's operating companies and overall business
across the going concern period. The key inputs and assumptions
underlying the Base Case include:
-- capacity recovery modelled regionally (and in certain
regions, by key destinations), with capacity (measured versus 2019)
gradually increasing from the reduction of 95 per cent reported in
quarter 2 to 46 per cent lower for quarter 4 2020 and still down 24
per cent on average for 2021;
-- passenger unit revenue per ASK, although recovering is
expected to remain at levels below those of 2019 over the going
concern period, which is dependent on, amongst others, the
weighting of shorthaul versus longhaul, business versus leisure and
premium versus economy; and
-- the Group has forecast securing 80 per cent of the financing
required that is currently uncommitted to align with the timing and
payments for aircraft deliveries. This is a conservative assumption
against the level of financing the Group has been able to achieve
recently, including over the course of the COVID-19 pandemic to
date.
1. CORPORATE INFORMATION AND BASIS OF PREPARATION continued
The Downside Case applies further stress to the Base Case to
model a more prolonged downturn, with a deeper and more gradual
recovery relative to the Base Case. The Downside Case is
representative of a second wave of outbreaks of COVID-19 on a
regional basis, which models a more acute impact on the longhaul
sector, with the domestic and European shorthaul sector recovering
faster than longhaul. In the Downside Case capacity would be 67 per
cent lower than 2019 in quarter 4 2020 and 35 per cent lower
averaged across 2021, with the first two quarters of 2021
approximately down a further 25 per cent versus 2019 than in the
Base Case. In reviewing the Downside Case the Directors have also
considered further sensitivities for adverse experience and
external factors. The Directors consider the Downside Case to be a
severe but plausible scenario.
The Group has modelled the impact of mitigating actions to
offset further deteriorations in demand and capacity, including
reductions in operating expenditure 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 it would pursue in the event of adverse
liquidity experience.
Furthermore, to add resilience to the liquidity position of the
Group, including for the period beyond the next 12 months, the
Directors have resolved to undertake a Rights Issue during the
second half of 2020 for an amount of up to EUR2.75 billion, which
is expected to be fully covered by underwriting and irrevocable
commitments. The Rights Issue will be subject to approval at the
Company's Annual General Meeting on September 8, 2020 and would be
expected to be completed by the end of September.
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 interim financial statements.
Due to the uncertainty created by COVID-19 and potential for
future waves of the pandemic and the impact on travel restrictions
and/or demand, the Group is not able to provide certainty that
there could not be more severe downside scenarios than those it has
considered, including the stresses it has considered in relation to
factors such as the impact on yield, capacity operated, cost
mitigations achieved and fuel price variations. Whilst such
scenarios are not considered likely, in the event that such a
scenario were to occur the Group will likely need to secure
additional funding over and above that which is contractually
committed at July 30, 2020. Sources of additional funding are
expected to include regular financing arrangements for aircraft, an
extension of the CCFF commercial paper until March 2022, and the
Rights Issue referred to above.
However, if such funding were not secured against aircraft, the
UK Government withdrew its CCFF programme or if the Rights Issue
were not approved and executed as anticipated, the occurrence of a
more severe downside scenario and the Group's ability to then
obtain additional funding represents a material uncertainty at July
30, 2020 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 were unable to continue as a going
concern.
2. ACCOUNTING POLICIES
New standards, interpretations and amendments adopted by the
Group
The following amendments and interpretations apply for the first
time in the six months to June 30, 2020, but do not have an impact
on the condensed consolidated interim financial statements of the
Group:
-- Amendments to references to 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
-- 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 Group has not early adopted any standard, interpretation or
amendment that has been issued but is not yet effective.
2. ACCOUNTING POLICIES continued
New and changes in accounting policies
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
Judgement and estimates in the determination of the impact of
COVID-19 on the interim financial statements
The Group has applied judgement in evaluating the impact of
COVID-19 on the estimation uncertainty of determining cash flow
forecasts as part of approved business plans. These cash flow
forecasts underpin the following areas of these interim financial
statements:
-- The going concern basis of preparation (refer to note 1);
-- Hedged forecast transactions, predominantly of fuel and
foreign currency, are no longer expected to occur and accordingly
the associated hedges de-recognised (refer to note 3 and note
17);
-- The long-term fleet plans for each operating company and
accordingly number of aircraft permanently stood down and impaired
at the balance sheet date (refer to note 3 and note 10);
-- The value-in-use calculations used in each of the cash
generating unit ( CGU) impairment assessments (refer to note 11);
and
-- The recoverability of deferred tax assets (refer to note
7).
3. exceptional items
Six months to June
30
--------------------
EUR million 2020 2019
------------------------------------------------------------- ---------- --------
Loss on derecognition of foreign currency passenger revenue
hedges(1) (38) -
------------------------------------------------------------- ---------- --------
Recognised in revenue (38) -
------------------------------------------------------------- ---------- --------
Loss on derecognition of fuel and foreign exchange hedges(1) 1,269 -
Impairment of fleet and associated assets(2) 731 -
Engineering and other aircraft costs(3) 77 -
Settlement provision(4) 22 -
------------------------------------------------------------- ---------- --------
Recognised in expenditure on operations 2,099 -
------------------------------------------------------------- ---------- --------
Total exceptional charge before tax 2,137 -
------------------------------------------------------------- ---------- --------
Tax on exceptional items (296) -
------------------------------------------------------------- ---------- --------
Total exceptional charge after tax 1,841 -
------------------------------------------------------------- ---------- --------
(1) The exceptional charge to Fuel, oil costs and emissions
charges of EUR1,269 million represented by an expense of EUR1,372
million relating to fuel derivatives and a credit of EUR103 million
relating to the associated fuel foreign currency derivatives, and
the exceptional charge to Passenger revenue of EUR38 million
relates to the derecognition of hedges of the associated fuel
derivatives and the foreign currency derivatives on forecast
revenue and fuel consumption. These losses have arisen from the
substantial deterioration in demand for air travel caused by the
COVID-19 outbreak, which has caused a significant level of hedged
fuel purchases in US dollars and hedged passenger revenue
transactions in a variety of foreign currencies to no longer be
expected to occur based on the Group's operating forecasts
prevailing at the balance sheet date. The Group's risk management
strategy has been to build up these hedges gradually over a
three-year period when the level of forecast fuel consumption and
passenger revenues were higher than current expectations.
Accordingly, the hedges for these transactions has been
derecognised and the losses recognised in the Income statement.
The related tax credit was EUR204 million, with EUR7 million
being attributable to the charge to passenger revenue and EUR197
million being attributable to the fuel expense. Further details are
given in note 17.
3. exceptional items continued
(2) The total exceptional impairment expense of EUR731 million
is represented by an impairment of fleet assets of EUR729 million
and an impairment of other assets of EUR2 million. The fleet
impairment relates to 55 aircraft, their associated engines and
rotable inventories that have been stood down permanently and 6
further aircraft which have been impaired down to their recoverable
value at June 30, 2020, which includes 32 Boeing 747 aircraft, 15
Airbus A340 aircraft, 4 Airbus A320 aircraft, 4 Airbus A330-200
aircraft, 2 Boeing 777-200 aircraft and 4 Embraer E170 aircraft. Of
the fleet impairment, EUR635 million is recorded within Property,
plant and equipment relating to owned aircraft and EUR94 million is
recorded within Right of use assets relating to leased aircraft.
Subsequent to these impairments, all assets are held at their
recoverable amounts. The exceptional impairment expense has been
recorded within Depreciation, amortisation and impairment in the
Income statement.
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.
The related tax credit was EUR87 million.
(3) The exceptional charge to Engineering and other aircraft
costs of EUR77 million includes an inventory write down expense of
EUR71 million and a charge relating to contractual lease provisions
of EUR6 million. The inventory write down expense represents those
expendable inventories that, given the aforementioned asset
impairments, are no longer expected to be utilised. The charge
relating to the recognition of contractual lease provisions of EUR
6 million represents the estimation of the additional cost to
fulfil the hand back conditions associated with the aforementioned
leased aircraft that have been permanently stood down and
impaired.
The related tax credit was EUR5 million.
(4) The exceptional charge of EUR22 million represents
management's best estimate of the amount of any penalty issued by
the Information Commissioner's Office (ICO) in the United Kingdom,
relating to the theft of customer data at British Airways in 2018.
The process is ongoing and no final penalty notice has been issued.
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.
4. Seasonality
Except for the impact of COVID-19, the Group's business is
highly seasonal with demand strongest during the summer months.
Accordingly higher revenues and operating profits are usually
expected in the latter six months of the financial year than in the
first six months.
5. 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.
5. SEGMENT INFORMATION continued
For the six months to June 30,
2020
2020
---------------------------------------------------------------
British Other Group
EUR million Airways Iberia Vueling Aer Lingus companies(1) Total
------------------------------- -------- ------- ------- ---------- ------------- --------
Revenue
Passenger revenue 2,566 784 317 315 131 4,113
Cargo revenue 448 107 - 60 - 615
Other revenue 156 335 4 - 65 560
------------------------------- -------- ------- ------- ---------- ------------- --------
External revenue 3,170 1,226 321 375 196 5,288
Inter-segment revenue 53 147 (8) 2 211 405
------------------------------- -------- ------- ------- ---------- ------------- --------
Segment revenue 3,223 1,373 313 377 407 5,693
------------------------------- -------- ------- ------- ---------- ------------- --------
Depreciation, amortisation and
impairment (1,134) (430) (139) (93) (49) (1,845)
------------------------------- -------- ------- ------- ---------- ------------- --------
Operating (loss)/profit before
exceptional items (1,094) (359) (268) (189) 10 (1,900)
------------------------------- -------- ------- ------- ---------- ------------- --------
Exceptional items (note 3)(2) (1,360) (508) (118) (127) (24) (2,137)
------------------------------- -------- ------- ------- ---------- ------------- --------
Operating loss (2,454) (867) (386) (316) (14) (4,037)
------------------------------- -------- ------- ------- ---------- ------------- --------
Net non-operating costs (169)
------------------------------- -------- ------- ------- ---------- ------------- --------
Loss before tax (4,206)
------------------------------- -------- ------- ------- ---------- ------------- --------
Total assets 19,219 8,178 3,658 2,026 (981) 32,100
Total liabilities (16,488) (7,748) (3,692) (1,592) (1,795) (31,315)
------------------------------- -------- ------- ------- ---------- ------------- --------
(1) Includes eliminations on total assets of EUR14,159 million and total
liabilities of EUR4,077 million.
(2) Included within the exceptional items are impairments by segment of
the following: British Airways EUR463 million; Iberia EUR234 million; Aer
Lingus EUR25 million; and other Group companies EUR9 million.
For the six months to June 30, 2019
2019
---------------------------------------------------------------
British Other Group
EUR million Airways Iberia Vueling Aer Lingus companies(1) Total
------------------------------------ -------- ------- ------- ---------- ------------- --------
Revenue
Passenger revenue 6,492 1,839 1,053 936 266 10,586
Cargo revenue 404 125 - 26 1 556
Other revenue 333 428 7 3 113 884
------------------------------------ -------- ------- ------- ---------- ------------- --------
External revenue 7,229 2,392 1,060 965 380 12,026
Inter-segment revenue 105 237 - 3 288 633
------------------------------------ -------- ------- ------- ---------- ------------- --------
Segment revenue 7,334 2,629 1,060 968 668 12,659
------------------------------------ -------- ------- ------- ---------- ------------- --------
Depreciation, amortisation and
impairment (621) (191) (120) (64) (39) (1,035)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit before exceptional
items 873 109 5 78 30 1,095
------------------------------------ -------- ------- ------- ---------- ------------- --------
Operating profit 873 109 5 78 30 1,095
------------------------------------ -------- ------- ------- ---------- ------------- --------
Net non-operating costs (88)
------------------------------------ -------- ------- ------- ---------- ------------- --------
Profit before tax 1,007
------------------------------------ -------- ------- ------- ---------- ------------- --------
Total assets 22,351 8,787 3,734 2,260 (1,062) 36,070
Total liabilities (15,309) (7,091) (3,478) (1,450) (2,162) (29,490)
------------------------------------ -------- ------- ------- ---------- ------------- --------
(1) Includes eliminations on total assets of EUR14,731 million and total
liabilities of EUR4,570 million.
5. SEGMENT INFORMATION continued
b Geographical analysis
Revenue by area of original sale
Six months to June
30
--------------------
EUR million 2020 2019
-------------- --------- ---------
UK 1,739 4,047
Spain 1,024 2,030
USA 750 2,111
Rest of world 1,775 3,838
-------------- --------- ---------
5,288 12,026
-------------- --------- ---------
Assets by area
June 30, 2020
Property,
plant and Intangible
EUR million equipment assets
------------------ ---------- ----------
UK 11,029 1,303
Spain 5,238 1,404
USA 150 17
Rest of world 1,365 606
------------------ ---------- ----------
17,782 3,330
------------------ ---------- ----------
December 31, 2019
Property,
plant and Intangible
EUR million 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
------------------ ---------- ----------
6. FINANCE COSTS, INCOME AND OTHER NON-OPERATING CREDITS/(CHARGES)
Six months to June
30
--------------------
EUR million 2020 2019
----------------------------------------------------------------- --------- ---------
Finance costs
Interest payable on bank and other loans, asset financed
liabilities and lease liabilities (311) (273)
Unwinding of discount on provisions (6) (18)
Capitalised interest on progress payments 7 9
Change in fair value of cross currency swaps (9) 1
Other finance costs (23) -
----------------------------------------------------------------- --------- ---------
Total finance costs (342) (281)
----------------------------------------------------------------- --------- ---------
Finance income
Interest on other interest-bearing deposits 15 22
Other finance income 8 -
----------------------------------------------------------------- --------- ---------
Total finance income 23 22
----------------------------------------------------------------- --------- ---------
Net financing credit relating to pensions
----------------------------------------------------------------- --------- ---------
Net financing credit relating to pensions 3 13
----------------------------------------------------------------- --------- ---------
Other non-operating credits/(charges)
Profit on sale of property, plant and equipment and investments 4 10
Realised gain on derivatives not qualifying for hedge accounting 53 6
Unrealised losses on derivatives not qualifying for hedge
accounting (6) (1)
Share of post-tax (losses)/profits in associates accounted
for using equity method (3) 2
Net credit relating to other equity investments 2 3
----------------------------------------------------------------- --------- ---------
Total Other non-operating credits 50 20
----------------------------------------------------------------- --------- ---------
7. TAX
The tax credit on the result after exceptional items for the six
months to June 30, 2020 is EUR400 million (2019: EUR201 million
charge), and the effective tax rate is 10 per cent (2019: 20 per
cent). The effective tax rate in the period was different to the
expected rate of 20 per cent due to not recognising tax credits in
respect of certain current and prior period losses and deductible
temporary differences, and due to the cancellation of the UK rate
reduction and its impact on UK deferred tax balances. Had these
losses and deductible temporary differences been recognised the
additional tax credit would have been EUR371 million and the
effective tax rate would have been 18 per cent.
8. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June
30
--------------------
Millions 2020 2019
------------------------------------------------------- ----------- -------
Weighted average number of ordinary shares in issue 1,986 1,984
Weighted average number for diluted earnings per share 1,986 2,080
------------------------------------------------------- ----------- -------
Six months to June
30
--------------------
EUR cents 2020 2019
------------------------------------------------------- ----------- -------
Basic (loss)/earnings per share (191.7) 40.6
Diluted (loss)/earnings per share (191.7) 39.2
------------------------------------------------------- ----------- -------
The effect of the assumed conversion of the IAG EUR500 million
convertible bond 2022 is antidilutive for the six months to June
30, 2020, and therefore has not been included in the diluted
earnings per share calculation.
The number of shares in issue at June 30, 2020 was 1,992,032,634
(December 31, 2019: 1,992,032,634) ordinary shares with a par value
of EUR0.50 each.
9. 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 next Annual Shareholders' Meeting to pay a final dividend
for 2019 of 0.17 euros per share.
The Directors propose that no dividend be paid for the six
months to June 30, 2020 (June 30, 2019: nil).
The dividend paid in the six months to June 30, 2020 of EUR52
million relates to the withholding tax on the 2019 interim
dividend, which was proposed in October 2019.
10. property, plant and equipment AND intaNgible assets
Other Property, Total Property,
plant and Right of plant and Intangible
EUR million equipment use assets equipment assets
--------------------------------------------- --------------- ----------- --------------- ----------
Net book value at January 1, 2020 8,580 10,588 19,168 3,442
Additions 1,194 285 1,479 137
Modifications of leases - 55 55 -
Disposals (365) (10) (375) (76)
Reclassifications 157 (155) 2 (2)
Depreciation, amortisation and impairment(1) (1,083) (685) (1,768) (77)
Exchange movements (377) (402) (779) (94)
--------------------------------------------- --------------- ----------- --------------- ----------
Net book value at June 30, 2020 8,106 9,676 17,782 3,330
--------------------------------------------- --------------- ----------- --------------- ----------
(1) Includes an impairment expense of EUR731 million mainly on
fleet assets, recognised as an exceptional item (note 3).
Total
Other Property, Property,
plant and Right of plant and Intangible
EUR million equipment use assets equipment assets
------------------------------------------ --------------- ----------- ---------- ----------
Net book value at January 1, 2019 6,670 10,252 16,922 3,198
Additions 1,383 452 1,835 166
Disposals (430) - (430) (57)
Reclassifications 85 (85) - -
Depreciation, amortisation and impairment (392) (582) (974) (61)
Exchange movements 48 74 122 12
------------------------------------------ --------------- ----------- ---------- ----------
Net book value at June 30, 2019 7,364 10,111 17,475 3,258
------------------------------------------ --------------- ----------- ---------- ----------
At June 30, 2020, bank and other loans of the Group are secured
on fleet assets with a net book value of EUR1,557 million.
Capital expenditure authorised and contracted for but not
provided for in the accounts amounts to EUR11,306 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.
11. IMPAIRMENT REVIEW
Basis for calculating recoverable amount
The Group performs its annual impairment test of goodwill and
indefinite live assets during the fourth quarter of each year based
on the five year Business plans prepared and approved at each
operating company.
At each other reporting date, the Group considers the existence
of indicators of potential impairment. At June 30, 2020, the
disruption caused by COVID-19 has led to a decrease in demand
across each CGU and economic uncertainty over the short and medium
term.
As a result, a full impairment test at June 30, 2020 has been
conducted for each CGU , based on the updated operating companies'
Business plans which consolidate into the Group Business plan,
approved by the Board.
The recoverable amount of each CGU is measured based on its
value-in-use, which at June 30, 2020 utilises a weighted average
multi-scenario discounted cash flow model. The details of these
scenarios are given in the going concern section of note 1.
11. IMPAIRMENT REVIEW continued
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 for the remaining six months
of 2020 through to the end of 2024, an increase in the pre-tax
discount rates to incorporate increased equity market volatility
and a decrease in long-term growth rates.
For each of the CGUs the key assumptions used in the weighted
average multi-scenario value-in-use calculations are as
follows:
June 30, 2020
--------------------------------------------------
British
Per cent Airways Iberia Vueling Aer Lingus IAG Loyalty
-------------------------------- -------- ------ ------- ---------- -----------
Operating margin (32)-15 (24)-9 (60)-10 (49)-14 17-27
ASKs as a proportion of 2019(1) 45-90 42-98 39-111 40-103 n/a
Long-term growth rate 1.6 1.2 0.8 1.4 1.2
Pre-tax discount rate 10.3 10.7 10.5 10.7 12.5
-------------------------------- -------- ------ ------- ---------- -----------
December 31, 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
-------------------------------- -------- ------ ------- ---------- -----------
(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.
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 forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics).
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
investors and the cost of debt is broadly based on the Group's
interest-bearing borrowings. CGU specific risk is incorporated by
applying individual beta factors which are evaluated annually based
on available market data. The pre-tax discount rate reflects the
timing of future tax flows.
Summary of results
At June 30, 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 have been
considered for each CGU, where applicable, which include reducing
operating margin by 2 per cent in each year, ASKs by 5 per cent in
each year, long-term growth rates to zero, increasing pre-tax
discount rates by 2.5 percentage points, and increasing the fuel
price by 40 per cent.
While the Iberia CGU recoverable amount is estimated to exceed
the carrying amount by EUR628 million, the recoverable amount would
be below the carrying amount when applying certain of the
reasonable possible changes in key assumptions. The recoverable
amount of the Iberia CGU would equal its carrying amount if the
following were applied individually to the cash flow projections:
(i) if the pre-tax discount rate applied had been 1.4 percentage
points higher; (ii) if operating margin had been 2 per cent lower;
(iii) if ASKs had been 4.1 per cent lower; and (iv) if the fuel
price had been 7.1 per cent higher.
For the remainder of the reasonable possible changes in key
assumptions applied to the Iberia CGU 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 fleet assets
stood down permanently at June 30, 2020, refer to note 3.
12. FINANCIAL INSTRUMENTS
a Financial assets and liabilities by category
The detail of the Group's nancial instruments at June 30, 2020
and December 31, 2019 by nature and classi cation for measurement
purposes is as follows:
June 30, 2020
Financial assets
--------------------------------------------
Total
carrying
Fair value amount by
through Other Fair value balance
Amortised comprehensive through Non-financial sheet
EUR million cost income Income statement assets item
--------------------------------- --------- -------------- ----------------- ------------- ----------
Non-current assets
Other equity investments - 71 - - 71
Derivative financial instruments
(1) - - 518 - 518
Other non-current assets 179 - - 68 247
--------------------------------- --------- -------------- ----------------- ------------- ----------
Current assets
Trade receivables 791 - - - 791
Other current assets 310 - - 711 1,021
Derivative financial instruments
(1) - - 569 - 569
Other current interest-bearing
deposits 1,320 - - - 1,320
Cash and cash equivalents 4,696 - - - 4,696
--------------------------------- --------- -------------- ----------------- ------------- ----------
Financial liabilities
---------------------------------------------
Total
carrying
Fair value amount by
through Other Fair value Non- balance
Amortised comprehensive through financial sheet
EUR million cost income income statement liabilities item
--------------------------------- ---------- -------------- ----------------- ------------ ----------
Non-current liabilities
Lease liabilities 8,987 - - - 8,987
Interest-bearing long-term
borrowings 4,672 - - - 4,672
Derivative financial instruments
(1) - - 741 - 741
Other long-term liabilities - - - 116 116
--------------------------------- ---------- -------------- ----------------- ------------ ----------
Current liabilities
Lease liabilities 1,604 - - - 1,604
Current portion of long-term
borrowings 1,216 - - - 1,216
Trade and other payables 2,824 - - 598 3,422
Derivative financial instruments
(1) - - 1,699 - 1,699
--------------------------------- ---------- -------------- ----------------- ------------ ----------
(1) For further information regarding derivative financial
instruments, refer to note 17.
12. FINANCIAL INSTRUMENTS continued
December 31, 2019
Financial assets
--------------------------------------------
Fair value Total carrying
through Other Fair value amount by
Amortised comprehensive through Non-financial balance
EUR million cost income income statement assets sheet 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
Fair value amount by
through Other Fair value Non- balance
Amortised comprehensive through financial sheet
EUR million cost income 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.
Counterparty and own credit risk is deemed to be not significant.
The fair value of the Group's interest-bearing borrowings including
leases is determined by discounting the remaining contractual cash
flows at the relevant market interest rates at the balance sheet
date.
Level 3: Inputs for the asset or liability that are not based on
observable market data.
12. FINANCIAL INSTRUMENTS continued
The fair value of cash and cash equivalents, other current
interest-bearing deposits, trade receivables, other current assets,
other non-current assets and trade and other payables approximate
their carrying value largely due to the short-term maturities of
these instruments.
The carrying amounts and fair values of the Group's financial
assets and liabilities at June 30, 2020 are as follows:
Carrying
Fair value value
---------------------------------- --------
EUR million Level 1 Level 2 Level 3 Total Total
----------------------------------------- -------- -------- ------- ----- --------
Financial assets
Other equity investments - - 71 71 71
Derivative financial assets(1) - 1,087 - 1,087 1,087
Financial liabilities
Interest-bearing loans and borrowings 1,321 4,307 - 5,628 5,888
Derivative financial liabilities(2) - 2,440 - 2,440 2,440
----------------------------------------- -------- -------- ------- ----- --------
(1) Current portion of derivative financial assets is EUR569 million.
(2) Current portion of derivative financial liabilities is EUR1,699 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
--------------------------------- --------
EUR million Level 1 Level 2 Level 3 Total Total
---------------------------------------- -------- ------- ------- ----- --------
Financial assets
Other equity investments 10 - 72 82 82
Derivative financial assets(1) - 592 - 592 592
Financial liabilities
Interest-bearing loans and borrowings 1,640 1,985 - 3,625 3,208
Derivative financial liabilities(2) - 538 - 538 538
---------------------------------------- -------- ------- ------- ----- --------
(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 period.
The financial instruments listed in the previous table are
measured at fair value for reporting purposes, 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:
December
June 30, 31,
EUR million 2020 2019
------------------------------- -------- --------
Opening balance for the period 72 63
Additions 3 6
Exchange movements (4) 3
------------------------------- -------- --------
Closing balance for the period 71 72
------------------------------- -------- --------
13. borrowings
December
June 30, 31,
EUR million 2020 2019
--------------------------- -------- --------
Current
Bank and other loans 1,113 75
Asset financed liabilities 103 74
Lease liabilities 1,604 1,694
--------------------------- -------- --------
2,820 1,843
--------------------------- -------- --------
Non-current
Bank and other loans 2,901 1,879
Asset financed liabilities 1,771 1,180
Lease liabilities 8,987 9,352
--------------------------- -------- --------
13,659 12,411
--------------------------- -------- --------
Banks and other loans are repayable up to the year 2028. Bank
and other loans of the Group amounting to EUR1,367 million
(December 31, 2019: EUR266 million) are secured on fleet assets
with a net book value of EUR1,557 million (December 31, 2019:
EUR325 million) (note 10). Asset financed liabilities are all
secured on the associated aircraft or other property, plant and
equipment.
On March 30, 2020, British Airways extended its US dollar
secured Revolving Credit Facility (RCF) for one year from June 23,
2020 to June 23, 2021. The amount available under the extended
facility was EUR1.23 billion ($1.38 billion) at the time of
exercising the extension. As at June 30, 2020, EUR523 million ($588
million) of the facility remains undrawn and available.
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 EUR330 million (GBP298
million) and repayable in April 2021 for a principal value of
GBP300 million.
On April 30, 2020, Iberia and Vueling entered into floating rate
syndicated financing agreements 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 EUR667 million ($750 million) secured on specific
aircraft. The loan is repayable 12 months from the date of signing.
At June 30, 2020 this loan had been fully drawn and hence the
aircraft collateral available for the British Airways RCF was
reduced.
On June 10, 2020, Iberia entered into a mortgage loan of EUR203
million ($228 million) secured on specific aircraft. The loan is
repayable 12 months from the date of signing. As at June 30, 2020,
EUR167 million ($189 million) remains undrawn.
14. SHARE BASED PAYMENTS
During the period 7,387,766 nil-cost options were awarded under
the Group's Performance Share Plan (PSP) to key senior executives
and selected members of the wider management team. The fair value
of equity-settled share awards granted is estimated at the date of
the award using the Monte-Carlo model, taking into account the
terms and conditions upon which the options were awarded, or based
on the share price at the date of grant, dependent on the
performance criteria attached. The following are the inputs to the
model for the PSP awards granted in the period:
Expected share price volatility (per cent) 35
Expected life of options (years) 4.4
Weighted average share price (GBP) 4.59
------------------------------------------- ----
The Group also made awards under the Group's Incentive Award
Deferral Plan during the period, under which 1,694,385 conditional
shares were awarded.
15. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the
Group are the Airways Pension Scheme (APS) and the New Airways
Pension Scheme (NAPS), both of which are in the UK and are closed
to new members. NAPS was closed to future accrual from March 31,
2018, resulting in a reduction of the defined benefit obligation.
Following closure members' deferred pensions will now be increased
annually by inflation up to five per cent per annum (measured using
the Government's annual Pension Increase (Review) Orders, which
since 2011 have been based on CPI). As part of the closure of NAPS
to future accrual in 2018, British Airways agreed to make certain
additional transition payments to NAPS members if the deficit had
reduced more than expected at either the 2018 or 2021 valuations.
No payment was triggered by the 2018 valuation and no allowance for
such payments following the 2021 valuation has been made in the
valuation of the defined benefit obligation. 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. 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.
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.
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.
June 30, 2020
----------------------------------
EUR million APS NAPS Other Total
------------------------------------------- ------- -------- ----- --------
Scheme assets at fair value 8,634 21,715 410 30,759
Present value of scheme liabilities (8,181) (22,383) (691) (31,255)
------------------------------------------- ------- -------- ----- --------
Net pension asset/(liability) 453 (668) (281) (496)
Effect of the asset/(liability) ceiling(1) (136) (252) - (388)
Other employee benefit obligations - - (10) (10)
------------------------------------------- ------- -------- ----- --------
June 30, 2020 317 (920) (291) (894)
------------------------------------------- ------- -------- ----- --------
Represented by:
Employee benefit assets 331
Employee benefit obligations (1,225)
------------------------------------------- ------- -------- ----- --------
(894)
------------------------------------------- ------- -------- ----- --------
December 31, 2019(2)
----------------------------------
EUR million APS NAPS Other 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(1) (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) APS has an accounting surplus under IAS 19 (2019: both APS
and NAPS) and NAPS has future minimum funding requirements, which
would be available to the Group as a refund upon wind up of the
scheme. These refunds are restricted due to the withholding taxes
that would be payable by the Trustee.
(2) Refer to note 1 for information relation to the
reclassification from the Employee benefit obligations to deferred
taxes at December 31, 2019.
15. EMPLOYEE BENEFIT OBLIGATIONS continued
At June 30, 2020, the assumptions used to determine the
obligations under the APS and NAPS were reviewed and updated to
reflect the market condition at that date. Principal assumptions
were as follows:
December 31,
June 30, 2020 2019
--------------- --------------
Per cent per annum APS NAPS APS NAPS
---------------------------------------- ------- ------ ------ ------
Discount rate 1.35 1.55 1.85 2.05
Rate of increase in pensionable pay 2.85 - 2.90 -
Rate of increase of pensions in payment 2.85 2.20 2.90 2.15
RPI rate of inflation 2.85 - 2.90 -
CPI rate of inflation - 2.20 - 2.15
---------------------------------------- ------- ------ ------ ------
Further information on the basis of the assumptions is included
in note 30 of the Annual Report and Accounts for the year to
December 31, 2019.
Pension contributions for APS and NAPS were determined by
actuarial valuations made as at March 31, 2018, using assumptions
and methodologies agreed between the Company and Trustees of each
scheme.
16. pROVISIONS
Employee
leaving
indemnities
and other
Restoration employee
and handback Restructuring related Legal claims
EUR million provisions provisions provisions provisions Other provisions Total
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
Net book value January 1,
2020 1,675 528 664 82 98 3,047
Provisions recorded during
the period 199 6 19 33 15 272
Utilised during the period (99) (87) (13) (16) (14) (229)
Release of unused amounts(1) (109) - - (5) (4) (118)
Unwinding of discount 4 - 2 - - 6
Exchange differences (17) (3) (1) (4) (3) (28)
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
Net book value June 30, 2020 1,653 444 671 90 92 2,950
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
Analysis:
Current 373 173 57 68 48 719
Non-current 1,280 271 614 22 44 2,231
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
1,653 444 671 90 92 2,950
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
(1) Included within Restoration and handback provisions are
amounts that the Group provides for on leased aircraft for the cost
of returning fleet assets to pre-defined contractual conditions.
During the six months to June 30, 2020, as part of certain lease
modifications, these pre-conditions have been removed and the
associated provision released to the Income statement.
17. FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: market
risk (including fuel price risk, foreign currency risk and interest
rate risk), credit risk and liquidity risk. The principal impact of
these on the interim condensed financial statements are discussed
below:
Fuel price risk
The Group is exposed to fuel price risk. In order to mitigate
such risk, under the Group's fuel price risk management strategy a
variety of over the counter derivative instruments are entered
into. The Group strategy is to hedge a proportion of future fuel
consumption up to three years within the approved hedging
profile.
During the six months to June 30, 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
EUR2,047 million at June 30, 2020, representing a loss of EUR1,936
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 hedges were derecognised. As a result
of this derecognition, EUR1,372 million of the losses were
reclassified to the Income statement and recognised within Fuel,
oil costs and emission costs.
The loss arising from the derecognition of fuel hedges has been
recorded as an exceptional item. Refer to note 3 for further
details.
17. FINANCIAL RISK MANAGEMENT continued
The determination of the number of hedge relationships to
derecognise fuel hedges is a critical judgement and is highly
dependent on assumptions regarding the duration of the grounding of
the majority of the fleet as well as the period over which the
recovery of demand will occur.
Foreign currency risk
The Group is exposed to foreign currency risk on revenue,
purchases and borrowings that are denominated in a currency other
than the functional currency of the Group. The currencies in which
these transactions are denominated are primarily euro, US dollar
and pound sterling. The Group has a number of strategies to hedge
foreign currency risk. The Group strategy is to hedge a proportion
of its foreign currency sales and purchases for up to three
years.
At June 30, 2020, the fair value of foreign currency net asset
derivatives instruments were EUR706 million, representing a gain of
EUR597 million, since January 1, 2020, which was recognised in
Other comprehensive income. As per 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
derecognised. As a result of this derecognition, EUR103 million of
the gains associated with the fuel foreign currency derivatives and
EUR38 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.
Interest rate risk
The Group is exposed to changes in interest rates on debt and on
cash deposits. Interest rate risk on floating rate debt is managed
through interest rate swaps, cross currency swaps and interest rate
collars.
Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other
financial instruments. The Group has policies and procedures to
monitor the risk by assigning limits to each counterparty by
underlying exposure and by operating company and by only entering
into transactions with counterparties with a very low credit
risk.
At each period end, the Group assesses the effect of
counterparties' and the Group's own credit risk on the fair value
of derivatives and any ineffectiveness arising is immediately
recognised in the Income statement within Other non-operating
expenses.
18. CONTINGENT LIABILITIES
Details of contingent liabilities are set out below. The Group
does not consider it probable that there will be an outflow of
economic resources with regard to these proceedings and accordingly
no provision for these proceedings has been recognised.
For information pertaining to previous contingent liabilities
associated with the theft of customer data at British Airways, that
have been recognised as legal claims provisions in note 16, refer
to note 3.
There are a number of other legal and regulatory proceedings
against the Group in a number of jurisdictions which at June 30,
2020 amounted to EUR54 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 June 30, 2020 are
not expected to result in material losses for the Group.
Tax related contingent liabilities
The Group has certain contingent liabilities, across all taxes,
which at June 30, 2020 amounted to EUR187 million (December 31,
2019: EUR165 million). No material losses are likely to arise from
such contingent liabilities. As such the Group does not consider it
appropriate to make a provision for these amounts. Included in the
tax related contingent liabilities is the following:
Merger gain
Following tax audits covering the period 2011 to 2014, the
Spanish Tax Authorities issued a corporate income tax assessment to
the Company regarding the merger in 2011 between British Airways
and Iberia. The assessment is for EUR69 million, resulting in a
contingent liability of EUR90 million, including accrued interest.
The Company subsequently appealed the assessment to the Tribunal
Económico-Administrativo Central or 'TEAC' (Central Administrative
Tax Tribunal). On October 23, 2019 the TEAC ruled in favour of the
Spanish Tax Authorities. The Company subsequently appealed this
ruling to the Audiencia Nacional (National High Court) on December
20, 2019. The Company does not expect a hearing at the National
High Court until 2021 at the earliest.
The Company disputes the technical merits of the assessment and
ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain. The Company believes that it has
strong arguments to support its appeals. The Company does not
consider it appropriate to make a provision for these amounts and
accordingly has recognised this matter as a contingent
liability.
19. Government grants and assistance
During the six months to June 30, 2020, British Airways, IAG
Loyalty and other subsidiaries utilised of the Coronavirus Job
Retention Scheme implemented by the United Kingdom government,
where those employees designated as being 'furloughed workers' are
eligible to have 80 per cent of their wage costs paid up to a
maximum amount of GBP2,500 per month. In the same period, Aer
Lingus utilised the Temporary Wage Subsidy Scheme implemented by
the government of Ireland, where those employees designated as part
of the scheme are eligible to have their wage costs paid up to an
amount of EUR410 per week. The total amount of such relief received
by the Group amounted to EUR155 million (six months to June 30,
2019: nil) and is offset within Employee costs in the Income
statement.
During the six months to June 30, 2020, Iberia and Vueling
availed themselves of the Temporary Redundancy Plan (ERTE) provided
by the government of Spain. 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
companies. Had those designated employees not been temporarily
suspended for the six months to June 30, 2020, the Group would have
incurred further employee costs of EUR127 million.
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
received EUR330 million (GBP298 million), with interest incurred at
the prevailing market rate. The facility is classified within
Borrowings in the Balance sheet. Refer to note 13 for further
details.
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. The financing agreements and
the associated commission costs are classified within Borrowings in
the Balance sheet. Refer to note 13 for further details.
There are no unfulfilled conditions or contingencies attached to
these grants.
20. RELATED PARTY TRANSACTIONS
The Group had the following transactions in the ordinary course
of business with related parties.
Sales and purchases of goods and services:
Six months to June
30
--------------------
EUR million 2020 2019
---------------------------------------- --------- ---------
Sales of goods and services
Sales to associates 2 3
Sales to significant shareholders 7 13
Purchases of goods and services
Purchases from associates 25 33
Purchases from significant shareholders 47 66
---------------------------------------- --------- ---------
Period end balances arising from sales and purchases of goods
and services:
June 30,
December
EUR million 2020 31, 2019
----------------------------------------- -------- ---------
Receivables from related parties
Amounts owed by associates 3 2
Amounts owed by significant shareholders 1 8
Payables to related parties
Amounts owed to associates 2 3
Amounts owed to significant shareholders - 18
----------------------------------------- -------- ---------
For the six months to June 30, 2020 the Group has not made any
allowance for expected credit losses relating to amounts owed by
related parties (2019: nil).
20. RELATED PARTY TRANSACTIONS continued
Board of Directors and Management Committee remuneration
Compensation received by the Group's key management personnel is
as follows:
Six months to June
30
--------------------
EUR million 2020 2019
---------------------------------- --------- ---------
Base salary, fees and benefits
Board of Directors' remuneration 2 2
Management Committee remuneration 3 4
---------------------------------- --------- ---------
For the six months to June 30, 2020, the remuneration for the
Board of Directors includes two Executive Directors (in the six
months to June 30, 2019 there were three Executive Directors but
only two at any one time as there was a change of CFO at the AGM).
The Management Committee includes remuneration for 11 members (June
30, 2019: 11 members), excluding the Executive Directors. For 2020,
the Executive Directors have taken a 20 per cent reduction in basic
salary from April 1, 2020, the Non-Executive Directors have taken a
20 per cent reduction in fees from April 1, 2020, and members of
the Management Committee have taken at least a 20 per cent
reduction in basic salary from April 1, 2020.
The Company provides life insurance for all Executive Directors
and the Management Committee. For the six months to June 30, 2020
the Company's obligation was EUR20,000 (2019: EUR33,000).
At June 30, 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 officers of the Group at June 30, 2020 (2019: nil).
21. POST BALANCE SHEET EVENTS
On July 24, 2020, the Group announced that IAG Loyalty, had
signed a multi-year renewal extending its worldwide commercial
partnership with American Express. Under the agreements, American
Express will make a payment of approximately EUR830 million (GBP750
million) to IAG Loyalty, a significant part of which is a
pre-purchase of Avios points that American Express will utilise in
the UK and world-wide for its British Airways co-branded cards and
Membership Rewards Programme.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
LIABILITY STATEMENT OF COMPANY DIRECTORS FOR THE PURPOSES
ENVISAGED UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF
19 OCTOBER (REAL DECRETO 1362/2007).
At a meeting held on July 30, 2020, the directors of
International Consolidated Airlines Group, S.A. (the "Company")
state that, to the best of their knowledge, the condensed
consolidated financial statements for the six months to June 30,
2020, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and of the
companies that fall within the consolidated group taken as a whole,
and that the interim management report includes a fair review of
the required information.
July 30, 2020
Antonio Vázquez Romero William Matthew Walsh
Chairman Chief Executive Officer
Marc Jan Bolland Margaret Ewing
Francisco Javier Ferrán Larraz Stephen William Lawrence Gunning
Deborah Linda Kerr María Fernanda Mejía
Campuzano
Kieran Charles Poynter Emilio Saracho Rodríguez de
Torres
Lucy Nicola Shaw Alberto Terol Esteban
REPORT ON LIMITED REVIEW OF THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
To the Shareholders of International Consolidated Airlines
Group, S.A. at the request of management:
Report on the condensed consolidated interim financial
statements
Introduction
We have carried out a limited review of the accompanying
condensed consolidated interim financial statements (hereinafter
the interim financial statements) of INTERNATIONAL CONSOLIDATED
AIRLINES GROUP, S.A. (hereinafter the parent) and subsidiaries
(hereinafter the Group), which comprise the balance sheet at June
30, 2020, the income statement, the statement of other
comprehensive income, the cash flow statement, the statement of
changes in equity, and the explanatory notes, all of which have
been condensed and consolidated for the six-month period then
ended. The parent's directors are responsible for the preparation
of said interim financial statements in accordance with the
requirements established by IAS 34, "Interim Financial Reporting",
adopted by the European Union for the preparation of interim
condensed financial reporting in conformity with article 12 of
Royal Decree 1362/2007 and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority. Our
responsibility is to express a conclusion on these interim
financial statements based on our limited review.
Scope of review
We have performed our limited review in accordance with the
International Standard on Review Engagements 2410, "Review of
Interim Financial Reporting Performed by the Independent Auditor of
the Entity". A limited review of interim financial statements
consists of making enquiries, primarily of personnel responsible
for financial and accounting matters, and applying analytical and
other review procedures. A limited review is substantially less in
scope than an audit carried out in accordance with regulations on
the auditing of accounts in force in Spain and, consequently, does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion on the accompanying
interim financial statements.
Conclusion
During the course of our limited review, which under no
circumstances can be considered an audit of accounts, no matter
came to our attention which would lead us to conclude that the
accompanying interim financial statements for the six-month period
ended June 30, 2020 have not been prepared, in all material
respects, in accordance with the requirements established by
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union in conformity with
article 12 of Royal Decree 1362/2007 for the preparation of interim
financial statements and the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
Emphasis paragraphs
We draw attention to Note 1 of the interim financial statements,
which discloses the Group may require additional funds above those
contractually committed at July 30, 2020 should the impact of
Covid-19 be more severe than the Directors' expectations. As set
out in Note 1, this condition indicates that a material uncertainty
exists that may cast significant doubt on the Group's ability to
continue as a going concern. Our conclusion is not modified in
respect of this matter.
We draw attention to the matter described in the accompanying
explanatory Note 1 in the interim financial statements, which
indicates that the abovementioned accompanying interim financial
statements do not include all the information that would be
required for complete consolidated financial statements prepared in
accordance with International Financial Reporting Standards, as
adopted by the European Union. Therefore, the accompanying interim
financial statements should be read in conjunction with the Group's
consolidated financial statements for the year ended December 31,
2019.
Report on other legal and regulatory reporting requirements
The accompanying consolidated interim management report for the
six-month period ended June 30, 2020 contains such explanations as
the parent's directors consider necessary regarding significant
events which occurred during this period and their effect on these
interim financial statements, of which it is not an integral part,
as well as on the information required in conformity with article
15 of Royal Decree 1362/2007. We have checked that the accounting
information included in the abovementioned report agrees with the
interim financial statements for the six-month period ended on June
30, 2020. Our work is limited to verifying the consolidated interim
management report in accordance with the scope described in this
paragraph and does not include the review of information other than
that obtained from the accounting records of INTERNATIONAL
CONSOLIDATED AIRLINES GROUP, S.A. and its subsidiaries.
Paragraph on other issues
This report has been prepared at the request of management with
regard to the publication of the semi-annual financial report
required by article 119 of the consolidated text of the Securities
Market Law, approved by Royal Legislative Decree 4/2015, of October
23 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
ERNST & YOUNG, S.L.
____________________
Hildur Eir Jónsdóttir
July 30, 2020
ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of
alternative performance measures (APMs), some of which have been
identified as key performance indicators of the Group. These
measures are not defined under International Financial Reporting
Standards (IFRS), should be considered in addition to IFRS
measurements and may differ to definitions given by regulatory
bodies applicable to the Group. They are used to measure the
outcome of the Group's strategy based on 'Unrivalled customer
proposition', 'Value accretive and sustainable growth' and
'Efficiency and innovation'. Further information on why these APMs
are used is provided in the Strategic priorities and key
performance indicators section in IAG's 2019 Annual Report and
Accounts.
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
During the six month period to June 30, 2020, the Group has made
one change to APMs to those disclosed in the Annual Report and
Accounts for the year ended December 31, 2019.
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. 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 derecognition of hedges; legal
settlements; and the impact of the sale, disposal or impairment of
an asset or investment in a business.
In identifying and quantifying adjusting items, the Group
consistently applies a policy that defines criteria that are
required to be met for an item to be classified as exceptional.
Management believes that these additional measures are useful as
they exclude the impact of exceptional items in profit from
operations, which have less bearing on the routine operating
activities of the Group, thereby enhancing users' understanding of
underlying business performance.
The details of these exceptional items are given in note 3 of
the condensed consolidated interim financial statements and on the
face of the consolidated Income statement.
c Basic (loss)/earnings per share before exceptional items and
adjusted (loss)/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.
June 30, June 30,
EUR million 2020 2019
------------------------------------------------------------ -------- --------
(Loss)/profit after tax attributable to equity holders
of the parent (3,806) 806
Exceptional items 1,841 -
------------------------------------------------------------ -------- --------
(Loss)/p rofit after tax attributable to equity holders
of the parent before exceptional items (1,965) 806
Interest expense on convertible bonds(1) - 9
------------------------------------------------------------ -------- --------
Adjusted (loss)/earnings (1,965) 815
------------------------------------------------------------ -------- --------
Weighted average number of shares used for basic earnings
per share 1,986 1,984
Weighted average number of shares used for diluted earnings
per share 1,986 2,080
Adjusted (loss)/earnings per share (EUR cents) (99.0) 39.2
------------------------------------------------------------ -------- --------
Basic (loss)/earnings per share before exceptional items
(EUR cents) (99.0) 40.6
------------------------------------------------------------ -------- --------
(1) The effect of the assumed conversion of the IAG EUR500
million convertible bond 2022 is antidilutive for the six months to
June 30, 2020, and therefore has not been included in the diluted
earnings per share calculation.
d Airline non-fuel unit costs
The Group monitors airline unit costs (per ASK, a standard
airline measure of capacity) as a means of tracking operating
efficiency of the core airline business. As fuel costs can vary
with commodity prices, the Group monitors fuel and non-fuel costs
individually. Within non-fuel costs are the costs associated with
generating 'Other revenue', which typically do not represent the
costs of transporting passengers or cargo and instead represent the
costs of handling and maintenance for other airlines, non-flight
products in BA Holidays and costs associated with other
miscellaneous non-flight revenue streams. Airline non-fuel costs
per ASK is defined as total operating expenditure before
exceptional items, less fuel, oil costs and emission charges and
less non-flight specific costs divided by total available seat
kilometres (ASKs), and is shown on a constant currency basis.
Six months Six months
to June to June
30, 30,
Six months
to June
2020 2020 30,
EUR million Reported ccy adjustment ccy 2019
----------------------------------------------- ---------- -------------- ---------- ----------
Total operating expenditure before exceptional
items 7,226 (227) 6,999 10,931
Less: Fuel, oil costs and emissions charges (1,313) 51 (1,262) (2,936)
----------------------------------------------- ---------- -------------- ---------- ----------
Non-fuel costs 5,913 5,737 7,995
Less: Non-flight specific costs (482) 18 (464) (761)
----------------------------------------------- ---------- -------------- ---------- ----------
Airline non-fuel costs 5,431 5,273 7,234
----------------------------------------------- ---------- -------------- ---------- ----------
Available seat kilometres (ASK million) 71,625 71,625 163,431
Airline non-fuel unit costs (EUR cents) 7.58 7.36 4.43
----------------------------------------------- ---------- -------------- ---------- ----------
e Levered free cash flow (KPI)
Levered free cash flow represents the cash generating ability of
the underlying businesses before shareholder returns and is defined
as the net increase in cash and cash equivalents taken from the
Cash flow statement, adjusting for movements in Other current
interest-bearing deposits and adding back the cash outflows
associated with dividends paid and the acquisition of treasury
shares. The Group believes that this measure is useful to the users
of the financial statements in understanding the underlying cash
generating ability of the Group that is available to return to
shareholders, to improve leverage and/or to undertake inorganic
growth opportunities.
June 30, June 30,
EUR million 2020 2019
--------------------------------------------------------------- -------- --------
Net Increase in cash and cash equivalents 780 934
--------------------------------------------------------------- -------- --------
(Decrease)/increase in other current interest-bearing deposits (1,215) 799
Dividends paid 52 52
--------------------------------------------------------------- -------- --------
Levered free cash flow (383) 1,785
--------------------------------------------------------------- -------- --------
f Return on invested capital (KPI)
Management 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 the rolling four quarter EBITDA,
less fleet depreciation adjusted for inflation, depreciation on
other property 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.
December
June 30, 31,
EUR million 2020 2019
----------------------------------------------------------------- -------- --------
EBITDA 2,480 5,396
Less: Fleet depreciation multiplied by inflation adjustment (2,115) (2,040)
Less: Other property, plant and equipment depreciation (258) (259)
Less: Software intangible amortisation (147) (131)
----------------------------------------------------------------- -------- --------
(40) 2,966
Invested capital
Average fleet value(1) 15,299 15,598
Less: average progress payments(2) (1,110) (1,297)
----------------------------------------------------------------- -------- --------
14,189 14,301
Inflation adjustment(3) 1.19 1.19
----------------------------------------------------------------- -------- --------
16,928 17,065
Average net book value of other property, plant and equipment(4) 2,329 2,448
Average net book value of software intangible assets(5) 638 603
----------------------------------------------------------------- -------- --------
Total invested capital 19,895 20,116
----------------------------------------------------------------- -------- --------
Return on Invested Capital (0.2)% 14.7%
----------------------------------------------------------------- -------- --------
(1) The average net book value of owned aircraft excluding
progress payments is calculated from an amount of EUR15,472 million
at June 30, 2020 and EUR15,127 million at June 30, 2019.
(2) The average net book value of progress payments is
calculated from an amount of EUR1,077 million at June 30, 2020 and
EUR1,143 million at June 30, 2019.
(3) Presented to two decimal places and calculated using a 1.19
per cent inflation (June 30, 2019: 1.20 per cent inflation) rate
over the weighted average age of the fleet (June 30, 2020: 11.7
years, June 30, 2019: 12.0 years).
(4) The average net book value of other property, plant and
equipment is calculated from an amount of EUR2,309 million at June
30, 2020 and EUR2,349 million at June 30, 2019.
(5) The average net book value of software intangible assets is
calculated from an amount of EUR679 million at June 30, 2020 and
EUR596 million at June 30, 2019.
g Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with
IFRS, the Group reviews net debt to EBITDA to assess its level of
net debt in comparison to the underlying earnings generated by the
Group in order to evaluate the underlying business performance of
the Group. This measure is used to monitor the Group's leverage and
to assess financial headroom. Net debt is defined as long-term
borrowings (both current and non-current), less cash, cash
equivalents and other current interest-bearing deposits. EBITDA is
calculated as the rolling four quarter operating result before
exceptional items, depreciation, amortisation and impairment.
December
June 30, 31,
EUR million 2020 2019
----------------------------------------------- -------- --------
Interest-bearing long-term borrowings 16,479 14,254
Less: Cash and cash equivalents (4,696) (4,062)
Less: Other current interest-bearing deposits (1,320) (2,621)
----------------------------------------------- -------- --------
Net debt 10,463 7,571
----------------------------------------------- -------- --------
Operating result before exceptionals 290 3,285
Add: Depreciation, amortisation and impairment 2,190 2,111
----------------------------------------------- -------- --------
EBITDA 2,480 5,396
----------------------------------------------- -------- --------
Net debt to EBITDA 4.2 1.4
----------------------------------------------- -------- --------
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 re-translation, at prior year exchange
rates, of the current year's results of the Group. Although the
Group does not believe that these measures are a substitute for
IFRS measures, the Group does believe that such results excluding
the impact of currency fluctuations year-on-year provide additional
useful information to investors regarding the Group's operating
performance on a constant currency basis. Accordingly, the
financial measures at constant currency within the discussion of
the Group Financial review should be read in conjunction with the
information provided in the Group financial statements.
The following table represents the main average and closing
exchange rates for the reporting periods. Where 2020 figures are
stated at a constant currency basis, they have applied the 2019
rates stated below:
Foreign exchange rates
---------------------------- --------- --------- -------- ----------
Average six months Closing Closing at
to at December
June 30 June 30 31
-------------------- -------- ----------
2020 2019 2020 2019
---------------------------- --------- --------- -------- ----------
Euro to pound sterling 1.15 1.14 1.11 1.18
US dollar to the euro 1.09 1.13 1.12 1.11
US dollar to pound sterling 1.26 1.29 1.24 1.31
---------------------------- --------- --------- -------- ----------
AIRCRAFT FLEET
Number in service with Group
companies
Total Total Changes since
December December
June 30, 31, 31, Future
Right of
Owned use 2020 2019 2019 deliveries Options
----- --------- ---------- --------- ------------- ----------- -------
Airbus A318 1 - 1 1 - - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A319 13 39 52 57 (5) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A320 58 192 250 254 (4) 27 76
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A321 20 50 70 66 4 43 14
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A330-200 4 17 21 24 (3) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A330-300 4 14 18 16 2 - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A340-600 4 - 4 15 (11) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A350 10 5 15 9 6 28 52
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Airbus A380 2 10 12 12 - - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 747-400 - - - 32 (32) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 777-200 35 8 43 46 (3) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 777-300 2 10 12 12 - 4 -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 777-9 - - - - - 18 24
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 787-8 - 12 12 12 - - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 787-9 1 17 18 18 - - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Boeing 787-10 - - - - - 10 -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Embraer E170 2 - 2 6 (4) - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Embraer E190 9 9 18 18 - - -
---------------- ----- --------- ---------- --------- ------------- ----------- -------
Group total 165 383 548 598 (50) 130 166
---------------- ----- --------- ---------- --------- ------------- ----------- -------
As well as those aircraft in service the Group also holds 70
aircraft (2019: 10) not in service, which includes 55 impaired
aircraft and 15 aircraft grounded but not disposed of pre
COVID-19.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR WPUGWMUPUUAG
(END) Dow Jones Newswires
July 31, 2020 02:00 ET (06:00 GMT)
International Consolidat... (LSE:0A2L)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
International Consolidat... (LSE:0A2L)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
