TIDMIAG
RNS Number : 9912G
International Cons Airlines Group
30 July 2021
SIX MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (July 30,
2021) presents Group consolidated results for the six months to
June 30, 2021.
COVID-19 situation and management actions:
-- Passenger capacity in quarter 2 was 21.9 per cent of 2019 and
continues to be adversely affected by the COVID-19 pandemic
together with government restrictions and quarantine
requirements
-- Current passenger capacity plans for quarter 3 are for around
45 per cent of 2019 capacity, but remain uncertain and subject to
ongoing review
-- 1,371 cargo-only flights operated in quarter 2, up from 1,306 in quarter 1
-- Strong liquidity of EUR10.2 billion at the end of quarter 2,
driven by successful conclusion of financing initiatives since the
start of the year, together with cost actions and UK pension
contribution deferral. These initiatives included:
-- Drawdown of previously committed borrowing for British
Airways (GBP2.0 billion UK Export Finance) and Aer Lingus
(remaining EUR75 million drawn against Ireland Strategic Investment
Fund facility)
-- EUR1.2 billion of IAG Senior Unsecured Bonds issued, with issue oversubscribed
-- EUR825 million of IAG Convertible Bonds issued, also oversubscribed
-- New 3-year $1.755 billion committed, secured revolving credit
facility concluded for Aer Lingus, British Airways and Iberia and
which remains undrawn; simultaneous cancellation of British
Airways' previous revolving credit facility scheduled to mature in
June 2021 (value at December 31, 2020: $0.8 billion undrawn)
-- Agreement for British Airways to defer monthly pension
deficit contributions totalling GBP450 million between October 2020
and September 2021
-- Cash operating costs for quarter 2 of EUR190 million per week
-- Sustainability-linked EETC financing executed in July for
British Airways' remaining fleet deliveries for 2021, with total
financing to be drawn of $785 million
IAG period highlights on results:
-- Reported operating loss for the second quarter EUR967 million
(2020 restated: operating loss EUR2,182 million) and operating loss
before exceptional items EUR1,045 million (2020 restated: operating
loss before exceptional items EUR1,370 million)
-- Reported operating loss for the half year EUR2,035 million
(2020 restated: operating loss EUR4,052 million), and operating
loss before exceptional items EUR2,180 million (2020 restated:
operating loss before exceptional items EUR1,915 million)
-- Exceptional credit before tax in the half year of EUR145
million on discontinuance of fuel and foreign exchange hedge
accounting (2020: exceptional charge before tax of EUR2,137 million
on discontinuance of fuel and foreign exchange hedge accounting and
impairment of fleet)
-- Loss after tax and exceptional items for the half year
EUR2,048 million (2020 restated: loss EUR3,813 million) and loss
after tax before exceptional items: EUR2,169 million (2020
restated: loss EUR1,972 million)
-- Cash of EUR7.7 billion at June 30, 2021 up EUR1.7 billion on
December 31, 2020. Committed and undrawn general and aircraft
facilities of EUR2.5 billion, bringing total liquidity to EUR10.2
billion, with pro forma liquidity including the British Airways
sustainability-linked EETC financing executed in July at EUR10.8
billion
Performance summary: Six months to June 30
--------------------------------------
2020 Higher /
Reported results (EUR million) 2021 restated (1) (lower)
Passenger revenue 1,141 4,113 (72.3)%
Total revenue 2,212 5,288 (58.2)%
Operating loss (2,035) (4,052) (49.8)%
Loss after tax (2,048) (3,813) (46.3)%
Basic loss per share (EUR cents) (2) (41.2) (124.7) (67.0)%
----------------------------------------------------------- --------- ---------------- ---------
Cash and interest-bearing deposits (3) 7,664 5,917 29.5 %
Borrowings (3) 19,771 15,679 26.1 %
----------------------------------------------------------- --------- ---------------- ---------
2020 Higher /
Alternative performance measures (EUR million) 2021 restated (1) (lower)
Passenger revenue before exceptional items 1,136 4,151 (72.6)%
Total revenue before exceptional items 2,207 5,326 (58.6)%
Operating loss before exceptional items (2,180) (1,915) 13.8 %
Loss after tax before exceptional items (2,169) (1,972) 10.0 %
Adjusted loss per share (EUR cents) (2) (43.7) (64.5) (32.2)%
----------------------------------------------------------- --------- ---------------- ---------
Net debt(3) 12,107 9,762 24.0 %
----------------------------------------------------------- --------- ---------------- ---------
Available seat kilometres (ASK million) 34,041 71,625 (52.5)%
Passenger revenue per ASK (EUR cents) 3.34 5.80 (42.4)%
Non-fuel costs per ASK (EUR cents) 11.02 8.28 (33.1)%
----------------------------------------------------------- --------- ---------------- ---------
For definitions refer to the IAG Annual report and accounts 2020.
Cash comprises cash, cash equivalents and interest-bearing deposits.
(1) The 2020 results have been restated for the treatment of administration costs associated
with the Group's defined benefit pension schemes. Further information is given in note 1 to
this report.
(2) The loss per share information for the six months to June 30, 2020, has been restated
to reflect the impact of the rights issue in October 2020.
(3) The prior year comparative is December 31, 2020.
Luis Gallego, IAG Chief Executive Officer, said:
"In the short term, our focus is on ensuring our operational
readiness, so we have the flexibility to capitalise on an
environment where there's evidence of widespread pent-up demand
when travel restrictions are lifted.
"This is reflected in Iberia's and Vueling's results. They were
the best performers within the group in the second quarter
reflecting stronger Latin American and Spanish domestic markets
driven by fewer travel restrictions. We know that recovery will be
uneven, but we're ready to take advantage of a surge in air travel
demand in line with increasing vaccination rates.
"We welcome the recent announcement that fully vaccinated
travellers from amber countries in the EU and the US will no longer
have to quarantine upon arrival in the UK. We see this as an
important first step in fully re-opening the transatlantic travel
corridor.
"All our airlines continue to take significant actions to
preserve their strength through the current pandemic and to
position them for recovery. We continue to build resilience by
preserving cash, boosting liquidity and reducing our cost base. At
30 June, the Group's liquidity was EUR10.2 billion with a
significant improvement in operating cash flow compared to previous
quarters.
"Longer term we're preparing our business so that we can emerge
stronger and more competitive in a structurally changed industry.
For example, we're accelerating the digitalisation of our business
and our agreements with unions are enabling us to improve
productivity and reduce our cost base while increasing the
proportion of variable costs.
"We remain resolute in our climate commitments. Recently,
British Airways successfully raised $785 million through an EETC
financing linked to the airline's sustainability targets. We have
also been upgraded by the CDP (Carbon Disclosure Project) to A- in
recognition of our comprehensive carbon management strategy. IAG is
the only European airline group that has been awarded this high
grade."
Trading outlook
Given the uncertainty over the timing of the lifting of
government travel restrictions and the continued impact and
duration of COVID-19, IAG is not providing profit guidance for
2021.
LEI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed
in accordance with the Company's obligations under the Market Abuse
Regulation (EU) No 596/2014.
Steve Gunning, Chief Financial Officer
Forward-looking statements:
Certain statements included in this announcement are
forward-looking. These statements can be identified by the fact
that they do not relate only to historical or current facts. By
their nature, they involve risk and uncertainties because they
relate to events and depend on circumstances that will occur in the
future. Actual results could differ materially from those expressed
or implied by such forward-looking statements.
Forward-looking statements often use words such as "expects",
"may", "will", "could", "should", "intends", "plans", "predicts",
"envisages" or "anticipates" or other words of similar meaning.
They include, without limitation, any and all projections relating
to the results of operations and financial conditions of
International Consolidated Airlines Group, S.A. and its subsidiary
undertakings from time to time (the 'Group'), as well as plans and
objectives for future operations, expected future revenues,
financing plans, expected expenditure and divestments relating to
the Group and discussions of the Group's business plan. All
forward-looking statements in this announcement are based upon
information known to the Group on the date of this announcement and
speak as of the date of this announcement. Other than in accordance
with its legal or regulatory obligations, the Group does not
undertake to update or revise any forward-looking statement to
reflect any changes in events, conditions or circumstances on which
any such statement is based.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any
number of known and unknown risks, uncertainties and other factors,
including, but not limited to, the effects of the COVID-19 pandemic
and uncertainties about its impact and duration, many of which are
difficult to predict and are generally beyond the control of the
Group, and it is not reasonably possible to itemise each item.
Accordingly, readers of this announcement are cautioned against
relying on forward-looking statements. Further information on the
primary risks of the business and the Group's risk management
process is set out in the Risk management and principal risk
factors section in the Annual Report and Accounts 2020; 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 Three months to June
30
-------------------------- --------------------------
Higher/ Higher/
EUR million 2021 2020(1) (lower) 2021 2020(1) (lower)
Passenger revenue 1,141 4,113 (72.3)% 682 160 nm
Cargo revenue 769 615 25.0 % 419 369 13.6 %
Other revenue 302 560 (46.1)% 143 174 (17.8)%
--------------------------------------- ------- ------- -------- ------- ------- --------
Total revenue 2,212 5,288 (58.2)% 1,244 703 77.0 %
--------------------------------------- ------- ------- -------- ------- ------- --------
Employee costs 1,288 1,905 (32.4)% 666 661 0.8 %
Fuel, oil costs and emissions
charges 497 2,582 (80.8)% 271 48 nm
Handling, catering and other operating
costs 367 853 (57.0)% 194 201 (3.5)%
Landing fees and en-route charges 287 539 (46.8)% 160 88 81.8 %
Engineering and other aircraft
costs 419 843 (50.3)% 212 339 (37.5)%
Property, IT and other costs 353 428 (17.5)% 169 203 (16.7)%
Selling costs 159 268 (40.7)% 89 57 56.1 %
Depreciation, amortisation and
impairment 920 1,845 (50.1)% 450 1,275 (64.7)%
Currency differences (43) 77 nm - 13 nm
--------------------------------------- ------- ------- -------- ------- ------- --------
Total expenditure on operations 4,247 9,340 (54.5)% 2,211 2,885 (23.4)%
--------------------------------------- ------- ------- -------- ------- ------- --------
Operating loss (2,035) (4,052) (49.8)% (967) (2,182) (55.7)%
Finance costs (363) (342) 6.1 % (186) (191) (2.6)%
Finance income 4 23 (82.6)% 1 12 (91.7)%
Net financing credit relating
to pensions 1 9 (88.9)% 2 5 (60.0)%
Net currency retranslation credits (13) 97 nm - 20 nm
Other non-operating credits 70 50 40.0 % 30 10 nm
--------------------------------------- ------- ------- -------- ------- ------- --------
Total net non-operating costs (301) (163) 84.7 % (153) (144) 6.3 %
--------------------------------------- ------- ------- -------- ------- ------- --------
Loss before tax (2,336) (4,215) (44.6)% (1,120) (2,326) (51.8)%
Tax 288 402 (28.4)% 139 201 (30.8)%
--------------------------------------- ------- ------- -------- ------- ------- --------
Loss after tax for the period (2,048) (3,813) (46.3)% (981) (2,125) (53.8)%
--------------------------------------- ------- ------- -------- ------- ------- --------
(1) The 2020 results have been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional items.
Refer to Alternative performance measures section for more
detail.
Six months to June Three months to June
30 30
----------------------------- -----------------------------
Before exceptional Before exceptional
items items
----------------------------- -----------------------------
Higher/ Higher/
EUR million 2021 2020(1) (lower)(2) 2021 2020(1) (lower)(2)
Passenger revenue 1,136 4,151 (72.6)% 682 198 nm
Cargo revenue 769 615 25.0 % 419 369 13.6 %
Other revenue 302 560 (46.1)% 143 174 (17.8)%
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Total revenue before exceptional
items 2,207 5,326 (58.6)% 1,244 741 67.9 %
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Employee costs 1,288 1,905 (32.4)% 666 661 0.8 %
Fuel, oil costs and emissions charges 637 1,313 (51.5)% 349 104 nm
Handling, catering and other operating
costs 367 853 (57.0)% 194 201 (3.5)%
Landing fees and en-route charges 287 539 (46.8)% 160 88 81.8 %
Engineering and other aircraft costs 419 766 (45.3)% 212 262 (19.1)%
Property, IT and other costs 353 406 (13.1)% 169 181 (6.6)%
Selling costs 159 268 (40.7)% 89 57 56.1 %
Depreciation, amortisation and impairment 920 1,114 (17.4)% 450 544 (17.3)%
Currency differences (43) 77 nm - 13 nm
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Total expenditure on operations
before exceptional items 4,387 7,241 (39.4)% 2,289 2,111 8.4 %
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Operating loss before exceptional
items (2,180) (1,915) 13.8 % (1,045) (1,370) (23.7)%
Finance costs (363) (342) 6.1 % (186) (191) (2.6)%
Finance income 4 23 (82.6)% 1 12 (91.7)%
Net financing credit relating to
pensions 1 9 (88.9)% 2 5 (60.0)%
Net currency retranslation (charges)/credits (13) 97 nm - 20 nm
Other non-operating credits 70 50 40.0 % 30 10 nm
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Total net non-operating costs (301) (163) 84.7 % (153) (144) 6.3 %
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Loss before tax before exceptional
items (2,481) (2,078) 19.4 % (1,198) (1,514) (20.9)%
Tax 312 106 nm 153 103 48.5 %
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Loss after tax for the period before
exceptional items (2,169) (1,972) 10.0 % (1,045) (1,411) (25.9)%
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
2021 Higher/ 2021 Higher/
Operating figures (2) 2020(2) (lower) (2) 2020(2) (lower)
Available seat kilometres (ASK million) 34,041 71,625 (52.5)% 19,245 4,103 nm
Revenue passenger kilometres (RPK
million) 16,748 52,772 (68.3)% 9,969 1,155 nm
Seat factor (per cent) 49.2 73.7 (24.5)pts 51.8 28.2 23.6pts
Passenger numbers (thousands) 8,080 20,385 (60.4)% 5,468 508 nm
Cargo tonne kilometres (CTK million) 1,853 1,751 5.8 % 999 578 72.8 %
Sold cargo tonnes (thousands) 248 232 7.0 % 131 84 55.8 %
Sectors 77,956 155,265 (49.8)% 50,256 11,296 nm
Block hours (hours) 260,094 492,515 (47.2)% 151,186 58,271 nm
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Average manpower equivalent(3) 50,813 63,501 (20.0)% 50,692 63,532 (20.2)%
Aircraft in service 529 548 (3.5)% n/a n/a -
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
Passenger revenue per RPK (EUR cents) 6.78 7.87 (13.8)% 6.84 17.14 (60.1)%
Passenger revenue per ASK (EUR cents) 3.34 5.80 (42.4)% 3.54 4.83 (26.6)%
Cargo revenue per CTK (EUR cents) 41.50 35.12 18.2 % 41.94 63.84 (34.3)%
Fuel cost per ASK (EUR cents) 1.87 1.83 2.0 % 1.81 2.53 (28.6)%
Non-fuel costs per ASK (EUR cents)(1) 11.02 8.28 33.1 % 10.08 48.92 (79.4)%
Total cost per ASK (EUR cents)(1) 12.89 10.11 27.5 % 11.89 51.45 (76.9)%
--------------------------------------------- ------- ------- ----------- ------- ------- -----------
(1) The 2020 results have been restated for the treatment of
administration costs associated with the Group's defined benefit
pension schemes. Further information is given in note 1 to this
report.
(2) Financial ratios are before exceptional items. Refer to
Alternative performance measures section for detail.
(3) Included in the average manpower equivalent are staff on
furlough, wage support and equivalent schemes, including the
Temporary Redundancy Plan arrangements in Spain .
FINANCIAL REVIEW
COVID-19 Summary - Six months to June 30, 2021
The Group's results continue to be impacted by COVID-19 and the
related restrictions on travel. A detailed review of the impact of
COVID-19 on the Group in 2020 was provided in the 2020 Annual
Report and Accounts and this review provides an update for the
first six months of 2021.
In the first half of 2021, due to the continuing impact of the
virus worldwide and the associated travel and border restrictions
applying in many countries, the Group was only able to operate a
limited passenger schedule, with capacity operated only 20.8 per
cent of that operated in 2019. Passenger capacity for quarter 2 was
21.9 per cent of 2019, up marginally on the 19.6 per cent operated
in quarter 1, with an increase in capacity during the quarter where
travel restrictions allowed. The Group operated 2,677 additional
cargo-only flights, leading to record cargo revenue for the six
months.
The Group seeks to reduce the impact of volatile commodity
prices by hedging fuel purchases in advance, based on expected
capacity levels. The Group also hedges foreign exchange rates. The
impact of COVID-19 has led to a significant reduction in the
requirement to purchase jet fuel, due to the significantly reduced
flying programme. As a consequence, the Group has derivative
contracts for which there was no corresponding purchase of jet
fuel, leading to discontinuance of hedge accounting for these fuel
derivatives, together with the related foreign exchange
derivatives. In aggregate there is a net loss on these derivative
contracts as, whilst the commodity fuel price has risen in recent
months, the average fuel price over the period covered by these
contracts was significantly below levels seen before COVID-19, when
these derivative contracts were taken out. The exceptional credit
in the six months is mainly due to reduced losses on these
contracts, due to rising fuel prices in 2021, net of an adjustment
for the latest assessment of capacity for 2021 and foreign exchange
movements.
In May 2021, the Board approved a revised fuel hedging policy,
which is designed to provide flexibility to respond to both
significant unexpected reductions in travel demand or capacity
and/or material or sudden changes in jet fuel prices. The revised
policy allows for differentiation within the Group, to match the
nature of each operating company, including greater use of call
options. The revised policy will operate on a two-year rolling
basis, with hedging up to 60 per cent of anticipated requirements
in the first twelve months and up to 30 per cent in the following
twelve months and with flexibility for low cost airlines within the
Group to adopt hedging up to 75 per cent in the first twelve
months. For all Group airlines, hedging between 25 and 36 months
ahead will only be undertaken in exceptional circumstances.
The Group continues to take action to preserve cash and boost
liquidity. In the six months the Group drew down on debt facilities
agreed in 2020, namely GBP2.0 billion for British Airways from UK
Export Finance and EUR75 million for Aer Lingus from the Ireland
Strategic Investment Fund. IAG closed a dual-tranche senior
unsecured bond issuance in March, raising EUR1.2 billion, with
EUR500 million maturing in 2025 and EUR700 million maturing in
2029. In May, IAG raised EUR825 million by issuing a convertible
bond, maturing in 2028. During the six months the Group also signed
a committed secured Revolving Credit Facility (RCF) with a
syndicate of banks for $1.755 billion, available for three years,
plus two consecutive one-year extension periods, at the discretion
of the lenders. The facility is available to Aer Lingus, British
Airways and Iberia, each of whom has a separate borrower limit
within the overall facility. Any drawings under the facility would
be secured against eligible unencumbered aircraft assets and
take-off and landing rights at both London Heathrow and London
Gatwick airports. The facility remained undrawn at the end of June.
Simultaneous with entering into this new RCF, British Airways
cancelled its US dollar revolving credit facility that was due to
expire in June 2021 and which had $786 million undrawn and
available at December 31, 2020. Approximately EUR400 million of
aircraft financing facilities expired undrawn by the end of March.
Subsequent to the end of June, funding of $785 million was secured
for British Airways through a sustainability-linked Enhanced
Equipment Trust Certificate (EETC ) financing, to be drawn down
against future aircraft deliveries. Total liquidity at the end of
the six months remained strong at EUR10.2 billion, including cash,
cash equivalents and current interest-bearing deposits of EUR7.7
billion and committed and undrawn general and aircraft facilities
of EUR2.5 billion. Including the British Airways
sustainability-linked EETC financing secured in July increases pro
forma liquidity to EUR10.8 billion.
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
is actively involved in restructuring its cost base to adjust to
significantly lower levels of demand, including actions to reduce
fixed costs and to increase the variable proportion of the cost
structure.
Basis of preparation
Based on the extensive modelling the Group has undertaken in
light of the COVID-19 pandemic, including considering plausible but
severe downside scenarios, the Directors have a reasonable
expectation that the Group has sufficient liquidity for the going
concern assessment period to December 31, 2022 and accordingly the
Directors have adopted the going concern basis in preparing the
consolidated results for the six months to June 30, 2021.
However, there are a number of significant factors related to
COVID-19 that are outside of the control of the Group, related to
the status and impact of the pandemic worldwide. These include the
emergence of new variants of the virus and potential resurgence of
existing strains of the virus; the availability of vaccines
worldwide, together with the speed at which they are deployed; the
efficacy of those vaccines; and the restrictions imposed by
national governments in respect of the freedom of movement and
travel. Due to the uncertainty that these factors create, the
Directors are not able to provide certainty that there could not be
more severe downside scenarios than those that have been considered
in the modelling, including the sensitivities the Group has
considered in relation to factors such as the impact on yield,
capacity operated, cost mitigations achieved and the availability
of aircraft financing to offset capital expenditure. In the event
that such a scenario were to occur, the Group would need to
implement additional mitigation measures and would likely need to
secure additional funding over and above that which is
contractually committed at July 29, 2021.
The Group has been successful in raising liquidity in the six
months to June 30, 2021, having financed all aircraft deliveries in
the period, secured an additional EUR4.4 billion of non-aircraft
debt and secured a new $1.755 billion Revolving Credit Facility,
committed for three years. On July 20, 2021, the Group further
improved liquidity by securing a $785 million aircraft-specific
facility in the form of a sustainability-linked EETC financing
structure. However, the Board cannot provide certainty that the
Group will be able to secure additional funding, if required, in
the event that a more severe downside scenario than those it has
considered were to occur and accordingly this represents a material
uncertainty that could cast doubt upon the Group's ability to
continue as a going concern. Refer to note 1 of the condensed
consolidated interim financial statements for further
information.
Principal risks and uncertainties
The Group has continued to maintain its framework and processes
to identify, assess and manage risks . The principal risks and
uncertainties affecting the Group, detailed on pages 78 to 88 of
the 2020 Annual Report and Accounts, remain relevant. The risk of a
pandemic has been considered by the Group under "Event causing
significant network disruption", although the consequences of the
COVID-19 pandemic continue to negatively impact the risk
environment and a number of the Group's other principal risks. The
prolonged duration of the pandemic, driven by subsequent waves of
variants and corresponding governmental responses require the Group
to carefully assess how its principal risks have evolved and how
the severity or likelihood of occurrence of certain risks has
increased as a result of the pandemic and its consequences , as
well as identifying emerging risks related to competitive and
market risk changes. Where further action has been required, the
Board has assessed potential mitigations and, where appropriate or
feasible, the Group has implemented or confirmed plans that would
address those risks.
The Board continues to meet frequently to assess the situation
and review updates including the results of modelling of potential
scenarios.
From the risks identified in the 2020 Annual Report and
Accounts, the main risks that continue to be impacted by the
COVID-19 pandemic are highlighted below. Business responses
implemented by management and that effectively mitigate or reduce
the risk are reflected in the Group's latest business plan and
scenarios. No new principal risks were identified through the risk
management assessment discussions across the business in the six
months to June 30, 2021.
-- 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 across all categories to ensure that operations are
maintained and the impact to their businesses understood, with
mitigations implemented where necessary. Operational bottlenecks
such as immigration resource at airports remains outside of the
Group's control although management continue to liaise with the
relevant providers to identify potential solutions.
-- Competition, consolidation and government regulation. The
scale of governmental support and aviation specific state-aid
measures 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. The threat of ransomware attacks on
critical infrastructure and services has increased throughout 2021
and the Group continues to focus its efforts on further mitigating
the risk.
-- IT systems and IT infrastructure. The Group is reliant upon
the resilience of its systems for key customer and business
processes and is exposed to risks that relate to poor performance,
obsolescence or failure of these systems. The Group is currently
engaged in a number of initiatives to modernise its IT systems,
whilst also delivering an ongoing efficiency programme and
upgrading its digital capability, customer propositions and core IT
infrastructure and network where required. Some of these
initiatives have been delayed or impacted by actions the Group is
taking to respond to the prolonged nature of the COVID-19
pandemic.
-- People, culture and employee relations. The Group is focussed
on staff wellbeing and people morale and motivation, which have
been impacted by continued restrictions and lockdowns. Welfare
support schemes are in place to support the Group's staff and
initiatives to build trust and engagement are underway across the
Group's businesses. The Group has identified the skills and
capabilities that are required to manage its transformation, which
include building out leadership capability and delivering on the
Group's diversity and inclusion plans. Employee consultations have
been undertaken as required in relation to restructuring that has
been necessitated by the ongoing impact of the pandemic.
-- Political and economic environment. National governments
continue to impose varying and complex travel and quarantine
restrictions, which will continue to impact Group operations and
dampen demand as customers choose not to fly given the uncertainty
around the application of restrictions. These changes in
restrictions are being actively monitored and near-term capacity
plans are refreshed dynamically, according to the latest status.
The economic impact of the pandemic, especially with the focus on
variants and vaccine efficacy driving further uncertainty, is
expected to be significant and the Group will continue to adjust
its future capacity plans accordingly, retaining flexibility to
adapt as required.
-- Debt funding and financial risk. Financial markets have been
volatile since the spread of the pandemic, although the Group has
been able to secure new funding and facilities as needed. The Group
has an established process to monitor financial and counterparty
risk on an ongoing basis. The Group has implemented new guidelines
over fuel hedging to increase flexibility.
The Board and its sub committees have been apprised of
regulatory, competitor and governmental responses on an ongoing
basis.
Operating and market environment
Average commodity fuel prices for the six months to June 30,
2021 were approximately 24 per cent higher than the equivalent
period in 2020, with prices rising since the start of 2021, in
contrast to the significant fall in March 2020 as COVID-19 took
hold. The US dollar weakened approximately 10 per cent against the
euro and the pound sterling compared with 2020.
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, 2021 the net impact of translation on
the operating result before exceptional items was EUR6 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 before exceptional items was
favourable by EUR186 million for the period, reducing revenues by
EUR66 million and reducing costs by EUR252 million.
The net impact of translation and transaction exchange on the
operating result before exceptional items for the Group was EUR192
million favourable.
Capacity
In the six months of 2021, IAG capacity, measured in available
seat kilometres (ASKs), was lower by 52.5 per cent versus 2020 and
by 79.2 per cent versus 2019, with the impact of the COVID-19
pandemic felt across all regions. Capacity continues to be
significantly affected by the travel restrictions put in place by
national governments in response to the COVID-19 pandemic and
emerging variants of the virus.
During quarter 1, British Airways capacity was adversely
impacted by the UK-wide lockdown imposed at the beginning of
January and associated international travel ban. Longhaul routes
operated primarily for cargo purposes with a number of daily
flights to US cities. Shorthaul operations were severely limited by
restrictions, but regular operations connected the main cities and
saw steady business travel demand. Iberia's longhaul operations
were focussed on Latin America and the Caribbean (LACAR) and
benefitted from Visiting Friends and Relatives (VFR) travel over
the Christmas and New year period and in the lead up to Easter,
although the EU restrictions introduced in response to the
identification of the Brazil COVID-19 variant adversely impacted
passenger numbers. Vueling operations were focussed on Domestic
markets, connecting the Spanish peninsula with the Canary and
Balearic Islands. Aer Lingus capacity continued to be driven by
cargo needs, with flights operating regularly to New York, JFK,
Chicago and Boston with very low passenger load factors. LEVEL
longhaul operations out of Barcelona were very limited with only
regular flights to Buenos Aires in quarter 1.
During quarter 2, British Airways capacity was impacted by the
UK government's travel restrictions and the re-introduction of the
traffic light travel system. The restricted nature of the 'green'
list severely limited the recovery in capacity expected on the
lifting of lockdown restrictions. Restrictions introduced by other
governments on travellers from the UK in response to the delta
COVID-19 variant also contributed to the low capacity. Iberia
longhaul operations continue to focus on LACAR with routes to
Colombia and Ecuador benefitting from VFR traffic. Shorthaul routes
benefitted from high levels of transfer traffic in the quarter.
Vueling operations in the quarter benefitted from the Spanish
government lifting the state of alarm on May 9, 2021 and the
associated restrictions on travel. Domestic routes connecting the
Spanish peninsula with the Canary and Balearic Islands performed
well. Aer Lingus capacity continued to be severely limited by the
stringent restrictions put in place by the Irish government, with
passenger load factors averaging only 20 per cent. Operations
continue to be driven by cargo needs with flights operating
regularly to New York, Chicago and Boston. LEVEL continued regular
operations to Buenos Aires and towards the end of the quarter
restarted flights to San Francisco.
Unit measures have been rendered much less meaningful than usual
by the significant reduction in capacity operated but are included
in the commentary below for completeness.
Revenue
Passenger revenue for the six months to June 30, 2021 fell 72.3
per cent from the previous year; in 2020 the impact of COVID-19 was
mainly limited to the period from March onwards. Passenger unit
revenue (passenger revenue per ASK) for the six months decreased
42.7 per cent at constant currency ('ccy'), due primarily to lower
passenger seat factors, together with lower passenger yields
(passenger revenue per revenue passenger kilometre), associated
with the impact of COVID-19.
Cargo revenue for the six months was 25.0 per cent higher versus
2020 and up 30.6 per cent at constant currency. The strong cargo
revenue performance was due to additional cargo-driven flights;
during the six months 2,677 cargo-only flights were operated. Cargo
revenue for the six months was EUR769 million, a record for the
period, and up from EUR615 million versus last year and total cargo
carried, measured in cargo tonne kilometres (CTKs) was 5.8 per cent
higher. Yields were significantly higher versus last year
reflecting the ongoing market supply and demand imbalance. During
this pandemic, cargo revenue has had to cover the entire cost of
operating cargo-only flights, without passenger revenue, on
aircraft configured for passengers.
Other revenue fell by 46.1 per cent and by 39.3 per cent at ccy,
mainly due to the impact of COVID-19 on the Group's non-airline
businesses.
Costs
Employee costs for the six months decreased by EUR617 million
compared with 2020, linked mainly to the restructuring programmes
implemented in 2020, together with furlough and equivalent
temporary cost reduction schemes, which account for approximately
one third of the reduction.
Fuel costs, including an exceptional credit related to
overhedging of EUR140 million, reduced by 80.8 per cent. Excluding
the exceptional overhedging credit in the six months and the
overhedging charge in the same period in 2020, fuel costs reduced
by 51.5 per cent, reflecting the reduced passenger capacity.
Supplier costs decreased by 47.0 per cent, linked to
volume-related savings due to the lower capacity operated, together
with a reduction in non-essential expenditure and negotiated
savings as a result of COVID-19.
Depreciation, amortisation and impairment costs decreased by
17.4 per cent on the previous year, linked to the reduction in the
Group's fleet triggered by COVID-19, with the in-service fleet,
which includes those aircraft temporarily grounded due to COVID-19,
reduced from 548 aircraft at June 2020 to 529 aircraft at June
2021.
Total non-fuel costs were down 44.5 per cent on the previous
year and down 41.7 per cent at ccy. Excluding the impact of
exceptional charges in 2020, mainly relating to fleet and related
asset impairments, non-fuel costs were down 36.7 per cent and down
33.6 per cent at ccy.
Operating loss
The Group's operating loss for the six months to June 30, 2021
was EUR2,035 million (2020 restated: operating loss of EUR4,052
million). The operating loss excluding exceptional credits in 2021
and exceptional charges in 2020, which are outlined in the
Alternative Performance Measures note, was EUR2,180 million for the
six months to June 30, 2021, compared with a restated operating
loss of EUR1,915 million in 2020. In 2020 the impact of COVID-19
was experienced mainly from March onwards; by contrast all six
months of 2021 were significantly negatively affected by COVID-19
and the related travel restrictions.
Net non-operating costs, taxation and loss after tax
The tax credit for the period was EUR288 million (2020 restated:
EUR402 million), with an effective tax rate for the Group of 12 per
cent (2020: 10 per cent). The substantial majority of the Group's
activities are taxed where the main operations are based - in the
UK, Spain and Ireland - with corporation tax rates during the
period of 19 per cent, 25 per cent and 12.5 per cent respectively,
which result in an expected effective tax rate of 20 per cent. The
difference between the actual effective tax rate of 12 per cent and
the expected effective tax rate of 20 per cent is primarily due to
current period losses in Iberia, LEVEL France and Vueling not being
recognised in deferred tax assets and the effect of the rate change
in the UK.
On March 3, 2021 the UK Chancellor announced that legislation
will be introduced in the Finance Bill 2021 to set the main rate of
corporation tax at 25 per cent from April 2023. On May 24, 2021 the
increase in the rate of corporation tax in the UK was substantially
enacted, which has led to the remeasurement of deferred tax
balances at June 30, 2021 and will increase the Group's future
current tax charge accordingly.
The loss after tax and exceptional items for the period was
EUR2,048 million (2020 restated: loss after tax EUR3,813 million),
driven by the impact of COVID-19 on the Group's operating
results.
Cash and leverage
The Group's cash position at June 30, 2021 of EUR7,664 million
was EUR1,747 million higher than December 31, 2020, driven by the
additional liquidity actions taken in the six months. Net debt at
the end of the period was EUR12,107 million compared with EUR9,762
million at December 31, 2020.
Other recent developments
On June 29 the European Commission announced that it has
launched an in-depth investigation to assess the proposed
acquisition of Air Europa by Iberia, under the EU Merger
Regulation. IAG believes that the proposed deal is pro-competitive
and will benefit customers, employees and the Spanish economy and
connectivity. It will strengthen Madrid's hub competitiveness on a
global stage and enable it to compete against other major European
hubs.
On July 20 British Airways concluded the first
sustainability-linked EETC financing in the airline industry,
securing funds for seven future aircraft deliveries in the
remainder of 2021, with total proceeds to be drawn of $785
million.
INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial
Statements
January 1, 2021 - June 30, 2021
CONSOLIDATED INCOME STATEMENT
Six months to June 30
-----------------------
Total Total
EUR million 2021 2020(1,2)
--------------------------------------------------------- --------- ------------
Passenger revenue 1,141 4,113
Cargo revenue 769 615
Other revenue 302 560
--------------------------------------------------------- --------- ------------
Total revenue 2,212 5,288
--------------------------------------------------------- --------- ------------
Employee costs 1,288 1,905
Fuel, oil costs and emissions charges 497 2,582
Handling, catering and other operating costs 367 853
Landing fees and en-route charges 287 539
Engineering and other aircraft costs 419 843
Property, IT and other costs 353 428
Selling costs 159 268
Depreciation, amortisation and impairment 920 1,845
Currency differences (43) 77
--------------------------------------------------------- --------- ------------
Total expenditure on operations 4,247 9,340
--------------------------------------------------------- --------- ------------
Operating loss (2,035) (4,052)
Finance costs (363) (342)
Finance income 4 23
Net financing credit relating to pensions 1 9
Net currency retranslation (charges)/credits (13) 97
Other non-operating credits 70 50
--------------------------------------------------------- --------- ------------
Total net non-operating costs (301) (163)
--------------------------------------------------------- --------- ------------
Loss before tax (2,336) (4,215)
Tax 288 402
--------------------------------------------------------- --------- ------------
Loss after tax for the period (2,048) (3,813)
--------------------------------------------------------- --------- ------------
Attributable to:
Equity holders of the parent (2,048) (3,813)
Non-controlling interest - -
--------------------------------------------------------- --------- ------------
(2,048) (3,813)
--------------------------------------------------------- --------- ------------
Basic loss per share (EUR cents) (3) (41.2) (124.7)
--------------------------------------------------------- --------- ------------
Diluted loss per share (EUR cents) (3) (41.2) (124.7)
--------------------------------------------------------- --------- ------------
(1) In the six months to June 30, 2021, the Group has presented the Income
statement using a single column approach whereas prior to quarter 4 2020
the Group presented the Income statement using a three-column approach. The
2020 comparative figures have also been re-presented. Further information
is given in the basis of preparation in note 2.
(2) The 2020 results have been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
(3) The loss per share information for 2020 has been restated to reflect
the impact of the rights issue in October 2020. Further information is given
in note 7.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June 30
-----------------------
EUR million 2021 2020(1)
------------------------------------------------------------- ------------ ---------
Items that may be reclassified subsequently to net
profit
Cash flow hedges:
Fair value movements in equity 571 (2,500)
Reclassified and reported in net profit 18 1,265
Fair value movements on cost of hedging 34 -
Cost of hedging reclassified and reported in net profit 14 (8)
Currency translation differences (8) (162)
Items that will not be reclassified to net profit
Fair value movements on liabilities attributable to
credit risk changes (5) -
Fair value movements on equity instruments - (10)
Fair value movements on cash flow hedges 11 172
Fair value movements on cost of hedging 1 20
Remeasurements of post-employment benefit obligations 729 (1,036)
------------------------------------------------------------- ------------ ---------
Total other comprehensive loss for the period, net
of tax 1,365 (2,259)
------------------------------------------------------------- ------------ ---------
Loss after tax for the period (2,048) (3,813)
Total comprehensive loss for the period (683) (6,072)
------------------------------------------------------------- ------------ ---------
Total comprehensive income is attributable to:
Equity holders of the parent (683) (6,072)
Non-controlling interest - -
------------------------------------------------------------- ------------ ---------
(683) (6,072)
------------------------------------------------------------- ------------ ---------
(1) The 2020 results have been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
Items in the consolidated Statement of other comprehensive income above are
disclosed net of tax.
CONSOLIDATED BALANCE SHEET
June 30, December 31, December 31,
EUR million 2021 2020(1) 2019 (1)
------------------------------------------------- ---------- ------------- -------------
Non-current assets
Property, plant and equipment 17,700 17,531 19,168
Intangible assets 3,212 3,208 3,442
Investments accounted for using the equity
method 37 29 31
Other equity investments 29 29 82
Employee benefit assets 1,160 334 531
Derivative financial instruments 97 42 268
Deferred tax assets 1,015 1,075 546
Other non-current assets 273 228 273
------------------------------------------------- ---------- ------------- -------------
23,523 22,476 24,341
------------------------------------------------- ---------- ------------- -------------
Current assets
Non-current assets held for sale 37 - -
Inventories 309 351 565
Trade receivables 731 557 2,255
Other current assets 792 792 1,314
Current tax receivable 16 101 186
Derivative financial instruments 390 122 324
Current interest-bearing deposits 53 143 2,621
Cash and cash equivalents 7,611 5,774 4,062
------------------------------------------------- ---------- ------------- -------------
9,939 7,840 11,327
------------------------------------------------- ---------- ------------- -------------
Total assets 33,462 30,316 35,668
------------------------------------------------- ---------- ------------- -------------
Shareholders' equity
Issued share capital 497 497 996
Share premium 7,770 7,770 5,327
Treasury shares (26) (40) (60)
Other reserves (7,333) (6,623) 851
------------------------------------------------- ---------- ------------- -------------
Total shareholders' equity 908 1,604 7,114
------------------------------------------------- ---------- ------------- -------------
Non-controlling interest 6 6 6
------------------------------------------------- ---------- ------------- -------------
Total equity 914 1,610 7,120
------------------------------------------------- ---------- ------------- -------------
Non-current liabilities
Borrowings 17,726 13,464 12,411
Employee benefit obligations 321 477 326
Deferred tax liability 17 40 290
Provisions 2,242 2,286 2,416
Deferred revenue on ticket sales 377 473 -
Derivative financial instruments 139 310 286
Other long-term liabilities 135 140 71
------------------------------------------------- ---------- ------------- -------------
20,957 17,190 15,800
------------------------------------------------- ---------- ------------- -------------
Current liabilities
Borrowings 2,045 2,215 1,843
Trade and other payables 2,865 2,810 4,344
Deferred revenue on ticket sales 5,659 4,657 5,486
Derivative financial instruments 293 1,160 252
Current tax payable 29 48 192
Provisions 700 626 631
------------------------------------------------- ---------- ------------- -------------
11,591 11,516 12,748
------------------------------------------------- ---------- ------------- -------------
Total liabilities 32,548 28,706 28,548
------------------------------------------------- ---------- ------------- -------------
Total equity and liabilities 33,462 30,316 35,668
------------------------------------------------- ---------- ------------- -------------
(1) The 2020 and 2019 results have been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
CONSOLIDATED CASH FLOW STATEMENT
Six months to June 30
-----------------------
EUR million 2021 2020(1,2)
----------------------------------------------------------------- ---------- -----------
Cash flows from operating activities
Operating loss (2,035) (4,052)
Depreciation, amortisation and impairment 920 1,845
Movement in working capital 520 422
(Increase)/decrease in trade receivables, inventories
and other current assets (254) 1,590
Increase/(decrease) in trade and other payables and
deferred revenue on ticket sales 774 (1,168)
Payments related to restructuring (77) (87)
Employer contributions to pension schemes (32) (182)
Pension scheme service costs 1 18
Provision and other non-cash movements 147 266
Settlement of derivatives where hedge accounting has
been discontinued (342) 621
Interest paid (298) (263)
Interest received 4 11
Tax received/(paid) 62 (6)
----------------------------------------------------------------- ---------- -----------
Net cash flows from operating activities (1,130) (1,407)
----------------------------------------------------------------- ---------- -----------
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible
assets (300) (1,340)
Sale of property, plant and equipment and intangible
assets 188 400
Decrease in other current interest-bearing deposits 90 1,215
Other investing movements (10) (1)
----------------------------------------------------------------- ---------- -----------
Net cash flows from investing activities (32) 274
----------------------------------------------------------------- ---------- -----------
Cash flows from financing activities
Proceeds from long-term borrowings 4,455 2,709
Repayment of borrowings (517) (77)
Repayment of lease liabilities (685) (778)
Acquisition of treasury shares (24) -
Dividend paid - (52)
Settlement of derivative financial instruments (382) 111
----------------------------------------------------------------- ---------- -----------
Net cash flows from financing activities 2,847 1,913
----------------------------------------------------------------- ---------- -----------
Net increase in cash and cash equivalents 1,685 780
Net foreign exchange differences 152 (146)
Cash and cash equivalents at 1 January 5,774 4,062
----------------------------------------------------------------- ---------- -----------
Cash and cash equivalents at period end 7,611 4,696
----------------------------------------------------------------- ---------- -----------
Interest-bearing deposits maturing after more than
three months 53 1,320
----------------------------------------------------------------- ---------- -----------
Cash, cash equivalents and other interest-bearing
deposits 7,664 6,016
----------------------------------------------------------------- ---------- -----------
(1) The 2020 results have been restated for the treatment of administration
costs associated with the group's defined benefit pension schemes. Further
information is given in note 1 to this report.
(2) The 2020 results include a reclassification to conform with the current
period of presentation regarding settlement of derivative financial instruments.
Further information is given in note 1 to this report.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2021
Issued
share Share Treasury Other Total shareholders' Non-controlling Total
EUR million capital premium shares reserves equity interest equity
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
At January 1, 2021(1) 497 7,770 (40) (6,917) 1,310 6 1,316
Change in accounting policy(1) - - - 294 294 - 294
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
At January 1, 2021 restated 497 7,770 (40) (6,623) 1,604 6 1,610
Total comprehensive loss for
the period (net of tax) - - - (683) (683) - (683)
Hedges reclassified and
reported
in property, plant and
equipment - - - 9 9 - 9
Cost of share-based payments - - - 5 5 - 5
Vesting of share-based payment
schemes - - 38 (41) (3) - (3)
Acquisition of treasury shares - - (24) - (24) - (24)
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
June 30, 2021 497 7,770 (26) (7,333) 908 6 914
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
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
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
At January 1, 2020 as
reported(1) 996 5,327 (60) 560 6,823 6 6,829
Change in accounting policy(1) - - - 291 291 - 291
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
At January 1, 2020 restated 996 5,327 (60) 851 7,114 6 7,120
Total comprehensive loss for
the period (net of tax)(1) - - - (6,072) (6,072) - (6,072)
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(1) 996 5,327 (45) (5,273) 1,005 6 1,011
------------------------------ -------- -------- -------- --------- ------------------- --------------- -------
(1) The 2020 results have been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
NOTES TO THE ACCOUNTS
For the six months to June 30, 2021
1. CORPORATE INFORMATION AND BASIS OF PREPARATION
International Consolidated Airlines Group S.A. (hereinafter
'International Airlines Group', 'IAG' or the 'Group') is a leading
European airline group, formed to hold the interests of airline and
ancillary operations. IAG is a Spanish company registered in Madrid
and was incorporated on December 17, 2009. On January 21, 2011
British Airways Plc and Iberia Líneas Aéreas de España S.A.
Operadora (hereinafter 'British Airways' and 'Iberia' respectively)
completed a merger transaction becoming the first two airlines of
the Group. Vueling Airlines S.A. ('Vueling') was acquired on April
26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18,
2015.
IAG shares are traded on the London Stock Exchange's main market
for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the 'Spanish Stock Exchanges'),
through the Spanish Stock Exchanges Interconnection System (Mercado
Continuo Español).
The condensed consolidated interim financial statements were
prepared in accordance with IAS 34 (as adopted by the EU) and
authorised for issue by the Board of Directors on July 29, 2021.
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,
2020 have been applied in the preparation of these condensed
consolidated interim financial statements, except for those items
below and in note 2. IAG's financial statements for the year to
December 31, 2020 have been filed with the Registro Mercantil de
Madrid, and are in accordance with the International Financial
Reporting Standards as adopted by the European Union (IFRSs as
adopted by the EU) and with those of the Standing Interpretations
issued by the IFRS Interpretations Committee of the International
Accounting Standards Board (IASB). The report of the auditors on
those financial statements was unqualified.
Presentation of results
Consistent with the presentation of results for the year to
December 31, 2020, the Group has re-presented its results in the
Income statement from using a three-column approach to a single
column approach. The comparative figures have also been
re-presented.
The prior period Cash flow statement includes a reclassification
to conform with the current period of presentation regarding the
settlement of foreign currency derivative financial instruments not
designated in a hedge relationship, but entered into to mitigate
foreign exchange movements on financial liabilities designated in
currencies other than the presentation currency of the Group.
Accordingly, the Group has reclassified the comparative six months
to June 30, 2020 to recognise EUR111 million of derivative
settlement cash inflows as Settlement of derivative financial
instruments within cash flows from financing activities with a
corresponding increase in cash outflows within cash flows from
operating activities.
Change in accounting policy
During the six months to June 30, 2021, the Group has changed
its accounting policy with regard to the treatment of
administration costs associated with the British Airways' Airways
Pension Scheme (APS) and the New Airways Pension Scheme (NAPS)
defined benefit schemes, while remaining in compliance with IAS 19.
The change in policy has been adopted to better reflect the
underlying management and operation of these schemes. This change
in accounting policy has been applied retrospectively to the
Condensed consolidated interim financial statements.
Previously a discounted estimate of future administration costs
was included as part of the APS and NAPS defined benefit
obligations. These administration costs were recognised as a
service cost in the year in which such costs arose and recorded
within Other comprehensive income. Under the updated accounting
policy, administration costs are now recognised as incurred and
included within Employee costs in the Income statement. This change
has had the effect of reducing the defined benefit obligation and
increasing retained earnings at both December 31, 2020 and January
1, 2020. It has in addition increased the charge to Employee costs
and the Financing charge relating to pensions in the Income
statement for the six months to June 30, 2020.
Further details of the accounting policy change are given in
note 21.
Going concern
The economic uncertainty of the COVID-19 pandemic and the
fragmented and varied responses from governments have had a
significant impact on the Group's results and cash flows. At June
30, 2021, the Group had total liquidity of EUR10.2 billion
(December 31, 2020: total liquidity of EUR8.0 billion), comprising
cash and interest-bearing deposits of EUR7.7 billion, EUR1.7
billion of committed and undrawn general facilities and a further
EUR0.8 billion of committed and undrawn aircraft specific
facilities.
The increase in liquidity during the six months to June 30, 2021
was attributable to, amongst other actions, accessing EUR2.3
billion (GBP2.0 billion) of the UK Export Credit Facility, the
issuance of fixed rate bonds of EUR1.2 billion, the issuance of a
convertible bond of EUR0.8 billion and securing a multi-entity
three-year Revolving Credit Facility of EUR1.5 billion ($1.8
billion). These actions raised an additional EUR5.9 billion of
liquidity. On July 20, 2021, the Group further improved liquidity
by securing a EUR659 million ($785 million) aircraft-specific
facility achieved as part of an Enhanced Equipment Trust
Certificate (EETC) financing structure. Of facilities in place at
June 30, 2021, EUR0.5 billion matures by December 31, 2022. The
Group's facilities have limited financial covenants, but there are
a number of non-financial covenants to protect the position of the
banks, including restrictions on the upstreaming of cash to the IAG
Group or lending to other Group companies.
1. CORPORATE INFORMATION AND BASIS OF PREPARATION continued
Despite the uncertainty of the COVID-19 pandemic, the Group has
continued to successfully secure financing arrangements for all
aircraft delivered in the six months to June 30, 2021.
In its assessment of going concern over the period to December
31, 2022 (the 'going concern period'), the Group has modelled three
scenarios referred to below as the Base Case, the Downside Case and
the Downside Lockdown Case. The Group's three-year Business plan,
prepared and approved by the Board in December 2020, was
subsequently refreshed with the latest available internal and
external information in July 2021. This refreshed Business plan
supports the Base Case, which takes into account the Board's and
management's views on the anticipated impact and recovery from the
COVID-19 pandemic on the Group across the going concern period. The
key inputs and assumptions underlying the Base Case include:
-- As part of the recovery, the Group has assumed a gradual
easing of travel restrictions, by geographical region, based on
deployment of vaccines during the year. Travel corridors between
countries are assumed to be introduced from quarter 3 2021, first
in Europe then North America, with other regions following in the
first half of 2022;
-- Capacity recovery modelled by geographical region (and in
certain regions, by key destinations) with capacity gradually
increasing from a reduction of 55 per cent in quarter 3 2021
(compared to the equivalent period in 2019) to 9 per cent in
quarter 4 2022 (again compared to quarter 4 2019), with the average
over the going concern period being 24 per cent down;
-- Passenger unit revenue per ASK, although forecast to continue
recovering, is assumed to still remain below levels of 2019 by the
end of the going concern period, which is based on, amongst other
assumptions, a greater weighting of shorthaul versus longhaul,
leisure versus business and economy versus premium compared to
2019. Specifically, the Group's assumption is that traffic related
to domestic and leisure will recover faster than longhaul and
business;
-- The Group has assumed that the committed and undrawn general
facilities of EUR1.7 billion will not be drawn over the going
concern period. The availability of certain of these facilities
reduces over time, with EUR1.6 billion being available to the Group
at the end of the going concern period;
-- The Group has assumed that of the committed and undrawn
aircraft specific facilities of EUR0.8 billion (excluding the EETC
financing structure), EUR0.6 billion would be available to be drawn
over the going concern period if required, but is not expected to
be drawn;
-- Of the capital commitments detailed in note 9, EUR3.1 billion
is due to be paid over the going concern period and the Group has
forecast securing 80 per cent, or EUR1.9 billion, of the aircraft
financing required that is currently uncommitted, to align with the
timing and payments for these aircraft deliveries. This loan to
value assumption is below the level of financing the Group has been
able to achieve recently, including over the course of the COVID-19
pandemic to date;
-- The Group has assumed that the EUR0.5 billion convertible
bond that matures in November 2022 will be refinanced; and
-- The Group has assumed that the acquisition of Air Europa will
complete in the second half of 2021 and has incorporated its best
estimates of the associated operating cash flows into the Base
Case. The aforementioned capacity assumptions exclude the
additional capacity Air Europa would provide.
The Downside Case applies further stress to the Base Case to
model a more prolonged downturn, with a more gradual recovery
relative to the Base Case. The Downside Case is representative of a
slower roll out of the vaccination programme on a regional basis,
with travel restrictions remaining in place and the gradual
recovery of capacity being delayed longer than in the Base Case.
The Downside Case also models a more acute impact on the longhaul
sector, with the domestic sector and European shorthaul sectors
recovering faster than longhaul. The result of which is that the
levels of capacity assumed under the Base Case for the fourth
quarter of 2021 are not achieved under the Downside Case until the
fourth quarter of 2022. In the Downside Case, over the going
concern period capacity would be 45 per cent down on 2019. The
Downside Case assumes that the aforementioned Revolving Credit
Facility is drawn in full over the going concern period. The
Directors consider the Downside Case to be a severe but plausible
scenario.
In addition, the Group has sensitised the Downside Case to
incorporate the occurrence of a two-month lockdown, and associated
travel restrictions, over the winter of 2021/2022, a scenario
referred to as the Downside Lockdown Case. The Downside Lockdown
Case is representative of the emergence of more virulent strains of
COVID-19 and/or strains for which the efficacy of existing vaccines
is reduced. Subsequent to this lockdown, capacity is assumed to
recover gradually through to the end of the second quarter of 2022,
at which time capacity is assumed to align with that of the
Downside Case. In this additional scenario, over the going concern
period capacity would be 60 per cent down on 2019. Consistent with
the Downside Case, the Directors consider the Downside Lockdown
Case to be an alternative severe but plausible scenario.
Under all three scenarios modelled, the Group's limited
financial covenants are forecast to be met.
The Group has modelled the impact of further deteriorations in
capacity operated and yield, including mitigating actions to reduce
operating and capital expenditure. The Group expects to be able to
continue to secure financing for future aircraft deliveries and in
addition has further potential mitigating actions, including asset
disposals, it would pursue in the event of adverse liquidity
experience.
Furthermore, to add resilience to the liquidity position of the
Group, the Directors are actively pursuing a range of financing
options, including securing additional long term financial
facilities, but these have not been included in the Base, Downside
or Downside Lockdown Cases.
1. CORPORATE INFORMATION AND BASIS OF PREPARATION continued
Having reviewed the Base Case, Downside Case, Downside Lockdown
Case and additional sensitivities, the Directors have a reasonable
expectation that the Group has sufficient liquidity to continue in
operational existence over the going concern period and hence
continue to adopt the going concern basis in preparing the
condensed consolidated interim financial statements for the six
months to June 30, 2021.
However, due to the uncertainty created by COVID-19, there are a
number of significant factors that are outside of the control of
the Group, including: the status and impact of the pandemic
worldwide; the emergence of new variants of the virus and potential
resurgence of existing strains of the virus; the availability of
vaccines worldwide, together with the speed at which they are
deployed; the efficacy of those vaccines; and the restrictions
imposed by national governments in respect of the freedom of
movement and travel. The Group, therefore, is not able to provide
certainty that there could not be a more severe downside scenario
than those it has considered, including the sensitivities in
relation to the timing of recovery from the COVID-19 pandemic,
capacity operated, impact on yield, cost mitigations achieved and
the availability of aircraft financing to offset capital
expenditure. In the event that a more severe scenario were to
occur, the Group will need to secure sufficient additional funding.
As set out above, sources of additional funding are expected to
include securing additional long term financial facilities.
However, the Group's ability to obtain this additional funding in
the event of a more severe downside scenario represents a material
uncertainty at July 29, 2021 that could cast significant doubt upon
the Group's ability to continue as a going concern and therefore,
to continue to realise its assets and discharge its liabilities in
the normal course of business.
The condensed consolidated interim financial statements for the
six months to June 30, 2021 do not include the adjustments that
would result if the Group was unable to continue as a going
concern.
2. ACCOUNTING POLICIES
Critical judgement and estimates
Except as described below, the accounting policies adopted in
the presentation of the condensed consolidated interim financial
statements for the six months to June 30, 2021 are consistent with
those followed in the preparation of the Group's annual
consolidated financial statements for the year to December 31,
2020.
In preparing the condensed consolidated interim financial
statements for the six months to June 30, 2021, management has made
judgements and estimates that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. The significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty are summarised below, including
consideration of the impact on COVID-19 on financial reporting.
New and changes in accounting policies
Convertible bonds
Convertible bonds are classified as either compound financial
instruments or hybrid financial instruments depending on the
settlement alternatives upon redemption. Where the bondholders
exercise their equity conversion option and the Group has no
alternative other than to settle the convertible bonds into a fixed
number of ordinary shares of the Company, then the bonds are
classified as a compound financial instrument. Where the Group has
an alternative settlement mechanism to the convertible bonds that
permits settlement in cash, then convertible instrument is
classified as a hybrid financial instrument.
Convertible bonds that are classified as compound financial
instruments consist of a liability and an equity component. At the
date of issue, the fair value of the liability component is
estimated using the prevailing market interest rate for similar
non-convertible debt, and is subsequently recorded at an amortised
cost basis using the effective interest method until extinguished
on conversion or maturity of the bonds, and is recognised within
Long-term borrowings. The difference between the proceeds of issue
of the convertible bond and the fair value assigned to the
liability component, representing the embedded option to convert
the liability into equity of the Group, is included in the equity
portion of the convertible bond in Other reserves and is not
subsequently remeasured. The interest expense on the liability
component is calculated by applying the effective interest rate for
similar non-convertible debt to the liability component of the
instrument. The difference between this value and the interest paid
is added to the carrying amount of the liability.
Convertible bonds that are classified as hybrid financial
instruments consist only of a liability component recognised within
Long-term borrowings. At the date of issue, the entirety of the
convertible bonds are accounted for at fair value with subsequent
fair value gains or losses recorded within Long-term borrowings.
The fair value of such financial instruments is obtained from their
respective quoted prices in active markets, with the portion of the
change in fair value attributable to changes in the credit risk of
the convertible bonds recognised in Other comprehensive income and
the portion of the change in fair value attributable to market
conditions recognised in the Income statement within Finance
costs.
Issue costs associated with compound financial instruments are
apportioned between the liability and equity components of the
convertible bonds where appropriate based on their relative
carrying values at the date of issue. The portion relating to the
equity component is charged directly against equity. Issue costs
associated with hybrid financial instruments are expensed
immediately to the Income statement.
Administration costs in British Airways defined benefit
obligations
During the six months to June 30, 2021, the Group has changed
its accounting policy with regard to the treatment of
administration costs associated with the APS and NAPS Defined
benefit schemes. See note 1 for further information.
2. ACCOUNTING POLICIES continued
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, 2021, but do not have a material
impact on the condensed consolidated interim financial statements
of the Group:
-- Interest rate benchmark reform - Phase 2 - amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 effective for periods
beginning on or after January 1, 2021.
The IASB and IFRIC have issued the following standards,
amendments and interpretations with an effective date after the
period end of these financial statements which while management are
still assessing the impact of adopting these standards, amendments
and interpretations, believe could impact the Group in future
periods. Unless otherwise stated, the Group plans to adopt the
following standards, interpretations and amendments on the date
they become mandatory:
-- Property, plant and equipment: proceeds before intended use -
amendments to IAS 16 effective for periods beginning on or after
January 1, 2022;
-- Reference to the Conceptual Framework - amendments to IFRS 3
effective for periods beginning on or after January 1, 2022;
-- Onerous contracts - cost of fulfilling a contract -
amendments to IAS 37 effective for periods beginning on or after
January 1, 2022;
-- Annual improvements to IFRS standards 2018-2020 - effective
for periods beginning on or after January 1, 2022;
-- Classification of liabilities as current or non-current -
amendments to IAS 1 effective for periods beginning on or after
January 1, 2023.
-- Definition of accounting estimate - amendments to IAS 8
effective for periods beginning on or after January 1, 2023;
-- Disclosure of accounting policies - Amendments to IAS 1 and
IFRS Practice statement 2 effective for periods beginning on or
after January 1, 2023; and
-- Deferred tax related to assets and liabilities arising from a
single transaction - Amendments to IAS 12 effective for periods
beginning on or after January 1, 2023.
Impact of COVID-19 on financial reporting
Significant transactions and critical accounting estimates,
assumptions and judgements in the determination of the impact of
COVID-19
As a result of COVID-19 the Group has experienced a significant
decline in the level of flight activity and does not expect to
return to the level of 2019 activity until at least 2023.
Accordingly, the Group has applied critical estimation and
judgement in the evaluation of the impact of COVID-19 regarding the
recognition and measurement of assets and liabilities within the
Condensed consolidated interim financial statements.
Critical accounting estimates, assumptions and judgements - cash
flow forecast estimation
The Group has applied estimation and judgement in the evaluation
of the impact of COVID-19 on the estimation uncertainty of
determining cash flow forecasts as part of the approved Business
plans. The details regarding the inputs and assumptions used in the
determination of these cash flow forecasts are given in the going
concern basis of preparation.
The following critical accounting estimates, assumptions and
judgements utilise these cash flow forecasts consistently, which
are in some instances significantly different from judgements
applied in previous years:
a Discontinuance of hedge accounting
In determining whether hedge accounting is required to be
discontinued or to remain in a hedge relationship, judgement is
required as to whether a forecast transaction that was previously
highly probable continues to be expected to occur or is no longer
expected to occur. The Group applied the capacity output from the
cash flow forecasts as part of the approved Business plans in order
to determine the forecast level of revenue generation and fuel
consumption over the periods in which hedge accounting has been
applied.
In the six months to June 30, 2021, the Group recognised a
credit of EUR140 million (six months to June 30, 2020: expense of
EUR1,269 million) arising from a combination of the discontinuance
of hedge accounting in the six months to June 30, 2021 and the fair
value movement on those relationships where hedge accounting was
discontinued in the year to December 31, 2020, but for which the
underlying hedging instrument had not matured at June 30, 2021.
This was represented by a credit of EUR146 million (six months to
June 30, 2020: expense of EUR1,372 million) relating to fuel
derivatives and an expense of EUR6 million (six months to June 30,
2020: credit of EUR103 million) related to the associated fuel
foreign currency derivatives. The credit to Passenger revenue of
EUR5 million (six months to June 30, 2020: charge of EUR38 million)
relates to the discontinuation of hedge accounting of the
associated foreign currency derivatives on forecast revenue.
The Group's risk management strategy is to build up these hedges
gradually over a two-year period (previously a three-year period)
when the level of forecast passenger revenue and fuel consumption
were higher than current expectations. Accordingly, the hedge
accounting for these transactions has been discontinued and the
credit recognised in the Income statement. The credit relating to
revenue derivatives and fuel derivatives has been recorded in the
Income statement within Passenger revenue and Fuel, oil and
emission charges, respectively.
Further information is given in the Alternative performance
measures section.
b Long-term fleet plans and associated impairment
The Group derives long-term fleet plans from the cash flow
forecasts arising from the approved business plans. In deriving the
long-term fleet plans, the Group applies judgement with respect to
consideration of the period of temporary and permanent grounding of
fleet assets, the deferral of the delivery of certain aircraft and
the assumptions around specific provisions relating to leased fleet
assets.
2. ACCOUNTING POLICIES continued
During the six months to June 30, 2021 the Group recognised no
impairment charge. For the six months to June 30, 2020 the Group
recognised an impairment charge of EUR731 million, represented by
an impairment of fleet assets of EUR729 million and an impairment
of other assets of EUR2 million. The fleet impairment related 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 was recorded within Property, plant and equipment
relating to owned aircraft and EUR94 million was recorded within
Right of use assets relating to leased aircraft.
Further information is given in the Alternative performance
measures section.
c Impairment testing of the Group's cash generating units
Due to the estimation uncertainty of the timing and duration of
the recovery from COVID-19, the Group has adopted a weighted
average multi-scenario discounted cash flow model derived from the
cash flow forecasts from the approved business plans. The Group
exercises judgement in determining the weighting between these
scenarios in the value-in-use model.
Having undertaken this impairment testing, the Group has not
recognised any impairment charge (six months to June 30, 2020:
EURnil). While no impairment charge is arising, the headroom in the
impairment test of the British Airways, Iberia and Aer Lingus cash
generating units are particularly sensitive to changes in key
assumptions. Further information is given in note 11.
d Recoverability of deferred tax assets
In determining the recoverable amounts of the Group's deferred
tax assets, the Group applied the future cash flow projections from
the approved business plans. Given the estimation uncertainty of
the timing and duration of the recovery from COVID-19, the Group
exercises judgement in the determination of cash flows during this
recovery and subsequent periods.
In exercising this judgement, while there are no time
restrictions on the utilisation of historic tax losses in the
principal jurisdictions in which the Group operates, future cash
flow projections are forecast for a period of up to ten years from
the balance sheet date.
As at June 30, 2021, the Group had unrecognised deferred tax
assets of EUR2,332 million relating to tax losses the Group does
not reasonably expect to utilise. In applying the aforementioned
judgement, had the Group extended the period of future cash flow
projections indefinitely, then the amount of unrecognised deferred
tax assets would have reduced by EUR1,938 million.
Critical accounting estimates, assumptions and judgements -
other transactions
In addition to the estimation uncertainty relating to cash flow
forecasts, the Group has applied the following critical accounting
estimates, assumptions and judgements that impact the Condensed
consolidated interim financial statements:
e Revenue recognition
Historically, where a voucher has been issued to a customer in
the event of a flight cancellation, the Group estimated, based on
historical evidence, the level of such vouchers that would not be
used prior to expiry and recognised revenue accordingly. Due to the
significant level of flight cancellations arising from COVID-19
there remains insufficient historical data by which to reliably
estimate the amount of these vouchers that will not be used prior
to expiry. Accordingly, consistent with the approach taken at
December 31, 2020, the Group has not recognised revenue arising
from those vouchers issued due to COVID-19 related cancellations
until either the voucher is redeemed or it expires.
Revenue associated with the issuance of points under customer
loyalty programmes is determined using estimation techniques, with
the transaction price of the points based on the value of the
awards for which the points can be redeemed and is reduced to take
account of the proportion of the award credits that are not
expected to be redeemed by customers. The Group estimates the
number of points not expected to be redeemed using statistical
modelling and historical trends. Due to the significant disruption
in the patterns of the redemption of points caused by COVID-19,
there remains insufficient recent historical data by which to
estimate the long-term proportion of the award credits that are not
expected to be redeemed by customers. Accordingly, consistent with
the approach taken at December 31, 2020, the Group has maintained
the proportion of those award credits not expected to be redeemed
to pre-COVID-19 levels.
Significant transactions as a result of COVID-19
The Group has recorded the following additional significant
transactions as a result of management actions in response to
COVID-19:
f Loans and borrowings
To enhance liquidity due to the impact of COVID-19, the Group
has entered into a number of financing arrangements during 2021,
which have been fully drawn unless otherwise stated, including:
On February 22, 2021, British Airways entered into a 5 year term
loan Export Development Guarantee Facility of EUR2.3 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF;
2. ACCOUNTING POLICIES continued
On March 23, 2021, the Group entered into a three-year US dollar
secured Revolving Credit Facility accessible by British Airways,
Iberia and Aer Lingus. The amount available under the facility is
$1.755 billion. As at June 30, 2021 no amounts had been drawn under
the facility. Concurrent to entering into the facility, British
Airways extinguished its US dollar secured Revolving Credit
Facility due to mature in June 2021;
On March 25, 2021, two senior unsecured bonds were issued by the
Group for an aggregate principal amount of EUR1.2 billion; EUR500
million fixed rate 2.75 per cent due in 2025, and EUR700 million
fixed rate 3.75 per cent due in 2029;
On December 23, 2020, Aer Lingus entered into a financing
arrangement with the Ireland Strategic Investment Fund for EUR75
million. On March 27, 2021, Aer Lingus entered into a further
financing arrangement to extend the total amount to EUR150 million.
The facility is repayable in 2023; and
On May 18, 2021, the Group issued an EUR825 million senior
unsecured convertible bond due 2028 and bearing a fixed rate of
1.125 per cent.
In April 2021, British Airways fully repaid the Coronavirus
Corporate Finance Facility of EUR328 million (GBP298 million),
which was entered into in April 2020.
Further information is given in note 13.
g Government assistance
Given the significant reduction in operations that have occurred
as a result of COVID-19, the Group has availed itself of the
various employee support mechanisms in the jurisdictions in which
it operates. In the period to June 30, 2021 this has led to an
amount of EUR200 million (six months to June 30, 2020: EUR155
million) being received directly from governments (classified as
government grants) and savings of EUR144 million (six months to
June 30, 2020: EUR127 million) (classified as government
assistance) where employees have been paid directly by their
respective governments. Those amounts received in the form of
government assistance have been recorded net within Employee costs.
Further information is given in note 19.
h Defined benefit pension scheme contributions
On December 18, 2020 British Airways reached agreement with the
Trustee of NAPS to defer deficit contributions on an interim basis
for the period between October 1, 2020 and January 31, 2021. The
deferral of such contributions amounted to EUR165 million. On
February 19, 2021 British Airways reached further agreement with
the Trustee of NAPS to defer deficit contributions through to
September 30, 2021. The deferral of such contributions will amount
to EUR330 million. Further information is given in note 15.
Impact of climate change on financial reporting
As detailed in the IAG Annual report and accounts 2020, as a
result of the society-wide need to tackle climate change the Group
has designed and approved its Flightpath Net Zero climate strategy,
which commits the Group to achieving net zero emissions by
2050.
The Group continues to develop its assessment of the potential
impacts of climate change and the transition to a lower carbon
economy. Where the strategy is sufficiently developed, the
potential financial impacts have been considered as part of
recoverability analysis of the assets of the Group at June 30,
2021, including, but not limited to, the carrying value of the
Groups cash generating units.
With the Flightpath Net Zero climate strategy assessing the
impact over a long-term horizon to 2050, the level of estimation
uncertainty in the determination of cash flow forecasts increases
over time. The Group has addressed estimation uncertainty through
the provision of sensitivity analysis over its long-term
assumptions relating to the recoverability of the carrying value of
the Groups cash generating units (note 11).
3. Seasonality
Except for the impact of COVID-19, the Group's business is
highly seasonal with demand strongest during the summer months.
Accordingly higher revenues and operating profits are usually
expected in the latter six months of the financial year than in the
first six months.
4. SEGMENT INFORMATION
a Business segments
The chief operating decision-maker is responsible for allocating
resources and assessing performance of the operating segments, and
has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as
individual operating companies including airline and platform
functions. Each airline operates its network operations as a single
business unit and the IAG MC assesses performance based on measures
including operating profit, and makes resource allocation decisions
for the airlines based on network profitability, primarily by
reference to the passenger markets in which the companies operate.
The objective in making resource allocation decisions is to
optimise consolidated financial results.
4. SEGMENT INFORMATION continued
The Group has determined its operating segments based on the way
that it treats its businesses and the manner in which resource
allocation decisions are made. British Airways, Iberia, Vueling and
Aer Lingus have been identified for financial reporting purposes as
reportable operating segments. IAG Loyalty and LEVEL are also
operating segments but do not exceed the quantitative thresholds to
be reportable and management has concluded that there are currently
no other reasons why they should be separately disclosed.
The platform functions of the business primarily support the
airline operations. These activities are not considered to be
reportable operating segments as they either earn revenues
incidental to the activities of the Group and resource allocation
decisions are made based on the passenger business, or are not
reviewed regularly by the IAG MC and are included within Other
Group companies.
For the six months to June 30, 2021
2021
------------------------------------------------------------
British Aer Other Group
EUR million Airways Iberia Vueling Lingus companies(1) Total
------------------------------------ -------- ------- ------- ------- ------------- --------
Revenue
Passenger revenue 424 470 193 33 21 1,141
Cargo revenue 581 155 - 31 2 769
Other revenue 38 182 3 1 78 302
------------------------------------ -------- ------- ------- ------- ------------- --------
External revenue 1,043 807 196 65 101 2,212
Inter-segment revenue 17 122 - - 156 295
------------------------------------ -------- ------- ------- ------- ------------- --------
Segment revenue 1,060 929 196 65 257 2,507
------------------------------------ -------- ------- ------- ------- ------------- --------
Depreciation and amortisation (514) (177) (124) (68) (37) (920)
Operating loss (1,325) (330) (195) (192) 7 (2,035)
------------------------------------ -------- ------- ------- ------- ------------- --------
Exceptional items 120 7 9 7 2 145
Operating loss before exceptional
items (1,445) (337) (204) (199) 5 (2,180)
------------------------------------ -------- ------- ------- ------- ------------- --------
Net non-operating costs (301)
------------------------------------ -------- ------- ------- ------- ------------- --------
Loss before tax (2,336)
------------------------------------ -------- ------- ------- ------- ------------- --------
Total assets 20,001 6,529 2,685 1,818 2,429 33,462
Total liabilities (17,945) (6,858) (3,299) (1,649) (2,797) (32,548)
------------------------------------ -------- ------- ------- ------- ------------- --------
(1) Includes eliminations on total assets of EUR15,745 million and total
liabilities of EUR5,645 million.
4. SEGMENT INFORMATION continued
For the six months to June 30, 2020
2020(1)
---------------------------------------------------------------
British Other Group
EUR million Airways Iberia Vueling Aer Lingus companies(2) 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 and amortisation charge (671) (196) (139) (68) (40) (1,114)
Impairment charge (463) (234) - (25) (9) (731)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Operating loss (2,469) (867) (386) (316) (14) (4,052)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Exceptional items (1,360) (508) (118) (127) (24) (2,137)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Operating (loss)/profit before exceptional
items (1,109) (359) (268) (189) 10 (1,915)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Net non-operating costs (163)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Loss before tax (4,215)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
Total assets 19,200 8,178 3,658 2,026 (981) 32,081
Total liabilities (16,243) (7,748) (3,692) (1,592) (1,795) (31,070)
------------------------------------------- -------- ------- ------- ---------- ------------- --------
(1) Segment information for 2020 has been restated for the treatment of
administration costs associated with the Group's defined benefit pension
schemes. Further information is given in note 1 to this report.
(2) Includes eliminations on total assets of EUR14,159 million and total
liabilities of EUR4,077 million.
b Geographical analysis
Revenue by area of original sale
Six months to June 30
-----------------------
EUR million 2021 2020
-------------- ----------- ----------
UK 480 1,739
Spain 657 1,024
USA 175 750
Rest of world 900 1,775
-------------- ----------- ----------
2,212 5,288
-------------- ----------- ----------
Assets by area
June 30, 2021
Property, plant Intangible
EUR million and equipment assets
-------------- --------------- ----------
UK 11,691 1,289
Spain 4,634 1,327
USA 96 15
Rest of world 1,279 581
-------------- --------------- ----------
17,700 3,212
-------------- --------------- ----------
4. SEGMENT INFORMATION continued
December 31, 2020
Property, plant Intangible
EUR million and equipment assets
------------------ --------------- ----------
UK 11,313 1,251
Spain 4,850 1,353
USA 122 15
Rest of world 1,246 589
------------------ --------------- ----------
17,531 3,208
------------------ --------------- ----------
5. FINANCE COSTS, INCOME AND OTHER NON-OPERATING CREDITS
Six months to June 30
-----------------------
EUR million 2021 2020(1)
------------------------------------------------------------------- --------- ------------
Finance costs
Interest expense on:
Bank borrowings (57) (9)
Asset financed liabilities (40) (18)
Lease liabilities (195) (236)
Provisions unwinding of discount (5) (6)
Other borrowings (20) (48)
Capitalised interest on progress payments 1 7
Other finance costs (47) (32)
------------------------------------------------------------------- --------- ------------
Total finance costs (363) (342)
------------------------------------------------------------------- --------- ------------
Finance income
Interest on other interest-bearing deposits - 15
Other finance income 4 8
------------------------------------------------------------------- --------- ------------
Total finance income 4 23
------------------------------------------------------------------- --------- ------------
Net credit relating to pensions(1)
------------------------------------------------------------------- --------- ------------
Net financing credit relating to pensions 1 9
------------------------------------------------------------------- --------- ------------
Other non-operating credits
Gains on sale of property, plant and equipment and
investments 41 4
Realised (losses)/gains on derivatives not qualifying
for hedge accounting (1) 53
Unrealised gains/(losses) on derivatives not qualifying
for hedge accounting 30 (6)
Share of post-tax losses in associates accounted for
using equity method (1) (3)
Net credit relating to other equity investments 1 2
------------------------------------------------------------------- --------- ------------
70 50
------------------------------------------------------------------- --------- ------------
(1) The 2020 net financing credit relating to pensions has been restated
for the treatment of administration costs associated with the Group's defined
benefit pension schemes. Further information is given in note 1 to this report.
6. TAX
The tax credit in the Income statement was as follows:
Six months to June 30(1)
---------------------------------
EUR million 2021 2020
------------------------------------------------ ---------------- ---------------
Current tax (22) 258
Deferred tax 310 144
------------------------------------------------ ---------------- ---------------
Total tax 288 402
------------------------------------------------ ---------------- ---------------
(1) The 2020 current tax has been restated for the treatment of administration
costs associated with the Group's defined benefit pension schemes. Further
information is given in note 1 to this report.
The effective tax rate for the six months to June 30, 2021 was
12 per cent (2020: 10 per cent). The substantial majority of the
Group's activities are taxed where the main operations are based,
being Spain, UK, and Ireland, with corporation tax rates during
2021 and 2020 of 25 per cent, 19 per cent and 12.5 per cent
respectively. These result in an expected effective tax rate of 20
per cent.
The difference between the actual effective tax rate of 12 per
cent and the expected effective tax rate of 20 per cent was
primarily due to the EUR640 million increase in unrecognised
deductible temporary differences and losses. The details of the
unrecognised temporary differences and losses are given in the
table below:
June 30, December 31,
EUR million 2021 2020
----------------------------------------- -------- ------------
Income tax losses
Spanish corporate income tax losses 1,884 848
Openskies SASU trading losses 394 450
UK trading losses 54 39
----------------------------------------- -------- ------------
2,332 1,337
Other losses and temporary differences
UK capital losses 346 350
Spanish deductible temporary differences 884 1,287
Irish capital losses 17 25
----------------------------------------- -------- ------------
1,247 1,662
----------------------------------------- -------- ------------
None of the unrecognised temporary differences or losses have an
expiry date. Further information with regard to the sensitivity of
the recoverability of deferred tax assets is given in note 2.
On March 3, 2021 the UK Chancellor announced that legislation
would be introduced in the Finance Bill 2021 to set the main rate
of corporation tax at 25 per cent from April 2023. On May 24, 2021
the increase in the rate of corporation tax in the UK was
substantially enacted, which has led to the remeasurement of
deferred tax balances at June 30, 2021 and will increase the
Group's future current tax charge accordingly.
Uncertain tax positions for which no amount has been
recognised
The Group has certain uncertain tax positions for which no
amount has been recognised, across all taxes, which at June 30,
2021 gave rise to a total maximum exposure of EUR194 million
(December 31, 2020: EUR166 million). No material losses are likely
to arise from such uncertain tax positions. As such the Group does
not consider it appropriate to recognise a provision for these
amounts. Included in the uncertain tax positions 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 maximum exposure in this case is EUR94 million
(December 31, 2020: EUR92 million), being the amount in the tax
assessment with an estimate of the interest accrued on that
assessment through to June 30, 2021.
The Company appealed the assessment to the Tribunal
Económico-Administrativo Central or 'TEAC' (Central Administrative
Tax Tribunal). On October 23, 2019 the TEAC ruled in favour of the
Spanish Tax Authorities. The Company subsequently appealed this
ruling to the Audiencia Nacional (National High Court) on December
20, 2019, and on July 24, 2020 filed submissions in support of its
case. The Company does not expect a hearing at the National High
Court until 2022 at the earliest.
The Company disputes the technical merits of the assessment and
ruling of the TEAC, both in terms of whether a gain arose and in
terms of the quantum of any gain. The Company believes that it has
strong arguments to support its appeals. The Company does not
consider it appropriate to make a provision for these amounts.
7. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June 30
-----------------------
Millions 2021 2020(1)
------------------------------------------------------- ---------- -----------
Weighted average number of ordinary shares in issue 4,967 3,057
Weighted average number for diluted earnings per share 4,967 3,057
------------------------------------------------------- ---------- -----------
Six months to June 30
-----------------------
EUR cents 2021 2020(1)
------------------------------------------------------- ---------- -----------
Basic loss per share (41.2) (124.7)
Diluted loss per share (41.2) (124.7)
------------------------------------------------------- ---------- -----------
(1) Loss per share information has been restated for the
comparative period presented, by adjusting the weighted average
number of shares to include the impact of the rights issue in
October 2020. The discount element inherent in the rights issue has
been accounted for as a bonus issue of 1,071,565 thousand shares in
2020. Earnings per share information has also been restated for the
comparative period presented for the effects of the Employee
benefits restatement given in note 1.
The effect of the assumed conversion of the IAG EUR500 million
convertible bond 2022, the IAG EUR825 million convertible bond 2028
and outstanding employee share schemes is antidilutive for the six
months to June 30, 2021 and 2020 due to the reported loss after tax
for each period, and therefore has not been included in the diluted
earnings per share calculation.
The number of shares in issue at June 30, 2021 was 4,971,476,000
(December 31, 2020: 4,971,476,000) ordinary shares with a par value
of EUR0.10 each.
8. Dividends
The Directors propose that no dividend be paid for the six
months to June 30, 2021 (June 30, 2020: nil).
The future dividend capacity of the Group is dependent on the
liquidity requirements and the distributable reserves of the
Group's main operating companies and their capacity to pay
dividends to the Company, together with the Company's distributable
reserves and liquidity.
Certain debt obligations place restrictions or conditions on the
payment of dividends from the Group's main operating companies to
the Company, including a loan to British Airways partially
guaranteed by UKEF and loans to Iberia and Vueling partially
guaranteed by the Instituto de Crédito Oficial (ICO) in Spain;
these loans can be repaid early without penalty at the election of
each company. British Airways agreed with the Trustee of its main
UK defined benefit pension scheme (NAPS) as part of an agreement to
defer GBP450 million of contributions that no dividends will be
paid to IAG before 2024 and that any dividends paid to IAG from
2024 will trigger a pension contribution of 50 per cent of the
amount of the dividend, until the deferred pension contributions
have been paid.
9. property, plant and equipment, right of use assets and intaNgible assets
Other Total
Property, Property,
plant Right of use plant Intangible
EUR million and equipment assets and equipment assets
-------------------------------- -------------- ------------ -------------- ----------
Net book value at January 1,
2021 7,656 9,875 17,531 3,208
Additions 213 192 405 64
Modifications - 119 119 -
Disposals (161) - (161) (49)
Reclassifications(1) 126 (163) (37) -
Depreciation and amortisation
charge (316) (518) (834) (86)
Exchange movements 323 354 677 75
-------------------------------- -------------- ------------ -------------- ----------
Net book value at June 30, 2021 7,841 9,859 17,700 3,212
-------------------------------- -------------- ------------ -------------- ----------
(1) Reclassifications include an amount of EUR37 million reclassified from
Other property, plant and equipment into Non-current assets held for sale.
Refer to note 10 for further information.
9. property, plant and equipment, right of use assets and intaNgible assets continued
Other Total
Property, Property,
plant Right of use plant Intangible
EUR million and equipment assets and 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 - 55 55 -
Disposals (365) (10) (375) (76)
Reclassifications 157 (155) 2 (2)
Depreciation and amortisation
charge (448) (591) (1,039) (75)
Impairment charge (635) (94) (729) (2)
Exchange movements (377) (402) (779) (94)
-------------------------------- -------------- ------------ -------------- ----------
Net book value at June 30, 2020 8,106 9,676 17,782 3,330
-------------------------------- -------------- ------------ -------------- ----------
At June 30, 2021, long-term borrowings of the Group are secured
on owned fleet assets with a net book value of EUR2,938 million
(December 31, 2020: EUR2,794 million).
Capital expenditure authorised and contracted for but not
provided for in the accounts amounts to EUR9,938 million (December
31, 2020: EUR10,545 million). The majority of capital expenditure
commitments are denominated in US dollars, and as such are subject
to changes in exchange rates.
10. NON-CURRENT ASSETS HELD FOR SALE
The non-current assets held for sale of EUR37 million represent
five Embraer E170 aircraft. No gain or loss was recognised on
classification as non-current assets held for sale. These aircraft
are presented within the British Airways segment and will exit the
business within 12 months of June 30, 2021.
11. IMPAIRMENT REVIEW
Basis for calculating recoverable amount
At each reporting date, the Group considers the existence of
indicators of potential impairment. At June 30, 2021, the continued
disruption caused by COVID-19 has led to a decrease in demand
across each cash generating unit (CGU) and economic uncertainty
over the short and medium term.
As a result, a full impairment test at June 30, 2021 has been
conducted for each CGU.
The recoverable amounts of CGUs have been measured based on
their value-in-use, which utilises a weighted average
multi-scenario discounted cash flow model. The details of these
scenarios are given in the going concern section of note 1, with a
weighting of 70 per cent to the base case, 20 per cent to the
downside case and 10 per cent to the downside lockdown case. Cash
flow projections are based on the forecasts approved by the
relevant operating companies covering a three-year period. As a
result of the slower recovery than previously expected, management
have extended the period of cash flows in the value-in-use model,
for all CGUs, to four years. Cash flow forecasts extrapolated
beyond the four-year period are projected to increase based on
long-term growth rates. Cash flow projections are discounted using
the CGU's pre-tax discount rate.
Annually the relevant operating companies prepare and approve
three-year business plans, and the Board approves the Group
three-year business plan in the fourth quarter of the year. The
cash flows used in the value-in-use calculations reflect all
restructuring of the business where relevant that has been approved
by the Board and which can be executed by Management under existing
agreements.
Key assumptions
The value-in-use calculations for each CGU reflected the
increased risks arising from COVID-19, including updated projected
cash flows for the decreased activity for the remaining six months
of 2021 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 Group's
CGUs the key assumptions utilised over the forecast period in the
value-in-use calculations are as follows:
11. IMPAIRMENT REVIEW continued
June 30, 2021
----------------------------------------------------------------
Per cent British Airways Iberia(2) Vueling Aer Lingus IAG Loyalty
----------------------------------- ----------------- ---------- -------- ---------- -----------
Operating margin(1) (16)-15 (7)-9 (6)-11 (42)-13 24-25
ASKs as a proportion of 2019(1) 28-96 49-108 48-110 21-108 n/a
Long-term growth rate 2.1 1.8 1.7 1.8 1.8
Pre-tax discount rate 11.5 11.4 11.1 10.2 12.0
----------------------------------- ----------------- ---------- -------- ---------- -----------
December 31, 2020
----------------------------------------------------------------
Per cent British Airways Iberia(2) Vueling Aer Lingus IAG Loyalty
----------------------------------- ----------------- ---------- -------- ---------- -----------
Operating margin(1) (20)-16 (12)-11 (22)-12 (14)-13 25-27
ASK as a proportion of 2019(1) 45-95 49-98 46-107 40-100 n/a
Long-term growth rate 2.1 2.0 1.8 1.9 2.0
Pre-tax discount rate 11.2 11.6 11.5 10.4 10.3
----------------------------------- ----------------- ---------- -------- ---------- -----------
(1) Operating margin and ASKs as a proportion of 2019 are the weighted average of the base
case, downside case and downside lockdown case scenarios.
(2) The Iberia CGU includes the operations of Iberia, Iberia Express and Level Spain.
Jet fuel price ($ To December 31, To December 31, To December 31, To December 31, 2025 and
per MT) 2021 2022 2023 2024 thereafter
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
June 30, 2021 623 624 609 597 597
December 31, 2020 373 420 449 449 449
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
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). The
airline's network plans are reviewed annually as part of the
business plan and reflect Management's plans in response to
specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment
of the risks specific to each CGU, taking into consideration the
time value of money and underlying risks of its primary market. The
discount rate calculation is based on the circumstances of the
airline industry, the Group and the CGU. It is derived from the
weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost
of equity is derived from the expected return on investment by
airline investors and the cost of debt is broadly based on the
Group's interest-bearing borrowings. CGU specific risk is
incorporated by applying individual beta factors which are
evaluated annually based on available market data. The pre-tax
discount rate reflects the timing of future tax flows.
Jet fuel price assumptions are derived from forward price curves
at the balance sheet date and sourced externally. The cash flow
forecasts reflect these price increases after taking into
consideration of level of fuel derivatives and their associated
prices that the Group has in place.
Summary of results
At June 30, 2021, Management reviewed the recoverable amount of
each of the CGUs and concluded the recoverable amounts exceeded the
carrying values.
Reasonable possible changes in key assumptions, both
individually and in combination, have been considered for each CGU,
where applicable, which include reducing 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, changing the weighting of the downside lockdown
case to 100 per cent, and increasing the fuel price by 40 per
cent.
For the British Airways, Iberia, Vueling and Aer Lingus CGUs,
while the recoverable amounts are estimated to exceed the carrying
amounts by EUR 6,690 million, EUR 772 million, EUR1,760 and EUR
1,059 million, respectively, the recoverable amounts would be below
the carrying amounts when applying the following reasonable
possible changes in assumptions:
-- British Airways : (i) if ASKs had been five per cent lower
combined with a fuel price increase of 18 per cent; and (ii) if the
fuel price had been 28 per cent higher;
-- Iberia : (i) if the discount rate had been 1.8 per cent
higher; (ii) if ASKs had been 4.7 per cent lower; (iii) if
operating margin had been 1.4 per cent lower; (iv) if the weighting
to the downside lockdown case had increased to 83 per cent, with
the base case lowered to 17 per cent; and (v) if the fuel price had
be en 9 per cent higher;
-- Vueling : (i) if ASKs had been five per cent lo wer combined
with a fuel price increase of 29 per cent;
-- Aer Lingus : (i) if ASKs had been five per cent lo wer
combined with a fuel price increase of 16 per cent; and (ii) if the
fuel price had been 25 per cent higher.
11. IMPAIRMENT REVIEW continued
For the remainder of the reasonable possible changes in key
assumptions applied to the British Airways, Iberia, Vueling and Aer
Lingus CGUs and for all the reasonable possible changes in key
assumptions applied to the IAG Loyalty CGU, no impairment
arises.
In addition, at June 30, 2021, the directors have considered the
existence of indicators of impairment for individual assets,
including but not limited to, landing rights and fleet assets, and
concluded no impairment charge is deemed necessary.
12. FINANCIAL INSTRUMENTS
a Financial assets and liabilities by category
The detail of the Group's nancial instruments at June 30, 2021
and December 31, 2020 by nature and classi cation for measurement
purposes is as follows:
June 30, 2021
Financial assets
--------------------------------------------
Total
Fair value carrying
through Other Fair value amount by
Amortised comprehensive through Non-financial balance sheet
EUR million cost income Income statement assets item
---------------------------------- --------- -------------- ----------------- ------------- --------------
Non-current assets
Other equity investments - 29 - - 29
Derivative financial instruments - - 97 - 97
Other non-current assets 151 10 - 112 273
---------------------------------- --------- -------------- ----------------- ------------- --------------
Current assets
Trade receivables 731 - - - 731
Other current assets 313 - - 479 792
Derivative financial instruments - - 390 - 390
Other current interest-bearing
deposits 53 - - - 53
Cash and cash equivalents 7,611 - - - 7,611
---------------------------------- --------- -------------- ----------------- ------------- --------------
Financial liabilities
---------------------------------------------
Total
Fair value carrying
through Other Fair value Non- amount by
Amortised comprehensive through financial balance sheet
EUR million cost income income statement liabilities item
--------------------------------- ---------- -------------- ----------------- ------------ --------------
Non-current liabilities
Lease liabilities 8,466 - - - 8,466
Interest-bearing long-term
borrowings 8,477 - 783 - 9,260
Derivative financial instruments - - 139 - 139
Other long-term liabilities 80 - - 55 135
--------------------------------- ---------- -------------- ----------------- ------------ --------------
Current liabilities
Lease liabilities 1,511 - - - 1,511
Current portion of long-term
borrowings 525 - 9 - 534
Trade and other payables 2,346 - - 519 2,865
Derivative financial instruments - - 293 - 293
--------------------------------- ---------- -------------- ----------------- ------------ --------------
12. FINANCIAL INSTRUMENTS continued
December 31, 2020
Financial assets
--------------------------------------------
Fair value Total carrying
through Other Fair value amount by
Amortised comprehensive through Non-financial balance sheet
EUR million cost income income statement assets item
---------------------------------- --------- -------------- ----------------- ------------- --------------
Non-current assets
Other equity investments - 29 - - 29
Derivative financial instruments - - 42 - 42
Other non-current assets 119 10 - 99 228
---------------------------------- --------- -------------- ----------------- ------------- --------------
Current assets
Trade receivables 557 - - - 557
Other current assets 350 - - 442 792
Derivative financial instruments - - 122 - 122
Other current interest-bearing
deposits 143 - - - 143
Cash and cash equivalents 5,774 - - - 5,774
---------------------------------- --------- -------------- ----------------- ------------- --------------
Financial liabilities
--------------------------------------------
Total
Fair value carrying
through Other Fair value Non- amount by
Amortised comprehensive through financial balance sheet
EUR million cost income Income statement liabilities item
--------------------------------- --------- -------------- ----------------- ------------ --------------
Non-current liabilities
Lease liabilities 8,464 - - - 8,464
Interest-bearing long-term
borrowings 5,000 - - - 5,000
Derivative financial instruments - - 310 - 310
Other long-term liabilities 80 - - 533 613
--------------------------------- --------- -------------- ----------------- ------------ --------------
Current liabilities
Lease liabilities 1,560 - - - 1,560
Current portion of long-term
borrowings 655 - - - 655
Trade and other payables 2,572 - - 238 2,810
Derivative financial instruments - - 1,160 - 1,160
--------------------------------- --------- -------------- ----------------- ------------ --------------
b Fair value of financial assets and financial liabilities
The fair values of the Group's financial instruments are
disclosed in hierarchy levels depending on the nature of the inputs
used in determining the fair values and using the following methods
and assumptions:
Level 1: Quoted prices (unadjusted) in active markets for
identical assets and liabilities. A market is regarded as active if
quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service, or regulatory
agency, and those prices represent actual and regularly occurring
market transactions on an arm's length basis. Level 1 methodologies
(market values at the balance sheet date) were used to determine
the fair value of listed asset investments classified as equity
investments and listed interest-bearing borrowings. The fair value
of financial liabilities and financial assets incorporates own
credit risk and counterparty credit risk, respectively.
Level 2: Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not
traded in an active market is determined by valuation techniques.
These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity
specific estimates.
Derivative instruments are measured based on the market value of
instruments with similar terms and conditions at the balance sheet
date using forward pricing models, which include forward exchange
rates, forward interest rates and forward fuel curves at the
reporting date. The fair value of derivative financial liabilities
and derivative financial assets are adjusted for own credit risk
and counterparty credit risk, respectively.
12. FINANCIAL INSTRUMENTS continued
The fair value of the Group's interest-bearing borrowings,
excluding leases, is determined by discounting the remaining
contractual cash flows at the relevant market interest rates at the
balance sheet date. The fair value of the Group's interest-bearing
borrowings are adjusted for own credit risk.
Level 3: Inputs for the asset or liability that are not based on
observable market data. The principal method of such valuation is
performed using a valuation model that considers the present value
of the dividend cash flows expected to be generated by the
associated assets.
The fair value of cash and cash equivalents, other current
interest-bearing deposits, trade receivables, other current assets
and trade and other payables approximate their carrying value
largely due to the short-term maturities of these instruments.
The carrying amounts and fair values of the Group's financial
assets and liabilities at June 30, 2021 are as follows:
Carrying
Fair value value
--------------------------------- --------
EUR million Level 1 Level 2 Level 3 Total Total
---------------------------------------- -------- ------- ------- ----- --------
Financial assets
Other equity investments - - 29 29 29
Derivative financial assets(1) - 487 - 487 487
Financial liabilities
Interest-bearing loans and borrowings 3,559 6,382 - 9,941 9,794
Derivative financial liabilities(2) - 432 - 432 432
---------------------------------------- -------- ------- ------- ----- --------
(1) Current portion of derivative financial assets is EUR390 million.
(2) Current portion of derivative financial liabilities is EUR293 million.
The carrying amounts and fair values of the Group's financial
assets and liabilities at December 31, 2020 are set out below:
Carrying
Fair value value
---------------------------------- --------
EUR million Level 1 Level 2 Level 3 Total Total
----------------------------------------- -------- -------- ------- ----- --------
Financial assets
Other equity investments - - 29 29 29
Derivative financial assets(1) - 164 - 164 164
Financial liabilities
Interest-bearing loans and borrowings 1,510 4,280 - 5,790 5,655
Derivative financial liabilities(2) - 1,470 - 1,470 1,470
(1) Current portion of derivative financial assets is EUR122 million.
(2) Current portion of derivative financial liabilities is EUR1,177 million.
There have been no transfers between levels of fair value
hierarchy during the period.
Financial assets, other equity instruments, financial
liabilities and derivative financial assets and liabilities are all
measured at fair value in the consolidated financial statements.
Interest-bearing borrowings, with the exception of the IAG EUR825
million convertible bond due 2028 which is measured at fair value,
are measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3
financial assets:
December 31,
EUR million June 30, 2021 2020
------------------------------------------------ ------------- ------------
Opening balance for the period 29 72
Additions - 3
Losses recognised in other comprehensive income - (44)
Exchange movements - (2)
------------------------------------------------ ------------- ------------
29 29
------------------------------------------------ ------------- ------------
13. borrowings
June 30, December 31,
EUR million 2021 2020
----------------------------------------- -------- ------------
Current
Bank and other loans 235 90
Bank and other loans less than 12 months - 329
Asset financed liabilities 174 139
Other financing liabilities 125 97
Lease liabilities 1,511 1,560
----------------------------------------- -------- ------------
2,045 2,215
----------------------------------------- -------- ------------
Non-current
Bank and other loans 7,205 2,950
Asset financed liabilities 2,055 2,050
Lease liabilities 8,466 8,464
----------------------------------------- -------- ------------
17,726 13,464
----------------------------------------- -------- ------------
Banks and other loans are repayable up to the year 2029.
Long-term borrowings of the Group amounting to EUR2,434 million
(December 31, 2020: EUR2,412 million) are secured on owned fleet
assets with a net book value of EUR2,938 million (December 31,
2020: EUR2,794 million). Asset financed liabilities are all secured
on the associated aircraft or other property, plant and
equipment.
On February 22, 2021, British Airways entered into a five-year
term loan Export Development Guarantee Facility of EUR2.3 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF. The annual rate of
interest associated with the UKEF is consistent with the prevailing
market rate of interest at the time of executing the term loan.
On March 23, 2021, the Group entered into a three-year US dollar
secured Revolving Credit Facility accessible by British Airways,
Iberia and Aer Lingus. The amount available under the facility is
$1.755 billion. As at June 30, 2021 no amounts had been drawn under
the facility. Concurrent to entering into the facility, British
Airways extinguished its US dollar secured Revolving Credit
Facility due to mature in June 2021, and which had $786 million
undrawn and available at December 31, 2020. While the Group does
not forecast drawing down on the Revolving Credit Facility, should
it do so, the resultant debt would be securitised against specific
landing rights and aircraft in the respective operating
companies.
On March 25, 2021, two senior unsecured bonds were issued by the
Group for an aggregate principal amount of EUR1.2 billion; EUR500
million fixed rate 2.75 per cent due in 2025, and EUR700 million
fixed rate 3.75 per cent due in 2029.
On March 27, 2021, Aer Lingus entered into a floating rate
financing agreement with the Ireland Strategic Investment Fund
(ISIF) for EUR75 million. The facility is repayable in 2023.
On May 11, 2021, the Group issued an EUR825 million senior
unsecured convertible bond due May 11, 2028. The convertible bond
bears a fixed rate of interest of 1.125 per cent per annum,
receiving net proceeds, after transaction costs, of EUR818 million.
The Group recognised EUR825 million within long-term
borrowings.
The convertible bond provides bondholders with dividend
protection and includes a total of 244,850,715 options at inception
and at December 31, 2021 to convert into ordinary shares of IAG.
The Group holds an option to redeem the convertible bond at its
principal amount, together with accrued interest, no earlier than
two years prior to the final maturity date. The Group also holds an
option to redeem the convertible bond, in full or in part, in cash
in the event that bondholders exercise their right to convert the
bond into ordinary shares of IAG.
The convertible bond is recorded at its fair value, which at
June 30, 2021 was EUR792 million, representing a decrease of EUR33
million since issuance. Of this decrease, the amount recorded in
Other comprehensive income arising from credit risk of the
convertible bonds was EUR5 million and a credit recorded within
Finance costs in the Income statement attributable to changes in
market conditions of EUR38 million.
14. SHARE BASED PAYMENTS
During the period there were 27,759,914 awards made under the
Group's Full Potential Incentive Plan and 15,876,659 awards under
the Restricted Share Plan, to key senior executives and selected
members of the wider management team. The fair value of
equity-settled share awards granted is based on the share price at
the date of grant. The Group settles the employees' tax obligations
arising from the issue of the shares directly with the relevant tax
authority in cash and an equivalent number of shares is withheld by
the Group upon vesting.
15. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the
Group are the Airways Pension Scheme (APS) and the New Airways
Pension Scheme (NAPS), both of which are 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 relating to the 2021 valuation, which remains subject
to finalisation at the date of this report, has been made in the
valuation of the defined benefit obligation at June 30, 2021. 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 at June 30, 2021
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.
Following consultation during 2019 and 2020, on November 25,
2020 the UK Chancellor of the Exchequer and the UK Statistics
Authority confirmed that from February 2030 onwards CPIH (a
proposed variant to CPI) will replace RPI with no compensation to
holders of index-linked gilts. At June 30, 2021, the Group has made
no adjustment for these proposals.
June 30, 2021
----------------------------------
EUR million APS NAPS Other Total
------------------------------------ ------- -------- ----- --------
Scheme assets at fair value 8,583 23,264 465 32,312
Present value of scheme liabilities (8,075) (21,302) (760) (30,137)
------------------------------------ ------- -------- ----- --------
Net pension asset/(liability) 508 1,962 (295) 2,175
Effect of the asset ceiling(2) (166) (1,157) - (1,323)
Other employee benefit obligations - - (13) (13)
------------------------------------ ------- -------- ----- --------
June 30, 2021 342 805 (308) 839
------------------------------------ ------- -------- ----- --------
Represented by:
Employee benefit assets 1,160
Employee benefit obligations (321)
------------------------------------ ------- -------- ----- --------
839
------------------------------------ ------- -------- ----- --------
December 31, 2020(1)
----------------------------------
EUR million APS NAPS Other Total
------------------------------------ ------- -------- ----- --------
Scheme assets at fair value 8,537 22,240 408 31,185
Present value of scheme liabilities (8,064) (21,778) (714) (30,556)
------------------------------------ ------- -------- ----- --------
Net pension asset/(liability) 473 462 (306) 629
Effect of the asset ceiling(2) (151) (610) - (761)
Other employee benefit obligations - - (11) (11)
------------------------------------ ------- -------- ----- --------
December 31, 2020 322 (148) (317) (143)
------------------------------------ ------- -------- ----- --------
Represented by:
Employee benefit assets 334
Employee benefit obligations (477)
------------------------------------ ------- -------- ----- --------
(143)
------------------------------------ ------- -------- ----- --------
(1) The 2020 results have restated for the treatment of
administration costs associated with the Group's defined benefit
pension schemes. Further information is given in note 1 to this
report.
(2) Both APS and NAPS are in an IAS 19 accounting surplus, which
would be available to the Group as a refund upon wind up of the
scheme. This refund is restricted due to the withholding taxes that
would be payable by the Trustee arising on both the net pension
asset and the future contractual minimum funding requirements.
At June 30, 2021, 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:
15. EMPLOYEE BENEFIT OBLIGATIONS continued
December 31,
June 30, 2021 2020
--------------- --------------
Per cent per annum APS NAPS APS NAPS
---------------------------------------- ------- ------ ------ ------
Discount rate 1.70 1.90 1.20 1.40
Rate of increase in pensionable pay 3.25 - 2.95 -
Rate of increase of pensions in payment 3.25 2.55 2.95 2.25
RPI rate of inflation 3.25 3.10 2.95 2.80
CPI rate of inflation 2.55 2.55 2.25 2.25
---------------------------------------- ------- ------ ------ ------
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, 2020.
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. On December 18, 2020 British Airways reached agreement with
the Trustee of NAPS to defer deficit contributions on an interim
basis for the period between October 1, 2020 and January 31, 2021.
On February 19, 2021 British Airways reached further agreement with
the Trustee of NAPS to defer deficit contributions through to
September 30, 2021. Under this deferral agreement, the deferred
payments will be incorporated into the future deficit payment plan
and associated deficit contributions arising from the triennial
valuation of the NAPS scheme as at March 31, 2021. If the future
deficit payment plan has not been agreed by September 30, 2021, the
default position is that British Airways will return to making
payments of EUR41 million (GBP38 million) per month from October
2021. At June 30, 2021 and through to the date of authorisation of
these condensed consolidated interim financial statements, the
March 31, 2021 triennial valuation has not been finalised.
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,
2021 1,588 432 714 84 94 2,912
Provisions recorded during
the period 123 18 19 35 16 211
Utilised during the period (58) (77) (15) (18) (36) (204)
Release of unused amounts (15) (3) - (8) (5) (31)
Unwinding of discount 3 - 2 - - 5
Exchange differences 40 4 2 2 1 49
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
Net book value June 30, 2021 1,681 374 722 95 70 2,942
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
Analysis:
Current 394 172 57 57 20 700
Non-current 1,287 202 665 38 50 2,242
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
1,681 374 722 95 70 2,942
----------------------------- ------------- ------------- ------------ ------------ ---------------- -----
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 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 fuel
consumption up to two years within the approved hedging
profile.
During the six months to June 30, 2021, following a substantial
recovery in the global price of crude oil, the fair value of such
net asset derivative instruments was EUR167 million at June 30,
2021, representing an increase of EUR945 million since January 1,
2021. Since the outbreak of COVID-19, a significant proportion of
the associated hedge relationships have no longer been expected to
occur and subsequently fuel hedge accounting was discontinued, with
subsequent mark-to-market movements recorded in the Income
statement. However, as a result of the updated forecasts as
detailed in note 2, a further EUR56 million of the gains recognised
in Other comprehensive income were reclassified to the Income
statement and recognised within Fuel, oil costs and emission costs
in the six month period to June 30, 2021.
17. FINANCIAL RISK MANAGEMENT continued
The gain arising from the derecognition of fuel hedges has been
recorded as an exceptional item. Refer to the Alternative
performance measures section for further details.
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, 2021, the fair value of foreign currency net
liability derivatives instruments was EUR64 million, representing
an increase of EUR403 million since January 1, 2021. These comprise
both derivatives designated in hedge relationships and those
derivatives that are not designated into a hedge relationship at
inception. As per the fuel price risk above, a significant
proportion of the derivatives designated in hedge relationships
have no longer been expected to occur and subsequently hedge
accounting has been discontinued, with subsequent mark-to-market
movements recorded in the Income statement. However, as a result of
the updated forecasts as detailed in note 2, a further EUR2 million
of the gains were recognised in Other comprehensive income were
reclassified to the Income statement and recognised within Fuel,
oil costs and emission costs and within Passenger revenue. Those
derivatives not designated in a hedge relationship on inception
have their mark-to-market movements recorded directly in the Income
statement and recognised within Net currency retranslation
(charges)/credits.
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
recycled from Other comprehensive income to the Income statement
with Other non-operating expenses.
18. CONTINGENT LIABILITIES
Details of contingent liabilities are set out below. The Group
does not consider it probable that there will be an outflow of
economic resources with regard to these proceedings and accordingly
no provision for these proceedings has been recognised.
Legal and regulatory proceedings
There are a number of legal and regulatory proceedings against
the Group in a number of jurisdictions which at June 30, 2021
amounted to EUR54 million (December 31, 2020: EUR56 million).
Voucher issuance at British Airways
On June 9, 2021, the Competition and Markets Authority (CMA)
opened an enforcement case regarding British Airways' policy in
relation to refunding passengers who were prevented from taking
their British Airways operating flights as a result of the UK
Government's lockdown restrictions. British Airways maintains that
its policy was in accordance with its terms and conditions of
carriage and was lawful. At June 30, 2021 and the date of this
report, British Airways continues to engage with the CMA regarding
its investigation.
Guarantees and indemnities
The Group also has guarantees and indemnities entered into as
part of the normal course of business, which at June 30, 2021 are
not expected to result in material losses for the Group.
19. GOVERNMENT GRANTS AND ASSISTANCE
The Group has availed itself of government grants and assistance
as follows:
The Coronavirus Job Retention Scheme (CJRS) - recognised net
within Employee costs
The CJRS was implemented by the government of the United Kingdom
from March 1, 2020 to August 30, 2020, where those employees
designated as being 'furloughed workers' were eligible to have 80
per cent of their wage costs paid up to a maximum of GBP2,500 per
month.
19. GOVERNMENT GRANTS AND ASSISTANCE continued
From September 1, 2020 to September 30, 2020, the level
eligibility reduced to 70 per cent of wage costs and up to a
maximum of GBP2,197.50 per month. From October 1, 2020 to October
31, 2020, the level of eligibility reduced to 60 per cent of wage
costs and up to a maximum of GBP1,875 per month. Following the
introduction of further lockdown restrictions in the United Kingdom
in November 2020, the CJRS was extended from November 1, 2020 to
November 30, 2020 and then further to March 31, 2021 and then
further again to September 30, 2021 with the level of eligibility
increased to 80 per cent of wage costs and a maximum of GBP2,500
per month through to the end of June 2021, after which the
eligibility decreases down each month to 60 per cent of wage costs
and a maximum of GBP1,875 per month by September 30, 2021.
Such costs are paid by the government to the Group in arrears.
The Group is obliged to continue to pay the associated social
security costs and employer pension contributions.
The Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage
Subsidy Scheme (EWSS) - recognised net within Employee costs
The TWSS was implemented by the government of Ireland from March
1, 2020 to August 30, 2020, where those employees designated as
being furloughed workers are eligible to have 85 per cent of their
wage costs paid up to a maximum of EUR410 per week. This scheme was
replaced with the EWSS from September 1, 2020 and is expected to
run through to December 31, 2021. For those qualifying employees
(earning less than EUR1,462 per week), the government will
reimburse wage costs up to a maximum of EUR203 per week. Such costs
are paid by the government to the Group in arrears.
The total amount of the relief received under the CJRS, the TWSS
and the EWSS by the Group for the six months to June 30, 2021
amounted to EUR200 million (six months to June 30, 2020: EUR155
million).
Temporary Redundancy Plan (ERTE) - no recognition in the
financial statements of the Group
The ERTE was implemented by the government of Spain from March
1, 2020 and is expected to run through to September 30, 2021. Under
this plan, employment is temporarily suspended and those designated
employees are paid directly by the government and there is no
remittance made to the Group. The Group is obliged to continue to
pay the associated social security costs.
Had those designated employees not been temporarily suspended
during the six months to June 30, 2021, the Group would have
incurred further employee costs of EUR144 million (six months to
June 30, 2020: EUR127 million).
The Ireland Strategic Investment Fund (ISIF) - recognised within
Long-term borrowings
On December 23, 2020, Aer Lingus entered into a financing
arrangement for EUR75 million. On March 27, 2021, Aer Lingus
entered into a further financing arrangement to extend the total
amount to EUR150 million.
The UK Export Finance (UKEF) - recognised within Long-term
borrowings
On February 22, 2021, British Airways entered into a 5 year term
loan Export Development Guarantee Facility of EUR2.3 billion
(GBP2.0 billion) underwritten by a syndicate of banks, with 80 per
cent of the principal guaranteed by UKEF.
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 2021 2020
---------------------------------------- ----------- ----------
Sales of goods and services
Sales to associates 3 2
Sales to significant shareholders 13 7
Purchases of goods and services
Purchases from associates 18 25
Purchases from significant shareholders 30 47
---------------------------------------- ----------- ----------
Period end balances arising from sales and purchases of goods
and services:
June 30,
December 31,
EUR million 2021 2020
----------------------------------------- -------------------------- ------------
Receivables from related parties
Amounts owed by associates 1 1
Amounts owed by significant shareholders 1 1
Payables to related parties
Amounts owed to associates 2 2
Amounts owed to significant shareholders - 1
----------------------------------------- -------------------------- ------------
20. RELATED PARTY TRANSACTIONS continued
For the six months to June 30, 2021 the Group has not made any
allowance on expected credit losses relating to amounts owed by
related parties (2020: nil).
Board of Directors and Management Committee remuneration
Compensation received by the Group's key management personnel is
as follows:
Six months to June 30
-----------------------
EUR million 2021 2020
---------------------------------- ----------- ----------
Base salary, fees and benefits
Board of Directors' remuneration 1 2
Management Committee remuneration 4 3
---------------------------------- ----------- ----------
For the six months to June 30, 2021 the remuneration for the
Board of Directors includes one Executive Director (June 30, 2020:
two Executive Directors). The Management Committee includes
remuneration for 14 members (June 30, 2020: 11 members).
The Company provides life insurance for all Executive Directors
and the Management Committee. For the six months to June 30, 2021
the Company's obligation was EUR18,000 (2020: EUR20,000).
At June 30, 2021 the transfer value of accrued pensions covered
under defined benefit pension obligation schemes, relating to the
current members of the Management Committee totalled EUR8 million
(2020: EUR9 million).
No loan or credit transactions were outstanding with Directors
or officers of the Group at June 30, 2021 (2020: nil).
21. CHANGE IN ACCOUNTING POLICY
Change in accounting policy relating to employee benefits
During the six months to June 30, 2021, the Group has changed
its accounting policy with regard to the treatment of
administration costs associated with the APS and NAPs Defined
benefit schemes. The change in policy has been adopted to better
reflect the underlying management and operation of these schemes,
while remaining in compliance with IAS 19. This change in
accounting policy has been applied retrospectively to the Condensed
consolidated interim financial statements and are detailed
below.
Previously a discounted estimate of future administration costs
was included as part of the APS and NAPS defined benefit
obligations. These administration costs were recognised as a
service cost in the year in which such costs arose and recorded
within Other comprehensive income. Under the updated accounting
policy, administration costs are now recognised as incurred and
included within Employee costs in the Income statement. This change
has had the effect of reducing the defined benefit obligation and
increasing retained earnings at both December 31, 2020 and January
1, 2020. It has in addition increased the charge to Employee costs
and the Financing charge relating to pensions in the Income
statement for the six months to June 30, 2020.
The impact of the change in this accounting policy on the
Consolidated income statement and the Consolidated statement of
comprehensive income for the six months to June 30, 2020, as well
as the Consolidated balance sheet at December 31, 2020 and January
1, 2020 are shown below:
21. CHANGE IN ACCOUNTING POLICY continued
Consolidated income statement (extract for the six months to June 30, 2020)
Adjustment
- administration
EUR million Reported costs Restated
------------------------------------------ -------- ------------------------- --------
Total revenue 5,288 - 5,288
------------------------------------------ -------- ------------------------- --------
Employee costs 1,890 15 1,905
Other expenditure on operations 7,435 - 7,435
------------------------------------------ -------- ------------------------- --------
Total expenditure on operations 9,325 15 9,340
------------------------------------------ -------- ------------------------- --------
Operating loss (4,037) (15) (4,052)
Net financing credit relating to pensions 3 6 9
Other financing items (222) - (222)
Other non-operating items 50 - 50
------------------------------------------ -------- ------------------------- --------
Total net non-operating costs (169) 6 (163)
------------------------------------------ -------- ------------------------- --------
Loss before tax (4,206) (9) (4,215)
Tax 400 2 402
------------------------------------------ -------- ------------------------- --------
Loss after tax for the period (3,806) (7) (3,813)
------------------------------------------ -------- ------------------------- --------
Consolidated statement of other comprehensive income (extract for the six
months to June 30, 2020)
Adjustment
- administration
EUR million Reported costs Restated
------------------------------------------------ -------- ----------------- --------
Items that may be classified subsequently
to net profit
Currency translation differences (146) (16) (162)
Other items that may be classified subsequently
to net profit (1,243) - (1,243)
Items that will not be reclassified to net
profit
Remeasurements of post-employment benefit
obligations (994) (42) (1,036)
Other items that will not be reclassified
to net profit 182 - 182
------------------------------------------------ -------- ----------------- --------
Total other comprehensive loss for the period,
net of tax (2,201) (58) (2,259)
------------------------------------------------ -------- ----------------- --------
Loss after tax for the year (3,806) (7) (3,813)
Total comprehensive loss for the period (6,007) (65) (6,072)
------------------------------------------------ -------- ----------------- --------
21. CHANGE IN ACCOUNTING POLICY continued
Consolidated balance sheet (extract at December 31, 2020 and December 31,
2019)
Adjustment Adjustment
Reported - administration Restated Reported - administration Restated
EUR million 2020 costs (1) 2020 2019 costs(1) 2019
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Non-current assets
Employee benefit assets 282 52 334 314 217 531
Other non-current assets 22,142 - 22,142 23,810 - 23,810
------------------------------ -------- ----------------- -------- -------- ----------------- --------
22,424 52 22,476 24,124 217 24,341
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Current assets 7,840 - 7,840 11,327 - 11,327
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Total assets 30,264 52 30,316 35,451 217 35,668
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Other equity 8,233 - 8,233 6,269 - 6,269
Other reserves (6,917) 294 (6,623) 560 291 851
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Total equity 1,316 294 1,610 6,829 291 7,120
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Non-current liabilities
Employee benefit obligations 719 (242) 477 400 (74) 326
Other non-current liabilities 16,713 - 16,713 15,474 - 15,474
------------------------------ -------- ----------------- -------- -------- ----------------- --------
17,432 (242) 17,190 15,874 (74) 15,800
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Current liabilities 11,516 - 11,516 12,748 - 12,748
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Total liabilities 28,948 (242) 28,706 28,622 (74) 28,548
------------------------------ -------- ----------------- -------- -------- ----------------- --------
Total equity and liabilities 30,264 52 30,316 35,451 217 35,668
------------------------------ -------- ----------------- -------- -------- ----------------- --------
(1) Adjustments made to Employee benefit assets and Employee benefit obligations
are presented net of the impact of withholding tax.
22. POST BALANCE SHEET EVENTS
On July 20, 2021, the Group entered into an asset-financing
structure, under which seven aircraft are expected to be sold and
leased back over the period to September 2022. This asset-financing
structure matures between 2033 and 2036. This arrangement was
transacted through an unconsolidated structured entity, which in
turn issued the British Airways Pass Through Certificates, Series
2021-1, commonly referred to as Enhanced Equipment Trust
Certificates (EETCs). The Group expects to recognise EUR659 million
($785 million) through these aforementioned sale and lease backs
over the period to September 2022.
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 29, 2021, 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,
2021, 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 29, 2021
Javier Ferrán Larraz Luis Gallego Martín
Chairman Chief Executive Officer
Giles Agutter Peggy Bruzelius
Eva Castillo Sanz Margaret Ewing
Maurice Lam Heather Ann McSharry
Robin Phillips Emilio Saracho Rodríguez de
Torres
Lucy Nicola Shaw Alberto Terol Esteban
REPORT ON LIMITED REVIEW OF THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
To the Shareholders of International Consolidated Airlines
Group, S.A. commissioned by management:
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
Introduction
We have carried out a limited review of the accompanying
condensed consolidated interim financial statements (the "interim
financial statements") of International Consolidated Airlines
Group, S.A. (the "Company") and subsidiaries (together the
"Group"), which comprise the balance sheet at 30 June 2021, the
income statement, statement of other comprehensive income,
statement of changes in equity, cash flow statement and the
explanatory notes thereto for the six-month period then ended (all
condensed and consolidated). The Directors of the Company are
responsible for the preparation of these interim financial
statements in accordance with International Accounting Standard
(IAS) 34 "Interim Financial Reporting" as adopted by the European
Union, pursuant to article 12 of Royal Decree 1362/2007 as regards
the preparation of condensed interim financial information. Our
responsibility is to express a conclusion on these interim
financial statements based on our limited review.
Scope of review
We conducted our limited review in accordance with International
Standard on Review Engagements 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity". A
limited review of interim financial statements consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A limited review is substantially less in scope than an
audit conducted in accordance with prevailing legislation
regulating the audit of accounts in Spain and, consequently, does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion on the accompanying
interim financial statements.
Conclusion
Based on our limited review, which can under no circumstances be
considered an audit, nothing has come to our attention that causes
us to believe that the accompanying interim financial statements
for the six-month period ended 30 June 2021 have not been prepared,
in all material respects, in accordance with International
Accounting Standard (IAS) 34 "Interim Financial Reporting", as
adopted by the European Union, pursuant to article 12 of Royal
Decree 1362/2007 as regards the preparation of condensed interim
financial statements.
Emphasis of matter
Material uncertainty related to going concern
We draw your attention to note 1 to the accompanying
consolidated interim financial statements, which states that the
pandemic triggered by COVID-19 has had a significant impact on the
Group's profit or loss and its cash flows.
In this regard, in its assessment of the going concern
principle, Group management has considered different scenarios, one
using benchmark assumptions and two other scenarios employing
downside assumptions, one of these considering lockdown measures.
The benchmark assumption scenario considers a recovery during the
period encompassed by the going concern analysis. However, the
downside scenarios take into account stress case assumptions
associated with a more gradual estimated recovery compared to the
assumptions used in the benchmark scenario.
The Directors consider that the Group has sufficient liquidity
to continue its operations in the foreseeable future, and thus the
going concern principle has been applied in the preparation of
these consolidated interim financial statements. Nonetheless, as
indicated in note 1 to the accompanying interim financial
statements, a number of factors are beyond the Group's control, and
should a more severe scenario come about than those envisaged, the
Group will need to obtain the necessary additional financing. These
events and conditions indicate the existence of material
uncertainty which could cast significant doubts as to the Group's
ability to continue as a going concern. This matter does not modify
our conclusion.
Condensed consolidated interim financial statements
We draw your attention to the accompanying note 1, which states
that these interim financial statements do not include all the
information that would be required in a complete set of
consolidated financial statements prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. The accompanying interim financial statements
should therefore be read in conjunction with the Group's
consolidated annual accounts for the year ended 31 December 2020.
This matter does not modify our conclusion.
Report on other legal and regulatory requirements
The accompanying consolidated interim management's report for
the six-month period ended 30 June 2021 contains such explanations
as the Directors of the Company consider relevant with respect to
the significant events that have taken place in this period and
their effect on the interim financial statements, as well as the
disclosures required by article 15 of Royal Decree 1362/2007. The
consolidated interim directors' report is not an integral part of
the interim financial statements. We have verified that the
accounting information contained therein is consistent with that
disclosed in the interim financial statements for the six-month
period ended 30 June 2021. Our work is limited to the verification
of the consolidated interim directors' report within the scope
described in this paragraph and does not include a review of
information other than that obtained from the accounting records of
International Consolidated Airlines Group, S.A. and
subsidiaries.
Other matter
This report has been prepared at the request of management in
relation to the publication of the six-monthly financial report
required by article 119 of the Revised Securities Market Law,
approved by Royal Legislative Decree 4/2015 of 23 October 2015 and
enacted by Royal Decree 1362/2007 of 19 October 2007.
KPMG Auditores, S.L.
Bernardo Rücker-Embden
29 July 2021
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 2020 Annual Report and
Accounts.
During the six months to June 30, 2021, the Group has made no
changes to its disclosures and treatment of APMs compared with
those disclosed in the Annual Report and Accounts for the year to
December 31, 2020.
The definition of each APM, together with a reconciliation to
the nearest measure prepared in accordance with IFRS is presented
below.
a Loss after tax before exceptional items
Exceptional items are those that in management's view need to be
separately disclosed by virtue of their size or incidence in
understanding the entity's financial performance. The exceptional
items include: significant discontinuance of hedge accounting;
significant changes in the long term fleet plans that result in the
impairment of fleet assets and the recognition of associated
provisions; and, legal settlements.
The table below reconciles the statutory income statement to the
income statement before exceptional items of the Group:
Six months to June 30
--------------------------------------------------------------------------
Before Before
Reported Exceptional exceptional Reported Exceptional exceptional
EUR million 2021 items items 2021 2020(1) items items 2020(1)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Passenger revenue(2) 1,141 5 1,136 4,113 (38) 4,151
Cargo revenue 769 - 769 615 - 615
Other revenue 302 - 302 560 - 560
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total revenue 2,212 5 2,207 5,288 (38) 5,326
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Employee costs 1,288 - 1,288 1,905 - 1,905
Fuel, oil costs and emissions
charges(2) 497 (140) 637 2,582 1,269 1,313
Handling, catering and other
operating costs 367 - 367 853 - 853
Landing fees and en-route charges 287 - 287 539 - 539
Engineering and other aircraft
costs(3) 419 - 419 843 77 766
Property, IT and other costs(4) 353 - 353 428 22 406
Selling costs 159 - 159 268 - 268
Depreciation, amortisation
and impairment(5) 920 - 920 1,845 731 1,114
Currency differences (43) - (43) 77 - 77
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total expenditure on operations 4,247 (140) 4,387 9,340 2,099 7,241
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Operating loss (2,035) 145 (2,180) (4,052) (2,137) (1,915)
Finance costs (363) - (363) (342) - (342)
Finance income 4 - 4 23 - 23
Net financing credit relating
to pensions 1 - 1 9 - 9
Net currency retranslation
(charges)/credits (13) - (13) 97 - 97
Other non-operating credits 70 - 70 50 - 50
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total net non-operating costs (301) - (301) (163) - (163)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Loss before tax (2,336) 145 (2,481) (4,215) (2,137) (2,078)
Tax 288 (24) 312 402 296 106
Loss after tax for the period (2,048) 121 (2,169) (3,813) (1,841) (1,972)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Three months to June 30
--------------------------------------------------------------------------
Before Before
Reported Exceptional exceptional Reported Exceptional exceptional
EUR million 2021 items items 2021 2020(1) items items 2020(1)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Passenger revenue(2) 682 - 682 160 (38) 198
Cargo revenue 419 - 419 369 - 369
Other revenue 143 - 143 174 - 174
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total revenue 1,244 - 1,244 703 (38) 741
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Employee costs 666 - 666 661 - 661
Fuel, oil costs and emissions
charges(2) 271 (78) 349 48 (56) 104
Handling, catering and other
operating costs 194 - 194 201 - 201
Landing fees and en-route charges 160 - 160 88 - 88
Engineering and other aircraft
costs(3) 212 - 212 339 77 262
Property, IT and other costs(4) 169 - 169 203 22 181
Selling costs 89 - 89 57 - 57
Depreciation, amortisation
and impairment(5) 450 - 450 1,275 731 544
Currency differences - - - 13 - 13
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total expenditure on operations 2,211 (78) 2,289 2,885 774 2,111
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Operating loss (967) 78 (1,045) (2,182) (812) (1,370)
Finance costs (186) - (186) (191) - (191)
Finance income 1 - 1 12 - 12
Net financing credit relating
to pensions 2 - 2 5 - 5
Net currency retranslation
credits - - - 20 - 20
Other non-operating credits 30 - 30 10 - 10
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Total net non-operating costs (153) - (153) (144) - (144)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
Loss before tax (1,120) 78 (1,198) (2,326) (812) (1,514)
Tax 139 (14) 153 201 98 103
Loss after tax for the period (981) 64 (1,045) (2,125) (714) (1,411)
---------------------------------- -------- ----------- ------------ -------- ----------- --------------
(1) Refer to note 1 for information in relation to the restatement of Employee
benefit obligations for the six months to June 30, 2020.
The rationale for each exceptional item is given below:
(2) Discontinuation of hedge accounting
In the six months to June 30, 2021, the Group recognised a
credit of EUR140 million (six months to June 30, 2020: charge of
EUR1,269 million) arising from a combination of the discontinuance
of hedge accounting and the fair value movement on those
relationships where hedge accounting was discontinued in the year
to December 31, 2020, but for which the underlying hedging
instrument had not matured at June 30, 2021. This was represented
by a credit of EUR146 million (six months to June 30, 2020: expense
of EUR1,372 million) relating to fuel derivatives and an expense of
EUR6 million (six months to June 30, 2020: credit of EUR103
million) related to the associated fuel foreign currency
derivatives. The credit to Passenger revenue of EUR5 million (six
months to June 30, 2020: expense of EUR38 million) relates to the
discontinuation of hedge accounting of the associated foreign
currency derivatives on forecast revenue.
The Group's risk management strategy is to build up these hedges
gradually over a two-year period (previously three-year period)
when the level of forecast passenger revenue and fuel consumption
were higher than current expectations. Accordingly, the hedge
accounting for these transactions has been discontinued and the
credit recognised in the Income statement. The expense relating to
revenue derivatives and fuel derivatives has been recorded in the
Income statement within Passenger revenue and Fuel, oil and
emission charges, respectively.
The related tax charge was EUR24 (six months to June 30, 2020:
credit was EUR204 million), with EUR23 million being attributable
to Fuel, oil costs and emissions charges (six months to June 30,
2020: EUR197 million) and EUR1 million being attributable to the
credit to Passenger revenue (six months to June 30, 2020: EUR7
million).
For the six months to June 30, 2020:
(3) Engineering and other aircraft costs
The exceptional charge 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 asset impairments, are no longer expected to be utilised. The
charge relating to the recognition of contractual lease provisions
represents the estimation of the additional cost to fulfil the hand
back conditions associated with the leased aircraft that have been
permanently stood down and impaired, which are discussed further
below. The exceptional charge was recorded within Engineering and
other aircraft costs.
The related tax credit was EUR5 million.
(4) Settlement provision
The exceptional charge of EUR22 million represented the fine
issued by the Information Commissioner's Office in the United
Kingdom, relating to the theft of customer data at British Airways
in 2018. The exceptional charge was recorded within Property, IT
and other costs in the Income statement, with a corresponding
amount recorded in Provisions.
There was no tax impact on the recognition of this charge.
(5) Impairment of fleet and associated assets
The total exceptional impairment expense of EUR731 million was
represented by an impairment of fleet assets of EUR729 million and
an impairment of other assets of EUR2 million. The fleet impairment
related to 55 aircraft, their associated engines and rotable
inventories that were stood down permanently and 6 further aircraft
which were impaired down to their recoverable value at June 30,
2020, which included 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 was recorded within Property, plant and
equipment relating to owned aircraft and EUR94 million was recorded
within Right of use assets relating to leased aircraft. The
exceptional impairment expenses were recorded within Depreciation,
amortisation and impairment in the Income statement.
The impairment expense arose from the substantial deterioration
in the then current and forecast demand for air travel caused by
the COVID-19 outbreak, which led the Group to re-assess the medium
and long term capacity and utilisation of the fleet. Subsequent to
these impairments, all assets are held at their recoverable
amounts.
The related tax credit was EUR87 million.
b Basic loss per share before exceptional items and adjusted loss per share (KPI)
Earnings are based on results before exceptional items after tax
and adjusted for earnings attributable to equity holders and
interest on convertible bonds, divided by the weighted average
number of ordinary shares, adjusted for the dilutive impact of the
assumed conversion of the bonds and employee share schemes
outstanding. The effect of the assumed conversion of the IAG EUR500
million convertible bond 2022, the IAG EUR825 million convertible
bond 2028 and outstanding employee share schemes are antidilutive
for the six months to June 30, 2021 and 2020 due to the reported
loss after tax for each period , and therefore has not been
included in the diluted earnings per share calculation.
June 30, June 30,
EUR million 2021 2020 (1)
----------------------------------------------------------------- --------- ---------
Loss after tax attributable to equity holders of the
parent (2,048) (3,813)
Exceptional items 121 (1,841)
----------------------------------------------------------------- --------- ---------
Loss after tax attributable to equity holders of the
parent before exceptional items (2,169) (1,972)
Interest expense on convertible bonds - -
----------------------------------------------------------------- --------- ---------
Adjusted loss (2,169) (1,972)
----------------------------------------------------------------- --------- ---------
Weighted average number of shares used for basic earnings
per share 4,967 3,057
Weighted average number of shares used for diluted
earnings per share 4,967 3,057
Basic loss per share before exceptional items (EUR
cents) (43.7) (64.5)
----------------------------------------------------------------- --------- ---------
Adjusted loss per share (EUR cents) (43.7) (64.5)
----------------------------------------------------------------- --------- ---------
(1) Earnings per share information has been restated for the comparative
period presented, by adjusting the weighted average number of shares to include
the impact of the rights issue in October 2020 (note 7). The discount element
inherent in the rights issue has been accounted for as a bonus issue of 1,071,565
thousand shares in 2020. Earnings per share information has also been restated
for the comparative period presented for the effects of the Employee benefits
restatement given in note 1.
c Airline non-fuel costs per ASK
The Group monitors airline unit costs (per ASK, a standard
airline measure of capacity) as a means of tracking operating
efficiency of the core airline business. As fuel costs can vary
with commodity prices, the Group monitors fuel and non-fuel costs
individually. Within non-fuel costs are the costs associated with
generating Other revenue, which typically do not represent the
costs of transporting passengers or cargo and instead represent the
costs of handling and maintenance for other airlines, non-flight
products in BA Holidays and costs associated with other
miscellaneous non-flight revenue streams. Airline non-fuel costs
per ASK is defined as total operating expenditure before
exceptional items, less fuel, oil costs and emission charges and
less non-flight specific costs divided by total available seat
kilometres (ASKs), and is shown on a constant currency basis.
Six months Six months Six months
to June to June to June
30, 2021 ccy 30, 2021 30,
adjustment
EUR million reported (1) ccy 2020 (2)
------------------------------------------- ---------- ------------ ---------- ----------
Total expenditure on operations 4,247 259 4,506 9,340
Less: exceptional items (140) - (140) 2,099
Less: fuel, oil costs and emission charges
before exceptional items 637 72 709 1,313
------------------------------------------- ---------- ------------ ---------- ----------
Non-fuel costs 3,750 187 3,937 5,928
Less: Non-flight specific costs 260 33 293 482
Airline non-fuel costs 3,490 154 3,644 5,446
------------------------------------------- ---------- ------------ ---------- ----------
ASKs 34,041 - 34,041 71,625
Airline non-fuel unit costs per ASK (EUR
cents) 10.25 - 10.70 7.60
------------------------------------------- ---------- ------------ ---------- ----------
(1) Refer to note g for the definition of the ccy adjustment.
(2) Refer to note 1 for information in relation to the restatement of Employee
benefit obligations for the six months to June 30, 2020.
d Levered free cash flow (KPI)
Levered free cash flow represents the cash generated by the
underlying businesses before shareholder returns and is defined as
the net increase in cash and cash equivalents taken from the Cash
flow statement, adjusting for movements in Current interest-bearing
deposits, less the cash inflows from the rights issue and adding
back the cash outflows associated with dividends paid and the
acquisition of treasury shares. The Group believes that this
measure is useful to the users of the financial statements in
understanding the underlying cash generating ability of the Group
that is available to return to shareholders, to improve leverage
and/or to undertake inorganic growth opportunities.
Six months Six months
to June 30, to June 30,
EUR million 2021 2020
---------------------------------------------------------- ------------ ------------
Net Increase in cash and cash equivalents 1,685 780
---------------------------------------------------------- ------------ ------------
Less: Decrease in other current interest-bearing deposits (90) (1,215)
Add: Dividends paid - 52
Levered free cash flow 1,595 (383)
---------------------------------------------------------- ------------ ------------
e Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with
IFRS, the Group reviews net debt to EBITDA to assess its level of
net debt in comparison to the underlying earnings generated by the
Group in order to evaluate the underlying business performance of
the Group. This measure is used to monitor the Group's leverage and
to assess financial headroom.
Net debt is defined as long-term borrowings (both current and
non-current), less cash, cash equivalents and current
interest-bearing deposits.
EBITDA is defined as the rolling four quarter operating result
before exceptional items, interest, taxation, depreciation,
amortisation and impairment. The Group believes that this
additional measure, which is used internally to assess the Group's
financial capacity, is useful to the users of the financial
statements in helping them to see how the Group's financial
capacity has changed over the year. It is a measure of the
profitability of the Group and of the core operating cash flows
generated by the business model.
June 30, December 31,
EUR million 2021 2020 (1)
-------------------------------------------------------- --------- --------------
Interest-bearing long-term borrowings 19,771 15,679
Less: Cash and cash equivalents (7,611) (5,774)
Less: Other current interest-bearing deposits (53) (143)
-------------------------------------------------------- --------- --------------
Net debt 12,107 9,762
-------------------------------------------------------- --------- --------------
Operating loss (5,434) (7,451)
Add: Exceptional items 779 3,061
Add: Depreciation, amortisation and impairment 1,905 2,099
-------------------------------------------------------- --------- --------------
EBITDA (2,750) (2,291)
-------------------------------------------------------- --------- --------------
Net debt to EBITDA (4.4) (4.3)
-------------------------------------------------------- --------- --------------
(1) Refer to note 1 for information in relation to the restatement of Employee
benefit obligations for the six months to June 30, 2020.
f Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives
an indication of the Group's capital efficiency relative to the
capital invested as well as the ability to fund growth and to pay
dividends. RoIC is defined as EBITDA, less fleet depreciation
adjusted for inflation, depreciation of other property, plant and
equipment, and amortisation of software intangibles, divided by
average invested capital and is expressed as a percentage.
Invested capital is defined as the average of property, plant
and equipment and software intangible assets over a 12-month period
between the opening and closing net book values. The fleet aspect
of property, plant and equipment is inflated over the average age
of the fleet to approximate the replacement cost of the associated
assets.
June 30, December 31,
EUR million 2021 2020 (1)
------------------------------------------------------------- -------- ------------
EBITDA (2,750) (2,291)
Less: Fleet depreciation multiplied by inflation adjustment (1,707) (1,921)
Less: Other property, plant and equipment depreciation (247) (258)
Less: Software intangible amortisation (158) (151)
------------------------------------------------------------- -------- ------------
(4,862) (4,621)
------------------------------------------------------------- -------- ------------
Average fleet value(3) 15,508 16,020
Less: average progress payments(4) (877) (1,117)
------------------------------------------------------------- -------- ------------
Fleet book value less progress payments 14,631 14,903
Inflation adjustment (2) 1.18 1.18
------------------------------------------------------------- -------- ------------
17,221 17,520
Average net book value of other property, plant and
equipment(5) 2,233 2,329
Average net book value of software intangible assets(6) 662 652
------------------------------------------------------------- -------- ------------
Total invested capital 20,116 20,501
------------------------------------------------------------- -------- ------------
Return on Invested Capital (24.2)% (22.5)%
------------------------------------------------------------- -------- ------------
(1) Refer to note 1 for information in relation to the restatement of Employee
benefit obligations for the six months to June 30, 2020.
(2) Presented to two decimal places and calculated using a 1.5 per cent
inflation (June 30, 2020: 1.5 per cent inflation) rate over the weighted
average age of the fleet June 30, 2021: 10.2 years (June 30, 2020: 11.7 years).
(3) The average net book value of aircraft is calculated from an amount
of EUR15,472 million at June 30, 2020 and EUR15,545 million at June 30, 2021.
(4) The average net book value of progress payments is calculated from an
amount of EUR1,077 million at June 30, 2020 and EUR677 million at June 30,
2021.
(5) 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 EUR2,155
million at June 30, 2021.
(6) The average net book value of software intangible assets is calculated
from an amount of EUR679 million at June 30, 2020 and EUR645 million at June
30, 2021.
g Results on a constant currency (ccy) basis
Movements in foreign exchange rates impact the Group's financial
results. The Group reviews the results, including revenue and
operating costs at constant rates of exchange (abbreviated to
'ccy'). The Group calculates these financial measures at constant
rates of exchange based on a retranslation, at prior year exchange
rates, of the current year's results of the Group. Although the
Group does not believe that these measures are a substitute for
IFRS measures, the Group does believe that such results excluding
the impact of currency fluctuations year-on-year provide additional
useful information to investors regarding the Group's operating
performance on a constant currency basis. Accordingly, the
financial measures at constant currency within the discussion of
the Group Financial review should be read in conjunction with the
information provided in the Group financial statements.
The following table represents the main average and closing
exchange rates for the reporting periods. Where 2021 figures are
stated at a constant currency basis, they have applied the 2020
rates stated below:
Foreign exchange rates
---------------------------- ----------- ---------- ---------- ----------
Closing at
Average six months to Closing at December
June 30 June 30 31
----------------------- ---------- ----------
2021 2020 2021 2020
---------------------------- ----------- ---------- ---------- ----------
Euro to pound sterling 1.14 1.15 1.17 1.10
US dollar to the euro 1.21 1.09 1.19 1.22
US dollar to pound sterling 1.38 1.26 1.39 1.35
---------------------------- ----------- ---------- ---------- ----------
AIRCRAFT FLEET
Number in service with Group companies
Changes
Total since
December
June 30, Total 31, Future
Right of December
Owned use 2021 31, 2020 2020 deliveries Options
----- -------- --------- ---------- --------- ----------- -------
Airbus A319 13 33 46 49 (3) - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A320 57 173 230 232 (2) 25 76
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A321 16 57 73 72 1 34 14
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A330-200 2 17 19 19 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A330-300 5 13 18 18 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A350 10 7 17 17 - 26 52
---------------- ----- -------- --------- ---------- --------- ----------- -------
Airbus A380 2 10 12 12 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 777-200 36 7 43 43 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 777-300 3 13 16 16 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 777-9 - - - - - 18 24
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 787-8 - 12 12 12 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 787-9 1 17 18 18 - - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Boeing 787-10 2 - 2 2 - 10 -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Embraer E170 - - - 1 (1) - -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Embraer E190 9 14 23 22 1 1 -
---------------- ----- -------- --------- ---------- --------- ----------- -------
Group total 156 373 529 533 (4) 114 166
---------------- ----- -------- --------- ---------- --------- ----------- -------
As well as those aircraft in service the Group also holds 46 aircraft not
in service.
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