REG - Intl Con Airline Grp - IAG Interim Management Report to June 30 2023
28/07/2023 07:00
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RNS Number : 4857H International Cons Airlines Group 27 July 2023
IAG half year results 2023
Record first half profit driven by continuing strong performance across the
Group
Highlights
· Record first half operating profit before exceptional items of
€1,260 million (first half 2022: €446 million loss), an increase of
€1,706 million, with sustained strong demand across our network and
particular outperformance from our Spanish businesses
· Quarter 2 2023 operating profit before exceptional items of
€1,251 million (quarter 2 2022: €295 million), including a record
operating profit before exceptional items for any quarter at Iberia of €307
million
· Net debt has reduced to €7.6 billion at June 30, 2023 (December
31, 2022: €10.4 billion) due to the increase in profit and seasonal working
capital inflows; net debt to EBITDA before exceptional items of 1.5 times
(2022: 3.1 times)
· We are particularly focused on delivering resilient operations over
the summer, reflecting a challenging operating environment in the UK and parts
of Europe
· Encouraging outlook for the summer with around 80% of expected
quarter 3 revenue now booked
· IAG is well-positioned to benefit from its attractive customer base
and strong network in large and growing markets
Luis Gallego, International Airlines Group's CEO, said:
"Our strong profits since the start of the year are helping to fund investment
for our customers, and to improve our balance sheet by reducing debt. We
are aiming to be back to pre-pandemic capacity at the end of this year.
"These results are thanks to a strong performance from all companies across
the Group, and we would like to thank our teams for their hard work during the
year so far.
"Customer demand remains strong across the Group, particularly for leisure
travel, with around 80% of passenger revenue for the third quarter already
booked. And our airlines have put in place plans to support operations during
the busy summer period."
Financial summary:
( ) Six months to June 30 Three months to June 30
Reported results (€ million) 2023 2022(1) 2023 2022(1)
Total revenue 13,583 9,351 7,694 5,916
Operating profit/(loss) 1,260 (417) 1,251 301
Profit/(loss) after tax 921 (654) 1,008 133
Basic earnings/(loss) per share (€ cents) 18.6 (13.2)
Cash, cash equivalents and interest-bearing deposits(2) 12,010 9,599
Borrowings(2) 19,623 19,984
Alternative performance measures (€ million) 2023 2022(1) 2023 2022(1)
Total revenue before exceptional items 13,583 9,351 7,694 5,916
Operating profit/(loss) before exceptional items 1,260 (446) 1,251 295
Operating margin before exceptional items 9.3% (4.8)% 16.3% 5.0%
Profit/(loss) after tax before exceptional items 921 (683) 1,008 127
Adjusted earnings/(loss) per share (€ cents) 17.6 (13.8)
Net debt(2) 7,613 10,385
Net debt to EBITDA before exceptional items (times)(2) 1.5 3.1
Total liquidity(2,3) 15,552 13,999
For definitions of Alternative performance measures, refer to the IAG Annual
report and accounts 2022.
(1)The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment.
There is no impact on the Loss after tax.
(2)The prior period comparative is December 31, 2022.
(3)Total liquidity includes Cash, cash equivalents and interest-bearing
deposits, plus committed and undrawn general and overdraft facilities and
aircraft specific financing facilities.
Financial highlights for first half of 2023
· Restored 94% of 2019 capacity, measured in available seat
kilometres (ASKs)
· Passenger unit revenue for the first six months was 18.4% higher
than the same period in 2022, with strong leisure traffic recovery and
business traffic recovering more slowly. The premium leisure segment continued
to perform very well.
· Non-fuel unit costs reduced by 7.3% versus the first six months of
2022, driven by a passenger capacity increase of 30.9% and transformation
initiatives, net of supplier cost increases, mainly linked to inflation.
· Fuel unit cost was up 5.7% versus 2022, linked to higher effective
average fuel prices net of hedging in the first six months of 2023 versus 2022
and the benefits of IAG's more efficient aircraft deliveries over the last few
years
· Operating margin before exceptional items was 9.3% for the first
half and 16.3% for the second quarter
· Profit after tax for the first six months of 2023 of €921 million
(first six months of 2022: loss after tax of €654 million)
Trading outlook
· Customer demand remains strong across the Group, particularly for
leisure customers, with around 80% of the third quarter's passenger revenue
already booked
· We expect full year 2023 capacity to be around 97% of pre-COVID-19
levels, subject to disruption
· Whilst there is no sign of weakness in forward bookings, we
continue to be mindful of wider uncertainties that might affect the full year.
This includes the potential impact of geopolitical and macroeconomic
volatility on the price of fuel and consumer confidence, as well as the impact
of external factors on the operating environment, such as strikes. Our Cargo
business continues to be impacted by a weak market
· We are currently c.30% booked for the fourth quarter, which is
typical for this time of year
· We continue to expect non-fuel unit costs for the year to be in the
range of 6% to 10% better compared to full year 2022
· We expect to generate sustainable free cash flow this year and for
our net debt at December 31, 2023 to reduce compared to December 31, 2022, in
line with our profit outperformance
Strategic highlights
IAG's airlines are well-positioned in large and growing markets
· Both the North and South Atlantic markets are seeing strong
customer demand and are expected to reach pre-COVID-19 capacity by the end of
this year
· We are seeing very strong leisure demand this year, across all our
airlines and across all our cabins, as customers prioritise holidays and
visiting friends and relatives
· This is compensating for slower recovery in the corporate market
Trading and network
· We are focusing our capacity restoration in our strongest markets
o Aer Lingus is focused on its US markets, targeting new cities (e.g.
Cleveland) and reopening previous destinations (e.g. Hartford), as well as
consolidating its Manchester base
o British Airways is continuing to focus on its traditionally strong North
Atlantic markets, as well as reopening its key Asian routes
o Iberia is building its capacity from Madrid to reflect strong demand in
both the South and North Atlantic
o Vueling continues to strengthen its presence in its core European markets
and slot-constrained bases
· Strong demand for our attractive network and frequencies driving
strong yields
o Aer Lingus driven by US markets and recovery in the shorthaul European
leisure destinations
o British Airways seeing strong leisure demand in all cabins but lower
levels of corporate travel
o Iberia revenue is strong across the network due to exceptionally high
demand
o Vueling's high leisure demand and revenue strategy is delivering very high
ancillary revenue growth
Fleet
· Disciplined capacity restoration, with a focus on reinstating
British Airways' widebody capacity and supporting strategic opportunity for
Iberia
o 11 new deliveries in first half of 2023 to British Airways, Iberia and
Vueling;
o We are now expecting 30 aircraft in total to be delivered in 2023
including an additional leased aircraft for LEVEL
§ 11 widebodies (six to British Airways, four to Iberia and one to LEVEL); 19
narrowbodies (across all airlines)
o 43% (243 aircraft) of both our longhaul and shorthaul fleet are now more
efficient and quieter next generation aircraft
o Better aircraft utilisation at Iberia and Vueling supporting capacity
growth without the need for new aircraft
o British Airways to return to pre-pandemic levels of non-premium capacity
in 2024; longhaul capacity by 2025; and premium capacity by 2026
· Continuing to order more efficient, sustainable aircraft to support
group commercial and sustainability objectives
o Converted 10 A320neo options to firm deliveries from 2028 as replacement
aircraft for our shorthaul network
o New order for six Boeing 787-10 aircraft to be delivered to British
Airways in 2025 and 2026 to accelerate its premium widebody capacity recovery;
one new Airbus A350-900 aircraft for Iberia
Investing in our customer proposition
We recognise that we need to continue to drive investment in our propositions
at all of our airlines to improve the customer experience. We are investing in
our premium propositions to ensure we are competitive and remain attractive to
our loyal customers
· We are continuing to roll out our new business class seats at
British Airways and Iberia; 55% of British Airways' Heathrow longhaul fleet
now embodied with the new Club Suite
· Both Iberia and British Airways are also investing in new and
upgraded lounges, as well as developing a premium ground-based service at
Madrid airport
· All of our network airlines are offering improved onboard catering
in their premium cabins
We are also continuing to invest in customers across all parts of our airlines
· We continue to invest in our IT and digital capability:
o Cloud-based systems and data centres for greater future reliability and
flexibility
o Commercial re-platforming at British Airways is underway which will
deliver better customer experience and a greater range of commercial
opportunities
o Self-service capabilities and disruption management at Vueling
· British Airways recently opened a larger, more modern call centre
in Delhi, with better IT and data capability
Building resilience in our operations
· Some of our operations are not where we would want them to be and
this is affecting our overall customer service
· We are working in a challenging environment: French ATC strikes are
affecting most of our airlines and global supply chain issues are reducing
aircraft availability
· British Airways is being particularly affected due to its London
exposure (at both Heathrow and Gatwick) and complex schedule. We are
addressing this by:
o Recruited 4,000 people in the first half, with a particular focus on
ground operations
o Taking on a number of wet lease aircraft to supplement availability: four
Finnair A320s, one Air Belgium A330 and three Avion Express A320s at Gatwick
· Iberia still one of the world's leading airlines for punctuality
Loyalty
· Our Loyalty business continues to deliver strong growth in its
operating profit, up 11% versus the first half of 2022 at £141 million
(€160 million) - and 64% higher than the first half of 2019
· This included record remuneration from American Express of £286
million (€326 million), 76% higher than 2019, driven by more users of the
branded card, which was relaunched in 2021
· During the first half of the year we issued 66.4 billion Avios, a
14% increase from the first half of 2022. We continue to add new ways for
members to collect points:
o 55% more members using our shopping portal; "Avios Balance Booster"
leading to half a billion Avios issued in the first few weeks
o In July we announced an update to how British Airways Executive Club
members earn Avios, based on spend instead of the distance they fly, making it
simpler and more transparent
· We are also helping our members to redeem points, with a total of
50.9 billion redeemed in the first six months:
o Launch of 7 dedicated Avios-only flights to in-demand destinations
including Geneva, Sharm El Sheikh and Tenerife; continued growth in BA
Holidays redemptions with almost 20% of bookings using Avios
· Continuing to develop third party partnerships for both airline and
non-airline earnings and redemptions
People
· We continue to make good progress recruiting people across the
Group, in particular to support operations this summer
o Over 7,000 employees recruited in the first half of 2023
o British Airways and Iberia have also recently announced cadet schemes to
provide a continued source of pilots
· We continue to be in negotiations with a number of employee
representatives around the Group
· With respect to improving our gender diversity we are implementing
resourcing, talent and succession strategies across the Group in order to
achieve our target of 40% of women in senior leadership roles by 2025
Sustainability
· We continue to state the case for the positive social impact of
aviation, including commissioning a report by PwC that concluded that IAG
contributes directly and indirectly around €70 billion to the EU and UK
economies, as well as supporting more than 600,000 jobs
· We are also taking an active role in EU and UK discussions on
Sustainable Aviation Fuel (SAF), in particular around mandate design and
potential pricing mechanisms
· Specifically we are making further progress in our initiatives to
deliver our sustainability targets:
o adding 11 new, more efficient aircraft which reduce our emissions by 20%
compared to previous generation aircraft
o we have just signed an agreement with Nova Pangea to provide funding for
its project to convert waste to ethanol, the first stage in 2(nd) Generation
SAF production.
Other
· We continue to focus on securing the required approvals for our
acquisition of Air Europa, which is still expected to take between 18 to 24
months since our announcement of the transaction in February 2023
LEI: 959800TZHQRUSH1ESL13
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, acquisitions and divestments relating to the
Group and discussions of the Group's business plans. All forward-looking
statements in this announcement are based upon information known to the Group
on the date of this announcement and speak as of the date of this
announcement. Other than in accordance with its legal or regulatory
obligations, the Group does not undertake to update or revise any
forward-looking statement to reflect any changes in events, conditions or
circumstances on which any such statement is based.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any number of
known and unknown risks, uncertainties and other factors, including, but not
limited to, the current economic and geopolitical environment and ongoing
recovery from the COVID-19 pandemic and uncertainties about its future 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 2022; this document is available on www.iairgroup.com. All
forward-looking statements made on or after the date of this announcement and
attributable to IAG are expressly qualified in their entirety by the primary
risks set out in that section. Many of these risks are, and will be,
exacerbated by the ongoing recovery from the COVID-19 pandemic and
uncertainties about its future impact and duration and any further disruption
to the global airline industry as well as the current economic and
geopolitical environment.
Alternative Performance Measures:
This announcement contains, in addition to the financial information prepared
in accordance with International Financial Reporting Standards ('IFRS') and
derived from the Group's financial statements, alternative performance
measures ('APMs') as defined in the Guidelines on alternative performance
measures issued by the European Securities and Markets Authority (ESMA) on
October 5, 2015. The performance of the Group is assessed using a number of
APMs. These measures are not defined under IFRS, should be considered in
addition to IFRS measurements, may differ to definitions given by regulatory
bodies relevant to the Group and may differ to similarly titled measures
presented by other companies. 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'.
For definitions and explanations of APMs, refer to the APMs section in the
most recent published financial report and in the IAG Annual report and
accounts; these documents are available on www.iairgroup.com.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Six months to June 30 Three months to June 30
€ million 2023 2022(1) Higher/ 2023 2022(1) Higher/
(lower) (lower)
Passenger revenue 11,784 7,604 55.0 % 6,743 4,949 36.2 %
Cargo revenue 603 843 (28.5)% 280 411 (31.9)%
Other revenue 1,196 904 32.3 % 671 556 20.7 %
Total revenue 13,583 9,351 45.3 % 7,694 5,916 30.1 %
Employee costs 2,610 2,167 20.4 % 1,353 1,122 20.6 %
Fuel, oil costs and emissions charges 3,550 2,566 38.3 % 1,792 1,648 8.7 %
Handling, catering and other operating costs 1,796 1,322 35.9 % 1,020 780 30.8 %
Landing fees and en-route charges 1,104 847 30.3 % 620 489 26.8 %
Engineering and other aircraft costs 1,208 928 30.2 % 621 553 12.3 %
Property, IT and other costs 515 435 18.4 % 266 231 15.2 %
Selling costs 578 442 30.8 % 298 241 23.7 %
Depreciation, amortisation and impairment 983 1,015 (3.2)% 497 484 2.7 %
Net gain on sale of property, plant and equipment (17) (21) (19.0)% (7) (8) (12.5)%
Currency differences (4) 67 nm (17) 75 nm
Total expenditure on operations 12,323 9,768 26.2 % 6,443 5,615 14.7 %
Operating profit/(loss) 1,260 (417) nm 1,251 301 nm
Finance costs (565) (480) 17.7 % (291) (247) 17.8 %
Finance income 167 3 nm 99 2 nm
Net change in fair value of financial instruments (13) 130 nm (12) 70 nm
Net financing credit relating to pensions 51 13 nm 26 6 nm
Net currency retranslation credits/(charges) 149 (197) nm 89 (136) nm
Other non-operating (charges)/credits (12) 105 nm (4) 77 nm
Total net non-operating costs (223) (426) (47.7)% (93) (228) (59.2)%
Profit/(loss) before tax 1,037 (843) nm 1,158 73 nm
Tax (116) 189 nm (150) 60 nm
Profit/(loss) after tax for the period 921 (654) nm 1,008 133 nm
(1)The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment
within Operating profit/(loss). Accordingly, for the six month and three month
periods to June 30, 2022, the Group has reclassified €21 million and €8
million, respectively, of gains from Other non-operating (charges)/credits to
Expenditure on operations. There is no impact on the Loss after tax.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional items. Refer to
Alternative performance measures section for more detail.
Six months to June 30 Three months to June 30
Before exceptional items Before exceptional items
€ million 2023 2022(1) Higher/ 2023 2022(1) Higher/
(lower) (lower)
Passenger revenue 11,784 7,604 55.0 % 6,743 4,949 36.2 %
Cargo revenue 603 843 (28.5)% 280 411 (31.9)%
Other revenue 1,196 904 32.3 % 671 556 20.7 %
Total revenue 13,583 9,351 45.3 % 7,694 5,916 30.1 %
Employee costs 2,610 2,167 20.4 % 1,353 1,122 20.6 %
Fuel, oil costs and emissions charges 3,550 2,566 38.3 % 1,792 1,648 8.7 %
Handling, catering and other operating costs 1,796 1,322 35.9 % 1,020 780 30.8 %
Landing fees and en-route charges 1,104 847 30.3 % 620 489 26.8 %
Engineering and other aircraft costs 1,208 928 30.2 % 621 553 12.3 %
Property, IT and other costs 515 458 12.4 % 266 231 15.2 %
Selling costs 578 442 30.8 % 298 241 23.7 %
Depreciation, amortisation and impairment 983 1,021 (3.7)% 497 490 1.4 %
Net gain on sale of property, plant and equipment (17) (21) (19.0)% (7) (8) (12.5)%
Currency differences (4) 67 nm (17) 75 nm
Total expenditure on operations 12,323 9,797 25.8 % 6,443 5,621 14.6 %
Operating profit/(loss) 1,260 (446) nm 1,251 295 nm
Finance costs (565) (480) 17.7 % (291) (247) 17.8 %
Finance income 167 3 nm 99 2 nm
Net change in fair value of financial instruments (13) 130 nm (12) 70 nm
Net financing credit relating to pensions 51 13 nm 26 6 nm
Net currency retranslation credits/(charges) 149 (197) nm 89 (136) nm
Other non-operating (charges)/credits (12) 105 nm (4) 77 nm
Total net non-operating costs (223) (426) (47.7)% (93) (228) (59.2)%
Profit/(loss) before tax 1,037 (872) nm 1,158 67 nm
Tax (116) 189 nm (150) 60 nm
Profit/(loss) after tax for the period 921 (683) nm 1,008 127 nm
( )Operating figures 2023 2022(1) Higher/ 2023 2022(1) Higher/
(lower) (lower)
Available seat kilometres (ASK million) 154,034 117,710 30.9 % 82,371 68,630 20.0 %
Revenue passenger kilometres (RPK million) 129,585 91,546 41.6 % 71,162 56,114 26.8 %
Seat factor (per cent) 84.1 77.8 6.3pts 86.4 81.8 4.6pts
Passenger numbers (thousands) 54,307 39,969 35.9 % 30,028 25,592 17.3 %
Cargo tonne kilometres (CTK million) 2,224 1,939 14.7 % 1,099 949 15.8 %
Sold cargo tonnes (thousands) 294 276 6.5 % 142 137 3.6 %
Sectors 342,036 277,368 23.3 % 184,536 169,668 8.8 %
Block hours (hours) 1,018,110 796,719 27.8 % 549,484 474,636 15.8 %
Average headcount 68,477 59,491 15.1% n/a n/a n/a
Aircraft in service 565 549 2.9 % n/a n/a n/a
Passenger revenue per RPK (€ cents) 9.09 8.31 9.5 % 9.48 8.82 7.4 %
Passenger revenue per ASK (€ cents) 7.65 6.46 18.4 % 8.19 7.21 13.5 %
Cargo revenue per CTK (€ cents) 27.11 43.48 (37.6)% 25.48 43.31 (41.2)%
Fuel cost per ASK (€ cents) 2.30 2.18 5.7 % 2.18 2.40 (9.4)%
Non-fuel costs per ASK (€ cents) 5.70 6.14 (7.3)% 5.65 5.79 (2.5)%
Total cost per ASK (€ cents) 8.00 8.32 (3.9)% 7.82 8.19 (4.5)%
(1)The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment
within Operating profit/(loss). Accordingly, for the six month and three month
periods to June 30, 2022, the Group has reclassified €21 million and €8
million, respectively, of gains from Other non-operating (charges)/credits to
Expenditure on operations. There is no impact on the Loss after tax.
FINANCIAL REVIEW FOR THE SIX MONTHS TO JUNE 30, 2023
Developments since the last report (May 5, 2023)
On June 30, 2023, the Group announced that it had converted 10 A320neo options
into firm orders, with the option to convert certain aircraft into A321neos.
The aircraft will be delivered in 2028 and will be used by any of the Group's
current airlines to replace A320ceo family aircraft.
On July 27, 2023, the Group announced that it had converted six Boeing 787-10
options held by British Airways into firm orders and at the same time is
adding a further six 787-10 options to its longhaul order book. The Group is
also converting one Airbus A350-900 option held by Iberia into a firm order.
The firm aircraft will be delivered in 2025 and 2026 and will be used by
British Airways and Iberia to restore capacity in the airlines' longhaul
fleets.
Basis of preparation
At June 30, 2023, the Group had total liquidity of €15,552 million,
comprising cash, cash equivalents and interest-bearing deposits of €12,010
million, €3,308 million of committed and undrawn general and overdraft
facilities, and a further €234 million of committed and undrawn aircraft
specific facilities.
In its assessment of going concern over the period of at least 12 months from
the date of approval of this report (the 'going concern period'), the Group
has prepared extensive modelling, including considering a plausible but severe
downside scenario. Having reviewed these scenarios, 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, 2023.
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 in the Risk management and principal risk factors section of
the 2022 Annual report and accounts, remain relevant at the date of this
report. The Group continues to monitor risks as the risk landscape evolves,
particularly considering how risks combine to create increased threats and how
to re-assess the potential severity and likelihood accordingly. The Group's
exposure and ability to directly manage the external risk environment remains
a challenge, given the fundamental weaknesses in the resilience of the
aviation sector's supply chain, inflationary impacts in both supplier costs
and salaries, and policy measures taken by governments to address economic
threats. Management remains focused on mitigating risks at all levels in the
business and investing to increase resilience.
The Board reviews and challenges management on the risk landscape in the light
of changes that influence the Group and the aviation industry. Where further
action has been required, the Board has considered potential mitigations and,
where appropriate or feasible, the Group has implemented or confirmed plans
that would address those risks or retain them within the Board's determined
Group risk appetite.
In assessing its principal risks, the Group has considered operational
resilience, supply chain risk, the status of the financial markets, the
industrial relations landscape and people engagement and cultural change
across the Group. No new principal risks were identified through the risk
management discussions and assessments across the business in the year to
date. From the risks identified in the 2022 Annual report and accounts, given
the current environment, the main risks that continue to be a key area of
focus, due to their potential implications for the Group, are outlined below.
• Brand and customer trust. Operational resilience and customer
satisfaction underpin customer trust. Reliability, including on-time
performance, service and product delivery, are key elements of brand value and
of each customer's experience. The Group continues to improve its disruption
management capabilities to support customers through disruption and improve
its service propositions to help ensure that our customers choose to fly with
the Group's airlines.
• Critical third parties in the supply chain. The aviation
sector continues to be affected by global supply chain disruption which has
impacted aircraft deliveries, component availability, resource availability
and/or threat of employee industrial action in critical third parties and
airport services, airports' resilience weaknesses, particularly Heathrow and
air traffic control (ATC) restrictions and strikes. The Group proactively
assesses its schedules for operability and continues to work with all critical
suppliers to understand any potential disruption within their supply chains
from either a shortage of available resource, strike action or production
delays which could impact the availability of new fleet, engines or critical
goods or services.
• Cyber attack and data security. The threat of sophisticated
ransomware attacks on critical infrastructure and services remains high with
the Group exposed to threat actors targeting both the Group's operating
companies and its suppliers. In the half year, some of the Group's businesses
were impacted by an attack on a third-party services provider holding employee
data. The Group is focused on improving its cyber security posture and better
understanding the risk presented by its suppliers.
• Debt funding. Interest rates increases implemented by central
banks to address inflation increase the cost for the Group for existing
floating rate debt, as well as for new financing. The Group continues to
successfully secure aircraft financing.
• Economic, political and regulatory environment. The economic
impact of increases in commodity and wage costs has driven significant
inflation and impacted on interest rates as governments seek to moderate
inflation, which may result in demand softening. If interest rate increases
have not yet materially passed through to customers for their personal debt,
they may need to reduce their spend on travel to accommodate the increase in
their cost of borrowing.
• 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 continues with major programmes and upgrades to
modernise, including new commercial capabilities and customer centric
enhancements using agile based models, as well as replacing core IT
infrastructure and improving network connectivity. Mitigating actions that
prioritise operational stability and resilience have been built into all
cutover plans for the go-live of IT systems related changes.
• Operational resilience. Ongoing labour shortages, industrial
unrest and strike action in the aviation sector, shortages in the supply chain
and airspace and ATC restrictions can all impact the operational environment
of the Group's airlines as well as the operations of the businesses on which
the Group relies. The Group continues with its ambitious IT infrastructure
transformation agenda to modernise and digitalise its IT estates. The Group is
focused on minimising any unplanned outages or disruption to customers with
additional resilience built into the airlines' networks.
• People, culture and employee
relations. Our people, their engagement and cultural appetite and mindset for
change are critical to the Group's current performance and future success. Our
leadership recognises the efforts of our staff and their commitment through
the continued operational challenges facing our airlines. Resource shortages
in crew have been addressed and our businesses are building the knowledge and
experience of their new starters and managing the cultural impacts of
onboarding at scale to ensure they have the right capabilities to operate.
Shortages in engineers across the aviation sector and in the Group's airlines
may impact maintenance delivery timelines unless resource levels can be
secured. Across the Group, collective bargaining is in place with various
unions. Where agreements are open, our operating companies continue to engage
in discussions with unions to secure sustainable agreements and address
concerns arising within the negotiations.
• Sustainable aviation. The plan to decarbonise aviation has
resulted in fragmentation of policy measures and support offered by
governments for green initiatives across the different regions in which the
Group airlines operate. As Sustainable Aviation Fuel (SAF) infrastructure and
availability still lags demand for SAF, mandates and other tax-based measures
may disproportionately impact the Group's airlines versus their competitors.
The Board and its sub committees have been apprised of regulatory, competitor
and governmental responses on an ongoing basis.
Operating and market environment
The average jet fuel spot price for the six months was $834 per metric tonne,
25 per cent lower than the average spot price in the first six months of 2022
of $1,120 per metric tonne. Prices fell over the course of the six months,
from a peak of $1,142 per metric tonne in January and ended the six months at
$769 per metric tonne. The shape of price movements within the first six
months of 2023 was markedly different from that in the first six months of
2022, which saw a significant rise in fuel prices from late February,
following the outbreak of the war in Ukraine, with the commodity price of jet
fuel rising from $708 per metric tonne at the start of January to $1,235 per
metric tonne at the end of June 2022. Jet fuel supply contracts are typically
based on pricing up to one month in arrears, which results in the reduction in
the average price paid for jet fuel supply in the first six months of 2023
compared with the first six months of 2022 being lower than the movement in
spot jet fuel prices, with a reduction in the average commodity price paid of
approximately 13 per cent for the six months.
The average foreign exchange rates for the first six months of 2023 resulted
in the US dollar strengthening by three per cent against the euro and seven
per cent against the pound sterling, compared with the average of the first
six months of 2022. The closing foreign exchange rates, applied for balance
sheet translations, represented a weakening of the US dollar of three per cent
against the euro and five per cent against the pound sterling since December
31, 2022.
The net impact of transaction and translation exchange for the Group for the
six months of 2023 was €15 million favourable versus the first six months of
2022, with the net impact €54 million adverse in quarter 1 and €69 million
favourable in quarter 2.
From a transactional perspective, the Group's financial performance is
impacted by fluctuations in exchange rates, primarily from the US dollar, euro
and pound sterling. The Group generates a surplus in most currencies in which
it does business, except for the US dollar, as capital expenditure, debt
repayments and fuel purchases typically create a deficit. The Group hedges a
portion of its transaction exposures. The net transaction impact on the
operating result was favourable by €45 million for the first six months,
increasing revenues by €222 million and costs by €177 million, with the
impact €48 million adverse in quarter 1 and €93 million favourable in
quarter 2.
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, the net impact of
translation was €30 million adverse versus the first six months of 2022,
with the impact €6 million adverse in quarter 1 and €24 million adverse in
quarter 2.
Unless stated otherwise, all variances quoted below compare the first six
months of 2023 with the first six months of 2022 on a reported basis
(including exceptional items). Results for 2022 include a reclassification to
conform with the 2023 presentation for Net gain on sale of property, plant and
equipment within Operating profit/(loss), with €21 million of gains in 2022
reclassified from Other non-operating (charges)/credits to Expenditure on
operations.
Capacity and passenger traffic
The Group continued to restore its passenger capacity, following the
significant reductions due to COVID-19, with passenger capacity now close to
pre-pandemic levels. In the first six months of 2023, IAG capacity, measured
in available seat kilometres (ASKs), was 30.9 per cent higher than in the
first six months of 2022, which was impacted by the Omicron variant of
COVID-19, particularly in January and February. Passenger capacity was only
5.7 per cent lower than in the first six months of 2019. Passenger load factor
for the six months was 84.1 per cent, up 6.3 points on the previous year and
1.1 points higher than in the first six months of 2019 (quarter 1: 0.8 points
higher, quarter 2: 1.4 points higher).
Summary of passenger capacity and load factor by region
Six months to June 30, 2023 ASKs ASKs Passenger load factor Passenger load factor higher/(lower) Passenger load factor higher/(lower)
higher/(lower) higher/(lower) (%) v2022 v2019
v2022 v2019
Domestic 12.8% 10.8% 88.0 6.6 pts 1.9 pts
Europe 25.4% (5.0%) 84.6 7.1 pts 3.3 pts
North America 36.6% 1.5% 81.7 7.3 pts (0.5) pts
Latin America and Caribbean 14.1% (2.4%) 87.0 5.3 pts 1.5 pts
Africa, Middle East and South Asia 47.1% 1.2% 81.8 4.4 pts (0.4) pts
Asia Pacific 366.0% (63.9%) 88.4 11.8 pts 4.2 pts
Total network 30.9% (5.7%) 84.1 6.3 pts 1.1 pts
As can be seen in the table above, the remaining capacity shortfall to 2019 is
principally attributable to the pace of capacity restoration in the Asia
Pacific region, linked to the late lifting of COVID-19 restrictions. The Group
is increasing its schedule to the region during 2023. British Airways services
to Shanghai and Beijing resumed in the summer travel season and the airline
has increased frequencies to Hong Kong and Tokyo Haneda.
Revenue
Passenger revenue rose €4,180 million from the first six months of 2022 to
€11,784 million, reflecting the 30.9 per cent increase in capacity operated,
together with the positive impact of the 6.3 percentage point increase in the
passenger load factor and passenger yields per revenue passenger kilometre
(RPK) up 9.5 per cent. The resulting passenger unit revenue (passenger revenue
per ASK) was 18.4 per cent higher than the previous year and 18.1 per cent
higher than the first six months of 2019 (quarter 1: up 14.8 per cent versus
2019, quarter 2: up 20.8 per cent). Leisure traffic performed particularly
strongly, with corporate traffic recovering more slowly.
Cargo revenue was down €240 million versus the previous year to €603
million. Cargo carried, measured in cargo tonne kilometres (CTKs), rose by
14.7 per cent. Yields were 37.6 per cent lower than in the previous year,
reflecting the increase in global passenger airline capacity across the
industry and the recovery from the global supply chain and sea freight
disruption seen in the first half of 2022. Cargo revenue was up €47 million,
or 8.5 per cent, versus the same period in 2019, with cargo yields up 36.6 per
cent versus 2019 despite challenging air cargo market conditions.
Other revenue increased by €292 million to €1,196 million, reflecting the
recovery in the Group's non-airline businesses, including Iberia's third-party
maintenance business, BA Holidays, and the growth of IAG Loyalty. Other
revenue was 35.3 per cent higher than in the first six months of 2019.
Costs
Costs were impacted by the 30.9 increase in capacity versus 2022, with Total
expenditure on operations 26.2 per cent higher than the previous year and
non-fuel costs per ASK down 7.3 per cent.
Employee costs increased by €443 million versus the first six months of 2022
to €2,610 million, reflecting the increase in airline operations and the
related increase in employee numbers, together with pay increases. On a unit
basis per ASK, Employee costs were down 8.0 per cent.
Fuel, oil costs and emissions charges increased by €984 million to €3,550
million, principally reflecting the impact of the higher capacity operated. On
a unit basis per ASK, Fuel, oil costs and emissions charges were up 5.7 per
cent, principally reflecting the increase in the effective fuel price net of
hedging. The significant increase in commodity fuel prices in the first half
of 2022 was mitigated by hedging gains from hedging placed when the fuel
prices were lower in 2021 and previously, whereas in 2023 there was a small
net cost of hedging, due to the sustained increase in fuel prices since the
start of 2022. Fuel costs continue to benefit from the Group's investment in
new, more fuel-efficient aircraft.
Supplier costs increased by €1,156 million to €5,197 million, mainly
linked to the increase in capacity operated, together with inflationary
increases and disruption costs, partly offset by the Group's procurement
initiatives. On a unit basis per ASK, Supplier costs were down 2.3 per cent.
Depreciation, amortisation and impairment costs for the first six months were
€983 million and the Net gain from the sale of property, plant and equipment
was €17 million, representing the disposal of assets, mainly connected with
the disposal of aircraft and related spare parts. On a unit basis per ASK,
Ownership costs (which include Depreciation, amortisation and impairment
costs, and the Net gain from the sale of property, plant and equipment) were
down 26.2 per cent.
Operating result
The Group's operating profit for the period was €1,260 million, an
improvement of €1,677 million versus the operating loss of €417 million
for the first half of 2022. Excluding exceptional items, the operating result
improved €1,706 million versus the previous year.
The breakdown of the operating result between the Group's main operating
companies is shown below.
Operating profit/(loss) before exceptional items, € million Six months to June 30, 2023 Six months to June 30, 2022(1) Six months to June 30, 2019(2) 2023 higher / (lower) 2023 higher / (lower) % of 2019 capacity (ASKs) operated
v2022 v2019
British Airways 602 (436) 857 1,038 (255) 88.1
Iberia 372 2 117 370 255 102.1
Vueling 96 (58) 5 154 91 109.0
Aer Lingus 40 (83) 78 123 (38) 103.5
IAG Loyalty 160 152 98 8 62 n/a
Other Group companies (10) (23) (67) 13 57 n/a
Total Group (including other companies) 1,260 (446) 1,088 1,706 172 94.3
(1)Figures for 2022 restated for change in classification of Net gain on sale
of property, plant and equipment within Operating profit/(loss) to conform
with the 2023 presentation.
(2)Figures for 2019 adjusted for impact of change to accounting for pension
administration costs for British Airways in 2021 and the change in
classification of Net gain on sale of property, plant and equipment within
Operating profit/(loss) to conform with the 2023 presentation.
Restoration of capacity in British Airways has been lower than in the other
operating companies, reflecting the retirement of British Airways' Boeing
747-400 fleet in its response to the COVID-19 pandemic and the slower
restoration of capacity in the Asia Pacific region. Both Iberia and Vueling
have performed strongly in the first six months of 2023, with operating profit
before exceptional items exceeding that achieved in 2019. IAG Loyalty
continues to increase its base of collectors of the Group's loyalty currency,
Avios, with its operating profit for the first six months significantly
increased versus the same period in 2019.
For further information, see note 4 'Segment information'.
Exceptional items
There were no exceptional items in the first six months of 2023. In the first
six months of 2022, the Group recorded an exceptional credit of €23 million,
relating to the partial reversal of a fine previously issued by the European
Commission, in 2010, to British Airways, and an exceptional credit of €6
million reflecting the reversal of an aircraft impairment made in 2020. See
Reconciliation of Alternative performance measures for further information.
Net non-operating costs, taxation and loss after tax
The Group's net non-operating costs for the first six months of 2023 were
€223 million, compared with €426 million in the first six months of 2022,
mainly reflecting: net finance costs of €398 million, down €79 million,
driven by the significant increase in interest received on deposits, linked to
rising interest rates; €149 million of Net currency retranslation credits in
2023, versus charges of €197 million in 2022; a charge of €13 million for
the net changes in the fair value of financial instruments versus a credit of
€130 million in 2022, principally due to changes in the mark-to-market of
the IAG €825 million convertible bond, which is held at fair value; and
other non-operating charges of €12 million in 2023 versus a credit of €105
million in 2022.
The tax charge on the profit for the period was €116 million (2022: tax
credit of €189 million), and the effective tax rate was 11 per cent (2022:
22 per cent).
The substantial majority of the Group's activities are taxed where the main
operations are based: in the UK, Spain and Ireland, which have corporation tax
rates during 2023 of 23.5 per cent, 25 per cent and 12.5 per cent,
respectively. The expected tax rate for the Group is determined by applying
the relevant corporation tax rate to the profits or losses of each
jurisdiction. The geographical distribution of profits and losses in the Group
results in the expected tax rate being 24 per cent for the six months to June
30, 2023. The difference between the actual effective tax rate of 11 per cent
and the expected tax rate of 24 per cent is primarily due to the partial
recognition of previously unrecognised tax assets in the Group's Spanish
companies.
The profit after tax for the first six months of 2023 was €921 million
(2022: loss after tax of €654 million).
Cash, debt and liquidity
The Group's cash balance (defined as cash, cash equivalents and current
interest-bearing deposits) of €12,010 million at June 30, 2023 was up
€2,411 million on December 31, 2022, in line with the normal seasonal
pattern of working capital movements and the trading performance. The Group's
airlines typically experience a rise in deferred revenue in the first half of
the year, linked to bookings for future travel, particularly leisure bookings
for summer travel; deferred revenue then usually falls in the second half of
the year.
During the six months, the Group took delivery of 11 aircraft and drew
financing for 11 aircraft as set down below.
Number of aircraft Delivered in the six months to June 30, 2023 Of which financed in the six months to June 30, 2023 Aircraft delivered in 2022 and financed in the six months to June 30, 2023
Airbus A320neo (British Airways) 1 1 2
Airbus A320neo (Iberia) 1 - -
Airbus A321neo (Vueling) 4 4 -
Airbus A350-900 (Iberia) 2 1 -
Airbus A350-1000 (British Airways) 1 - 3
Boeing 787-10 (British Airways) 2 - -
Total 11 6 5
The five aircraft for British Airways delivered in 2022 and financed in 2023
had financing secured at December 31, 2022, which was reported within
committed and undrawn aircraft financing facilities. The Group has a number of
options available to it to finance aircraft during the remainder of the year.
The Group's total borrowings at June 30, 2023 were €19,623 million, down
€361 million from December 31, 2022. The reduction was mainly due to foreign
exchange movements, linked to the weakening of the US dollar, in which a
substantial portion of the Group's aircraft-related debt is denominated,
together with the value of repayments of existing debt exceeding the value of
new debt raised in the six months. Debt maturities in 2023, aside from regular
aircraft lease payments, include the repayment of a €500 million senior
unsecured IAG bond, which was redeemed at its maturity on July 4, 2023 and has
not been refinanced.
Net debt (total borrowings less cash, cash equivalents and current
interest-bearing deposits) was €7,613 million at June 30, 2023, a reduction
of €2,772 million since December 31, 2022, mainly due to the increase in
cash outlined above, driven by the profitability in the first six months,
inflows of forward bookings for future travel, partially offset by capital
expenditure and net interest, with the direct impact of foreign exchange
movements reducing Net debt by €332 million.
The Group's EBITDA before exceptional items for the rolling four quarters to
June 30, 2023 was €4,993 million. Net debt to EBITDA before exceptional
items was 1.5 times at June 30, 2023. The seasonal pattern of airline bookings
typically results in Net debt and Net debt to EBITDA before exceptional items
being lower at the end of June than at the end of December. See Reconciliation
of Alternative performance measures and Alternative performance measures
section of IAG's 2022 Annual report and accounts for further information.
Total liquidity at June 30, 2023 was €15,552 million, up €1,553 million
from €13,999 million at December 31, 2022. Committed and undrawn general and
overdraft facilities were €3,308 million (December 31, 2022: €3,284
million) and committed and undrawn aircraft specific facilities were €234
million (December 31, 2022: €1,116 million).
INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial Statements
January 1, 2023 - June 30, 2023
CONSOLIDATED INCOME STATEMENT
( ) Six months to June 30
€ million Total Total
2023 2022(1)
( )
Passenger revenue 11,784 7,604
Cargo revenue 603 843
Other revenue 1,196 904
Total revenue 13,583 9,351
( ) ( )
Employee costs 2,610 2,167
Fuel, oil costs and emissions charges 3,550 2,566
Handling, catering and other operating costs 1,796 1,322
Landing fees and en-route charges 1,104 847
Engineering and other aircraft costs 1,208 928
Property, IT and other costs 515 435
Selling costs 578 442
Depreciation, amortisation and impairment 983 1,015
Net gain on sale of property, plant and equipment (17) (21)
Currency differences (4) 67
Total expenditure on operations 12,323 9,768
Operating profit/(loss) 1,260 (417)
Finance costs (565) (480)
Finance income 167 3
Net change in fair value of financial instruments (13) 130
Net financing credit relating to pensions 51 13
Net currency retranslation credits/(charges) 149 (197)
Other non-operating (charges)/credits (12) 105
Total net non-operating costs (223) (426)
Profit/(loss) before tax 1,037 (843)
Tax (116) 189
Profit/(loss) after tax for the period 921 (654)
( )
Attributable to:
Equity holders of the parent 921 (654)
Non-controlling interest - -
921 (654)
( )
Basic earnings/(loss) per share (€ cents) 18.6 (13.2)
Diluted earnings/(loss) per share (€ cents) 17.6 (13.2)
(1)The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment.
There is no impact on the Loss after tax. Further information is given in note
1.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June 30
€ million 2023 2022(1)
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity(1) (287) 1,502
Reclassified and reported in net profit (43) (373)
Fair value movements on cost of hedging(1) (114) (63)
Cost of hedging reclassified and reported in net profit 36 4
Currency translation differences 33 (15)
Items that will not be reclassified to net profit
Fair value movement on other equity investments 62 -
Fair value movements on liabilities attributable to credit risk changes (83) 19
Remeasurements of post-employment benefit obligations (476) 547
Total other comprehensive (loss)/income for the period, net of tax (872) 1,621
Profit/(loss) after tax for the period 921 (654)
Total comprehensive income for the period 49 967
Total comprehensive income is attributable to:
Equity holders of the parent 49 967
Non-controlling interest - -
49 967
(1)The 2022 results include a reclassification of losses and gains associated
with the fair value movements on cash flow hedge and fair value movements on
cost of hedging, respectively. There is no impact on Total other comprehensive
income for the period, net of tax. Further information is given in note 1.
Items in the consolidated Statement of other comprehensive income above are
disclosed net of tax.
CONSOLIDATED BALANCE SHEET
€ million June 30, December 31,
2023 2022
Non-current assets
Property, plant and equipment 18,928 18,346
Intangible assets 3,757 3,556
Investments accounted for using the equity method 42 43
Other equity investments 117 55
Employee benefit assets 1,951 2,334
Derivative financial instruments 59 81
Deferred tax assets 1,428 1,282
Other non-current assets 404 362
26,686 26,059
Current assets
Non-current assets held for sale - 19
Inventories 408 353
Trade receivables 1,731 1,330
Other current assets 1,474 1,226
Current tax receivable 44 72
Derivative financial instruments 173 645
Current interest-bearing deposits 1,282 403
Cash and cash equivalents 10,728 9,196
15,840 13,244
Total assets 42,526 39,303
Shareholders' equity
Issued share capital 497 497
Share premium 7,770 7,770
Treasury shares (89) (28)
Other reserves (6,107) (6,223)
Total shareholders' equity 2,071 2,016
Non-controlling interest 6 6
Total equity 2,077 2,022
Non-current liabilities
Borrowings 16,284 17,141
Employee benefit obligations 210 217
Provisions 2,652 2,652
Deferred revenue 293 326
Derivative financial instruments 106 84
Other long-term liabilities 189 200
19,734 20,620
Current liabilities
Borrowings 3,339 2,843
Trade and other payables 5,813 5,209
Deferred revenue 9,979 7,318
Derivative financial instruments 638 387
Current tax payable 58 8
Provisions 888 896
20,715 16,661
Total liabilities 40,449 37,281
Total equity and liabilities 42,526 39,303
CONSOLIDATED CASH FLOW STATEMENT
Six months to June 30
€ million 2023 2022(1)
Cash flows from operating activities
Operating profit/(loss) 1,260 (417)
Depreciation, amortisation and impairment 983 1,015
Net gain on disposal of property, plant and equipment (17) (21)
Employer contributions to pension schemes (20) (10)
Pension scheme service costs 11 1
Increase in provisions 123 291
Unrealised currency differences (44) 38
Other movements 11 17
Interest paid (486) (403)
Interest received 160 3
Tax paid (53) (2)
Net cash flows from operating activities before movements in working capital 1,928 512
Increase in trade receivables (406) (811)
(Increase)/decrease in inventories (54) 4
Increase in other receivables and current assets (248) (85)
Increase in trade payables 54 733
Increase in deferred revenue 2,382 2,370
Increase in other payables and current liabilities 563 527
Net movement in working capital 2,291 2,738
Net cash flows from operating activities 4,219 3,250
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (1,509) (2,100)
Sale of property, plant and equipment and intangible assets 242 173
Proceeds from sale of investments 11 20
Increase in other current interest-bearing deposits (869) (134)
Payment to Globalia for convertible loan - (100)
Other investing movements 9 41
Net cash flows from investing activities (2,116) (2,100)
Cash flows from financing activities
Proceeds from borrowings 614 641
Repayment of borrowings (360) (275)
Repayment of lease liabilities (839) (726)
Settlement of derivative financial instruments (66) 364
Acquisition of treasury shares (65) (23)
Net cash flows from financing activities (716) (19)
Net increase in cash and cash equivalents 1,387 1,131
Net foreign exchange differences 145 (19)
Cash and cash equivalents at 1 January 9,196 7,892
Cash and cash equivalents at period end 10,728 9,004
Interest-bearing deposits maturing after more than three months 1,282 186
Cash, cash equivalents and other interest-bearing deposits 12,010 9,190
(1)The 2022 results have been represented. Further information is given in
note 1 and note 19.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2023
€ million Issued share capital Share premium Treasury shares Other reserves Total shareholders' equity Non-controlling interest Total equity
January 1, 2023 497 7,770 (28) (6,223) 2,016 6 2,022
Total comprehensive income for the period (net of tax) - - - 49 49 - 49
Hedges transferred and reported in the Balance sheet - - - 44 44 - 44
Cost of share-based payments - - - 28 28 - 28
Vesting of share-based payment schemes - - 4 (5) (1) - (1)
Acquisition of treasury shares - - (65) - (65) - (65)
June 30, 2023 497 7,770 (89) (6,107) 2,071 6 2,077
For the six months to June 30, 2022
€ million Issued share capital Share premium Treasury shares Other reserves Total shareholders' equity Non-controlling interest Total equity
At January 1, 2022 497 7,770 (24) (7,403) 840 6 846
Total comprehensive income for the period (net of tax) - - - 967 967 - 967
Hedges transferred and reported in the Balance sheet - - - (10) (10) - (10)
Cost of share-based payments - - - 18 18 - 18
Vesting of share-based payment schemes - - 17 (20) (3) - (3)
Acquisition of treasury shares - - (23) - (23) - (23)
June 30, 2022 497 7,770 (30) (6,448) 1,789 6 1,795
NOTES TO THE ACCOUNTS
For the six months to June 30, 2023
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
(hereinafter the 'Company') 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 27, 2023. 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, 2022 have been applied
in the preparation of these condensed consolidated interim financial
statements, other than those matters described below. IAG's financial
statements for the year to December 31, 2022, 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.
Change in presentation of results
Net gain on sale of property, plant and equipment
The prior period Income statement includes a reclassification to conform with
the current period presentation for the Net gain on the sale of property,
plant and equipment within Operating profit/(loss). Accordingly, for the six
months to June 30, 2022, the Group has reclassified €21 million of gains
from Other non-operating (charges)/credits to Expenditure on operations. There
is no impact on the Loss after tax. The segmental operating profit/(loss) has
been updated to reflect the reclassification.
Statement of other comprehensive income
The prior period Statement of other comprehensive income includes a
reclassification of €150 million of gains associated with the fair value
movements on cash flow hedges and of €15 million of losses associated with
the fair value movements on cost of hedging, which had been previously
presented under the sub-heading Items that will not be reclassified to net
profit, to the sub-heading Items that may be reclassified subsequently to net
profit as these may recycle to net profit in future periods. There is no
impact on Total other comprehensive income for the period, net of tax.
Cash flow statement
The prior period Cash flow statement has been represented and further detailed
in note 19. Accordingly, the Group has reclassified the results for the six
months to June 30, 2022.
Going concern
At June 30, 2023, the Group had total liquidity of €15,552 million (December
31, 2022: total liquidity of €13,999 million), comprising cash, cash
equivalents and interest-bearing deposits of €12,010 million, €3,308
million of committed and undrawn general and overdraft facilities and a
further €234 million of committed and undrawn aircraft specific facilities.
At June 30, 2023, the Group has no financial covenants associated with its
loans and borrowings.
In its assessment of going concern, the Group has modelled two scenarios
referred to below as the Base Case and the Downside Case over the period of at
least twelve months from the date of the approval of these condensed
consolidated interim financial statements (the 'going concern period'). The
Group's three-year business plan, used in the creation of the Base Case,
prepared for and approved by the Board in December 2022, was subsequently
refreshed with the latest available internal and external information in June
and July 2023. The refreshed business plan takes into account the Board's and
management's views on the anticipated continued recovery from the COVID-19
pandemic and the wider economic and geopolitical environments on the Group's
businesses across the going concern period. The key inputs and assumptions
underlying the Base Case through to July 31, 2024, include:
• capacity recovery modelled by geographical region with total capacity
increasing from 97 per cent in quarter 3 2023 (compared to the equivalent
period in 2019) to above 2019 levels by the end of the going concern period;
• passenger unit revenue per ASK is forecast to continue to remain above
the levels obtained in 2019 throughout the going concern period;
• the Group has assumed that the committed and undrawn general and
aircraft facilities of €3,542 million will not be drawn over the going
concern period. The availability of certain of these facilities reduces over
time, with €3,042 million being available to the Group at July 31, 2024;
• the Group has assumed that the €500 million bond that matured and
was repaid on July 4, 2023 will not be refinanced;
• of the capital commitments detailed in note 9, €2.8 billion is due
to be paid over the period to July 31, 2024;
• the Group has forecast securing approximately 100 per cent, or €2.9
billion, of the aircraft financing required that is currently uncommitted, to
align with the timing and payments for these aircraft deliveries, including
aircraft delivered in the first half of 2023 that have not yet been financed;
and
• the Group has assumed that the relevant approvals required in relation
to the acquisition of Air Europa Holdings are obtained by July 31, 2024, and
that cash outflows of €150 million will be incurred, comprising €100
million of the cash consideration and €50 million for the purchase of
ordinary shares in the Company that have not already been purchased at the
Balance sheet date.
The Downside Case applies stress to the Base Case to model adverse commercial
and operational impacts over the going concern period, represented by: reduced
levels of capacity operated in each month, including reductions of 25 per cent
for three months in 2023 and 2024; reduced passenger unit revenue per ASK;
increases in the price of jet fuel by 20 per cent; and increased operational
costs. In the Downside Case, over the going concern period capacity would be
ten per cent down when compared to the Base Case. The Downside Case assumes
that none of available general and aircraft facilities are required to be
drawn. The Downside Case also assumes that upon completion of the Air Europa
Holdings acquisition that a further €200 million of working capital needs
are paid by the Group. The Directors consider the Downside Case to be a severe
but plausible scenario.
Having reviewed the Base Case and the Downside Case, the Directors have a
reasonable expectation that the Group has sufficient liquidity to continue in
operational existence for a period of at least twelve months from the date of
approval of these condensed consolidated interim financial statements and
hence continue to adopt the going concern basis in preparing the condensed
consolidated interim financial statements for the six months to June 30, 2023.
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, 2023, are consistent with those followed in the preparation of the
Group's annual consolidated financial statements for the year to December 31,
2022.
In preparing the condensed consolidated interim financial statements for the
six months to June 30, 2023, except as described below, management has made
judgements and estimates that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses
consistent with those disclosed in the Group's annual consolidated financial
statements for the year to December 31, 2022.
Significant changes in estimates due to the macroeconomic and geopolitical
environment
During the six months to June 30, 2023, the macroeconomic and geopolitical
environment has affected the assumptions and estimation uncertainty associated
with the measurement of certain of the Group's assets and liabilities. In
particular high inflation, rising interest rates and the volatility of
commodity prices have led to the remeasurement of the Group's assets and
liabilities in accordance with the Group's accounting policies as detailed in
the Group's annual consolidated financial statements for the year to December
31, 2022. In doing so, the Group has updated for the following, amongst
others, where material: (i) its long term provisions for the impact of
inflation and discounting; (ii) employee benefit assets and obligations for
both the expected impact of inflation and the impact of interest rates on
discount rates; (iii) the determination of the fair value of equity
investments, for the effects of interest rates on discount rates applied; (iv)
the valuation of derivative assets and liabilities for changes in interest
rates and commodity prices; (v) the recoverability of deferred tax assets for
the long-term effects of inflation, interest rates and commodity prices, and;
(vi) the going concern scenario modelling for the effects of inflation,
interest rates and commodity prices.
Revenue recognition from customer loyalty schemes
For the year ended December 31, 2022, in regard to the Group's customer
loyalty schemes, given the uncertainty as to whether recent redemption data
was representative of long-term behavioural trends, the Group estimated the
level of redemption activity based on pre-COVID-19 customer behaviour. In the
six month period ended June 30, 2023, the Group now considers historical
redemption activity, including more recent customers' behaviours following
COVID-19, to predict the long-term trends and accordingly the Group has
updated the estimated level of redemption activity to incorporate current
customer behaviour.
Impairment indicator assessment of non-financial assets
At June 30, 2023, the Group recognised €2,441 million in respect of
intangible assets with an indefinite life, including goodwill.
Goodwill and intangible assets with indefinite economic lives are tested, as
part of the cash generating units to which they relate, for impairment
annually and at other times when such indicators exist. The recoverable
amounts of cash generating units are determined based on value-in-use
calculations, which use a weighted average multi-scenario discounted cash flow
model, which are then compared to the carrying amount of the associated cash
generating unit.
At June 30, 2023, the Group has applied judgement in the consideration as to
whether either external or internal sources of information would indicate that
one or more of the cash generating units may be impaired. Such significant
judgement included the increase, since the last impairment test date, in
interest rates and other market rates of return that influence the pre-tax
discount rate used in the value-in-use modelling as well as broader changes
and expected changes in the short, medium and long-term economic environment.
The Group considers that the impact of increases in interest rates, while
maintaining other assumptions constant, would lead to increases in the pre-tax
discount rate applied to the value-in-use of each cash generating units.
However, the level of headroom for each cash generating unit at the last
testing date was of such a magnitude that the increase in the pre-tax discount
rates would not lead to the recognition of an impairment charge. In addition,
a reasonable possible further increase in the pre-tax discount rate of 2.5
percentage points would not lead to the recognition of an impairment charge.
In addition, the Group has not identified any adverse external or internal
source of information when compared to impairment analysis performed at the
last testing date. Such analysis has considered, but not limited to, internal
updated forecasts (as detailed above in relation to going concern), external
short term macro-economic forecasts, external long-term GDP forecasts and
external jet fuel forward price curves.
Accordingly, at June 30, 2023, no impairment test has been undertaken.
Pillar Two minimum effective tax rate reform
In 2021 the OECD released the Two Pillar solution to address the tax
challenges arising from the digitalisation of the economy. This reform to the
international tax system addresses the geographical allocation of profits for
the purposes of taxation, and is designed to ensure that multinational
enterprises will be subject to a minimum 15 per cent effective tax rate.
On December 15, 2022, the Council of the European Union formally adopted the
EU Pillar Two Directive. Member States are expected to transpose the Directive
into national law by the end of 2023. On April 3, 2023, the UK Government
issued the Spring Finance Bill, which included legislation that implements the
OECD Pillar Two reforms, which was substantively enacted on June 20, 2023, and
received Royal Assent on July 11, 2023. At June 30, 2023 and through to the
date of the report, EU Member States have not substantively enacted these
reforms, however, when enacted, such legislation shall apply prospectively for
accounting periods beginning on or after December 31, 2023.
On May 23, 2023, the IASB issued the amendments to IAS 12 - international tax
reform: Pillar Two model reforms, effective for periods beginning on or after
January 1, 2023. The amendments to IAS 12 provide temporary mandatory relief
from the recognition of deferred tax balances arising from the implementation
of the Pillar Two legislation. At June 30, 2023, the amendments to IAS 12 have
not been endorsed by the EU.
Subject to the substantive enactment of the Pillar Two legislation and the
endorsement of the amendments to IAS 12, the Group has developed an accounting
policy consistent with the amendments to IAS 12, whereby, the Group does not
recognise adjustments to deferred tax assets and liabilities that arise from
the introduction of the minimum 15 per cent effective tax rate. In developing
this accounting policy, the Group has also adopted the relief given in
paragraph 98M of the amendments of IAS 12 not to provide the disclosure
requirements of the amendments for interim periods beginning on or after
January 1, 2023.
This accounting policy shall continue to be monitored as legislation are
substantively enacted and the amendments to IAS 12 are endorsed.
At June 30, 2023, the Group is continuing to assess the implications of these
Two Pillar reforms, including quantification of the impact of substantive
enactment on current tax.
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, 2023, but do not have a material impact on the
condensed consolidated interim financial statements of the Group:
• IFRS 17 Insurance contracts - 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.
The IASB and IFRIC have issued the following standards, amendments and
interpretations with an effective date after the period end of these financial
statements which management believe could impact the Group in future periods.
The Group has assessed the impact of these standards, amendments and
interpretations and it is not expected that these will have a material effect
on the reported income or net assets of the Group. Unless otherwise stated,
the Group plans to adopt the following standards, interpretations and
amendments on the date they become mandatory:
• lease liability in a sale and leaseback - amendments to IFRS 16
effective for periods beginning on or after January 1, 2024.
On October 31, 2022, the IASB issued the amendments to IAS 1 - classification
of liabilities as current or non-current (the 'Amendments'), effective for
periods beginning on or after January 1, 2024. The Amendments will require the
€825 million convertible bond that matures in 2028, which as at June 30,
2023, had a carrying value of €701 million, to be reclassified from a
non-current liability to a current liability with the comparative presentation
as at December 31, 2023 also reclassified. The Amendments require that where
the conversion feature of a convertible instrument does not meet the
recognition criteria for separate presentation within equity and where the
associated bond holders have the irrevocable right to exercise the conversion
feature within twelve months of the balance sheet date, that such convertible
instruments be presented as current. Other than this reclassification, the
Amendments will not have a material effect on the reported results or net
assets of the Group.
Significant changes and transactions in the current reporting period
The financial performance and position of the Group was affected by the
following significant events and transactions in the six-month period to June
30, 2023:
• On February 23, 2023, the Group entered into an agreement to acquire
the remaining 80 per cent of the share capital of Air Europa Holdings that it
had not previously owned. On successful completion of the transaction,
54,064,575 ordinary shares of the Company (which represented €100 million at
the date of the agreement) will be transferred to and €100 million in cash
will be paid to Globalia, with a further €100 million paid on both the first
and second anniversary of completion.
• In addition, the Group has agreed to pay a break-fee to Globalia of
€50 million should: (i) the relevant approvals, detailed below, not be
forthcoming within 24 months of entering into the agreement; or (ii) the Group
terminates the agreement at any time prior to completion. Under the agreement,
this 24-month period can be extended, by mutual consent. The acquisition is
conditional on Globalia receiving approval from the syndicated banks that
provide the loan agreements that are partially guaranteed by the Instituto de
Crédito Oficial (ICO) and Sociedad Estatal de Participaciones Industriales
(SEPI) in Spain. The acquisition is also subject to approval by relevant
competition authorities. Until the completion of these approvals, the
acquisition does not meet the recognition criteria under IFRS 3 Business
combinations, and no accounting has been made for the transaction in these
condensed consolidated interim financial statements.
• In May 2023, the Group announced its intention to carry out a share
purchase programme in order to acquire approximately 50 per cent of the
aforementioned ordinary shares required as part of the acquisition of Air
Europa Holdings. The programme completed during the period to June 30, 2023,
with the Group having purchased 27 million shares amounting to €49 million.
• On March 3, 2023, Aer Lingus repaid in full the €50 million of the
financial arrangement with the Ireland Strategic Investment Fund (ISIF). At
June 30, 2023, €350 million of undrawn facilities remain available for draw
down; and
• On June 30, 2023, the Group converted 10 Airbus A320neo options into
firm orders. The aircraft will be delivered in 2028 and will be used by any of
the Group's current airlines to replace A320ceo family aircraft.
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, loyalty and platform functions. Each airline
operates its network operations as a single business unit and the IAG MC
assesses performance based on measures including operating profit, and makes
resource allocation decisions for the airlines based on network profitability,
primarily by reference to the passenger markets in which the companies
operate. The objective in making resource allocation decisions is to optimise
consolidated financial results.
The Group has determined its operating segments based on the way that it
treats its businesses and the manner in which resource allocation decisions
are made. British Airways, Iberia, Vueling, Aer Lingus and IAG Loyalty have
been identified for financial reporting purposes as reportable operating
segments. LEVEL is also an operating segment but does not exceed the
quantitative thresholds to be reportable and management has concluded that
there are currently no other reasons why LEVEL 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, 2023
2023
€ million British Airways Iberia Vueling Aer IAG Loyalty Other Group companies(1) Total
Lingus
Revenue
Passenger revenue 6,613 2,368 1,418 976 260 149 11,784
Cargo revenue 448 120 - 31 - 4 603
Other revenue 410 521 8 5 252 - 1,196
External revenue 7,471 3,009 1,426 1,012 512 153 13,583
Inter-segment revenue 185 237 - 7 139 198 766
Segment revenue 7,656 3,246 1,426 1,019 651 351 14,349
Depreciation and amortisation charge (550) (196) (127) (72) (5) (33) (983)
Operating profit/(loss) 602 372 96 40 160 (10) 1,260
Exceptional items - - - - - - -
Operating profit/(loss) before exceptional items 602 372 96 40 160 (10) 1,260
Net non-operating costs (223)
Profit before tax 1,037
Total assets 25,781 9,933 3,534 2,166 3,642 (2,530) 42,526
Total liabilities (23,097) (9,458) (4,106) (2,193) (3,115) 1,520 (40,449)
(1)Includes eliminations on total assets of €16,420 million and total
liabilities of €5,805 million.
For the six months to June 30, 2022
2022(2)
€ million British Airways Iberia Vueling Aer Lingus IAG Loyalty(1) Other Group companies(1,2,3) Total
Revenue
Passenger revenue 4,137 1,601 973 610 204 79 7,604
Cargo revenue 654 144 - 40 - 5 843
Other revenue 378 364 4 7 150 1 904
External revenue 5,169 2,109 977 657 354 85 9,351
Inter-segment revenue 128 188 - 9 102 185 612
Segment revenue 5,297 2,297 977 666 456 270 9,963
Depreciation and amortisation charge (644) (178) (97) (70) (3) (29) (1,021)
Impairment reversal - - 6 - - - 6
Operating (loss)/profit(2) (413) 2 (52) (83) 152 (23) (417)
Exceptional items 23 - 6 - - - 29
Operating (loss)/profit before exceptional items (436) 2 (58) (83) 152 (23) (446)
Net non-operating costs(2) (426)
Loss before tax (843)
Total assets 23,956 8,698 3,290 2,161 3,260 (1,534) 39,831
Total liabilities (21,114) (8,778) (3,944) (2,150) (2,973) 923 (38,036)
(1)In the 2022 Annual report and accounts, based on size thresholds the Group
determined that IAG Loyalty was a reportable segment and accordingly presented
the financial information of the segment separately. The prior period segment
note has been re-presented to align with the current year presentation.
(2)Segment information for 2022 has been restated for the reclassification to
conform with the current period presentation for the Net gain on sale of
property, plant and equipment. Further information is given in note 1.
(3)Includes eliminations on total assets of €16,189 million and total
liabilities of €5,902 million.
b Other revenue
Six months to June 30
€ million 2023 2022
Holiday and hotel services 443 391
Maintenance and overhaul services 368 210
Brand and marketing 168 130
Ground handling and services 62 82
Other 155 91
1,196 904
c Geographical analysis
Revenue by area of original sale
Six months to June 30
€ million 2023 2022
UK 4,668 3,390
Spain 2,461 1,779
USA 2,372 1,383
Rest of world 4,082 2,799
13,583 9,351
Assets by area
June 30, 2023
€ million Property, plant Intangible
and equipment assets
UK 12,506 1,615
Spain 5,167 1,530
USA 63 10
Rest of world 1,192 602
18,928 3,757
December 31, 2022
€ million Property, plant Intangible
and equipment assets
UK 12,026 1,490
Spain 5,082 1,462
USA 47 9
Rest of world 1,191 595
18,346 3,556
5. FINANCE COSTS, INCOME AND OTHER NON-OPERATING CREDITS
Six months to June 30
€ million 2023 2022
Finance costs
Interest expense on:
Bank borrowings (130) (94)
Asset financed liabilities (82) (46)
Lease liabilities (250) (217)
Bonds (32) (45)
Provisions unwinding of discount (42) (5)
Other borrowings (32) (46)
Capitalised interest on progress payments 13 2
Other finance costs (10) (29)
(565) (480)
Finance income
Interest on other interest-bearing deposits 164 2
Other finance income 3 1
167 3
Net change in fair value of financial instruments
Net change in the fair value of convertible bond (13) 171
Net fair value losses on financial assets at fair value through profit or loss - (41)
(13) 130
Net credit relating to pensions
Net financing credit relating to pensions 51 13
51 13
Other non-operating (charges)/credits(1)
Net gain on sale of investments 10 -
Share of profits in investments accounted for using the equity method - 1
Realised (losses)/gains on derivatives not qualifying for hedge accounting (22) 83
Unrealised gains on derivatives not qualifying for hedge accounting - 21
(12) 105
(1)The 2022 Other non-operating (charges)/credits include a reclassification
to conform with the current year presentation of the Income statement. Refer
to note 1 for further details.
6. TAX
The tax (charge)/credit in the Income statement was as follows:
Six months to June 30
€ million 2023 2022
Current tax (134) (21)
Deferred tax 18 210
Total tax (116) 189
The effective tax rate for the six months to June 30, 2023, was 11 per cent
(2022: 22 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 2023 of 25 per cent, 23.5 per cent and 12.5 per
cent respectively. These result in an expected tax rate of 24 per cent.
The difference between the actual effective tax rate of 11 per cent and the
expected tax rate of 24 per cent was primarily due to the partial recognition
of previously unrecognised tax assets in the Group's Spanish companies.
The details of the unrecognised temporary differences and losses are given in
the table below:
€ million June 30, December 31,
2023 2022
Income tax losses
Spanish corporate income tax losses 1,399 1,596
Openskies SASU trading losses 405 405
UK trading losses 72 72
Other tax losses 11 11
1,887 2,084
Other losses and temporary differences
Spanish deductible temporary differences 223 481
UK capital losses 350 343
Irish capital losses 17 17
590 841
None of the unrecognised temporary differences or losses have an expiry date.
As at June 30, 2023, the Group had unrecognised tax losses and other temporary
differences of €1,887 million and €590 million respectively that the Group
does not reasonably expect to utilise. The Group only recognises net deferred
tax assets in relation temporary differences and losses to the extent it is
probable that the taxable profit will be available against which the
deductible temporary differences, carried forward tax credits or tax losses
can be utilised. Management utilises judgement in order to assess the
probability of recoverability. In applying the aforementioned judgement, had
the Group extended the period of future cash flow projections indefinitely,
then the amount of unrecognised tax losses would have reduced by €1,410
million.
The increase in the main rate of UK corporation tax to 25 per cent was
substantively enacted on May 24, 2021. This has led to the remeasurement of
deferred tax balances at June 30, 2023 and will increase the Group's future
current tax charge accordingly. As a result of the remeasurement of deferred
tax balances in UK entities, a charge of €7 million (June 30, 2022: €66
million credit) was recorded in the Income statement and a charge of €nil
million (June 30, 2022: €17 million charge) was recorded in Other
comprehensive income.
On October 8, 2021, Ireland announced that it would increase the rate of
corporation tax for certain multinational businesses to 15 per cent with
effect from 2023. The Irish government is consulting on the detail on how this
will be implemented. This expected tax rate change has not been reflected in
these results because it has not yet been substantively enacted. The effect of
this proposed rate change is not expected to be material over the period of
the management-approved business plan.
Tax related contingent liabilities
The Group has certain contingent liabilities that could be reliably estimated,
across all taxes, but excluding the IAG Loyalty VAT matter detailed below, at
June 30, 2023 amounting to €110 million (December 31, 2022: €110 million).
While the Group does not consider it more likely than not that there will be
material losses on these matters, given the inherent uncertainty associated
with tax litigation and tax audits, there can be no guarantee that material
losses will not eventuate. As the Group considers that it is more probable
than not of success in each of these matters, it is not appropriate to make a
provision for these amounts. Included in the tax related contingent
liabilities are the following:
Merger gain
Following tax audits covering the period 2011 to 2014, the Spanish Tax
Authorities issued a corporate income tax assessment to the Company regarding
the merger in 2011 between British Airways and Iberia. The maximum exposure in
this case is €99 million (December 31, 2022: €98 million), being the
amount in the tax assessment with an estimate of the interest accrued on that
assessment through to June 30, 2023.
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 late 2023 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. Based on legal advice and an external accounting experts' opinion, the
Company believes that it has strong arguments to support its appeals. The
Company does not consider it appropriate to make a provision for these amounts
and accordingly has classified this matter as a contingent liability.
Should the Company be unsuccessful in its appeal to the Audiencia Nacional, it
would re-assess its position and the associated accounting treatment
accordingly.
IAG Loyalty VAT
At June 30, 2023, and through to the date of this report, His Majesty's
Revenue and Customs (HMRC) has issued protective notices of VAT assessments
for the 19 months ended September 2019 to Avios Group (AGL) Limited, a
controlled undertaking of the Group trading as IAG Loyalty. At the date of
this report none of these protective notices of assessment are due for
payment.
During the second quarter of 2023, and while its enquiries are ongoing at the
date of this report, HMRC shared with the Group its emerging view on the
appropriate VAT accounting, which differs to the current approach by IAG
Loyalty. HMRC's emerging view asserts that the charges made by IAG Loyalty are
for participating/membership in the Avios scheme and the associated charges
and are subject to VAT. IAG Loyalty accounts for VAT depending on the nature
of the goods or services for which Avios are redeemed, the vast majority of
which are flights, and zero-rated. IAG Loyalty's VAT accounting has and
continues to be based on historical rulings issued by HMRC.
As at the date of this report, this emerging view did not consider the
validity of the rulings HMRC has previously issued with regard to IAG
Loyalty's VAT accounting. Accordingly, and while having issued the protective
notices, HMRC has not confirmed whether it considers its emerging view to be
retroactive or only prospective in nature. The Group expects further
developments in this matter during the remainder of 2023, which may include
HMRC issuing an update to its emerging view.
Given the early stages of HMRC's enquiries there remain a number of possible
scenarios that could eventuate. The Group has reviewed HMRC's emerging view
with its legal and tax advisors and considers it has strong arguments to
support its VAT accounting, including having received rulings previously from
HMRC on the matter, and therefore does not consider it probable that an
adverse ruling will eventuate. Accordingly, the Group does not consider it
appropriate to record any provision for this case at June 30, 2023. The Group,
in conjunction with its advisors, considers the disclosure of a potential
range of exposures, associated with the aforementioned possible scenarios that
could eventuate, could prejudice seriously the position of the Group in its
ongoing engagement with HMRC.
Subsequent to the issuance of the emerging view, the Group continues to engage
with HMRC on the underlying facts, circumstances and technical analysis of the
matter. Should the Group and HMRC be unable to reach agreement on the
appropriate VAT accounting, then the Group will have the ability to advance
the case to an independent tax tribunal. To enable the Group to advance to an
independent tax tribunal, it will need to pay, without admission of liability,
to HMRC the total amount of assessments issued at the time of application to
the independent tax tribunal, which will be recoverable, in part or in full,
should the Group be successful in the case. Until HMRC further progresses its
enquiries, it is not possible to determine the payment required, if any, but
any potential payment may result in a material cash outflow from to the Group.
7. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June 30
Millions 2023 2022
Weighted average number of ordinary shares in issue 4,950 4,963
Weighted average number of ordinary shares for diluted earnings/(loss) per 5,297 4,963
share
Six months to June 30
€ cents 2023 2022
Basic earnings/(loss) per share 18.6 (13.2)
Diluted earnings/(loss) per share 17.6 (13.2)
The number of ordinary shares in issue at June 30, 2023 was 4,971,476,000
(December 31, 2022: 4,971,476,000) with a par value of €0.10 each.
The effect of the assumed conversion of the IAG €825 million convertible
bond 2028 and outstanding employee share schemes has a dilutive impact on the
earnings per share for the six months to June 30, 2023 due to the reported
profit after tax for the period, but are antidilutive for six months to June
30, 2022 due to the reported loss after tax for the period, and therefore have
not been included in the diluted loss per share calculation for six months to
June 30, 2022.
8. Dividends
The Directors propose that no dividend be paid for the six months to June 30,
2023 (June 30, 2022: 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 the triennial valuation as at March
31, 2021 that, subject to the over-funding protection mechanism, no dividends
will be paid to IAG before December 31, 2023 and that any dividends paid to
IAG from January 1, 2024 through to September 30, 2025, will trigger a pension
contribution of 50 per cent of the amount of the dividend. Further information
on the British Airways dividend restrictions agreed with NAPS are given in
note 32a of the 2022 Annual report and accounts.
9. property, plant and equipment, intaNgible assets AND
RIGHT OF USE ASSETS
€ million Other Right of use Total Intangible assets
Property, plant Property, plant
and equipment and equipment
Net book value at January 1, 2023 9,649 8,697 18,346 3,556
Additions 1,156 141 1,297 354
Modifications - 114 114 -
Disposals (202) - (202) (97)
Reclassifications(1) 181 (181) - -
Depreciation and amortisation charge (374) (519) (893) (90)
Exchange movements 161 105 266 34
Net book value at June 30, 2023 10,571 8,357 18,928 3,757
Other Right of use Total Intangible assets
Property, plant Property, plant
and equipment and equipment
Net book value at January 1, 2022 7,858 9,303 17,161 3,239
Additions 1,962 109 2,071 171
Modifications - 225 225 -
Disposals (198) (1) (199) (10)
Reclassifications(1) 237 (237) - -
Depreciation and amortisation(2) (418) (538) (956) (94)
Impairment reversal - 6 6 -
Exchange movements (83) (61) (144) (18)
Net book value at June 30, 2022 9,358 8,806 18,164 3,288
(1)Amounts with a net book value of €181 million (six months to June 30,
2022: €237 million) were reclassified from ROU assets to Owned Property,
plant and equipment at the cessation of the respective leases. The assets
reclassified relate to leases with purchase options that were grandfathered as
ROU assets upon transition to IFRS 16, for which the Group had been
depreciating over the expected useful life of the aircraft, incorporating the
purchase option.
(2)Included in the prior period Depreciation, amortisation and impairment
charge in the Income statement, not included within above reconciliation, is a
credit of €29 million relating to the de-designation of hedge accounting
that had been applied to mitigate the foreign currency exposure on aircraft
purchases.
At June 30, 2023, bank and other loans of the Group are secured on owned fleet
assets with a net book value of €4,611 million (December 31, 2022: €3,931
million).
Capital expenditure authorised and contracted for but not provided for in the
accounts amounts to €13,340 million (December 31, 2022: €13,749 million).
The majority of capital expenditure commitments are for fleet and are
denominated in US dollars, and as such are subject to changes in exchange
rates.
10. Other equity investments
Other equity investments include the following:
€ million June 30, 2023 December 31, 2022
Unlisted securities 117 55
117 55
Investment in Air Europa Holdings
Consistent with the approach at December 31, 2022, the Group has designated
its investment in Air Europa Holdings as measured at fair value through Other
comprehensive income. Changes in fair value are recognised in Other
comprehensive income. At June 30, 2023, the Group determined the fair value of
the investment in Air Europa Holdings using both the market approach and the
income approach, whereby the Group used both observable market data and
unobservable inputs. The fair value was determined on the stand-alone basis of
Air Europa Holdings without consideration of potential synergies that could be
obtained if the Group were able to obtain control over the operations of Air
Europa Holdings. The results of these valuation approaches resulted in a fair
value of €88 million, representing an increase of €64 million since
January 1, 2023, which has been recorded within Other comprehensive income.
11. borrowings
June 30, 2023 December 31, 2022
€ million Current Non-current Total Current Non-current Total
Bank and other loans 902 5,570 6,472 822 5,724 6,546
Asset financed liabilities 283 3,923 4,206 255 3,564 3,819
Lease liabilities 2,154 6,791 8,945 1,766 7,853 9,619
Interest-bearing long-term borrowings 3,339 16,284 19,623 2,843 17,141 19,984
Banks and other loans are repayable up to the year 2029. Long-term borrowings
of the Group amounting to €4,337 million (December 31, 2022: €3,962
million) are secured on owned fleet assets with a net book value of €4,611
million (December 31, 2022: €3,931 million). Asset financed liabilities are
all secured on the associated aircraft or other property, plant and equipment.
Details of the 2028 convertible bond
The convertible bond provides bondholders with dividend protection and
includes a total of 244,850,715 options at inception and at June 30, 2023 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, 2023 was
€701 million (December 31, 2022: €605 million), representing an increase
of €96 million since January 1, 2023. Of this increase, the amount recorded
in Other comprehensive income arising from credit risk of the convertible
bonds was €83 million and a charge recorded as Net change in fair value of
convertible bond in the Income statement attributable to changes in market
conditions of €13 million.
12. FINANCIAL INSTRUMENTS
a Financial assets and liabilities by category
The detail of the Group's financial instruments at June 30, 2023 and December
31, 2022 by nature and classification for measurement purposes is as follows:
June 30, 2023
Financial assets
( )€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non-financial Total
assets carrying
amount by
balance sheet
item
( )Non-current assets
Other equity investments - 117 - - 117
( )Derivative financial instruments - - 59 - 59
( )Other non-current assets 197 - - 207 404
( ) ( )
( )Current assets
( )Trade receivables 1,731 - - - 1,731
( )Other current assets 341 - - 1,133 1,474
( )Derivative financial instruments - - 173 - 173
( )Other current interest-bearing deposits 1,282 - - - 1,282
( )Cash and cash equivalents 10,728 - - - 10,728
( ) Financial liabilities
( )€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non- Total
financial carrying
liabilities amount by
balance sheet
item
Non-current liabilities
Lease liabilities 6,791 - - - 6,791
Interest-bearing long-term borrowings 8,801 - 692 - 9,493
Derivative financial instruments - - 106 - 106
Other long-term liabilities 129 - - 60 189
( ) ( )
Current liabilities
Lease liabilities 2,154 - - - 2,154
Current portion of long-term borrowings 1,176 - 9 - 1,185
Trade and other payables 5,444 - - 369 5,813
Derivative financial instruments - - 638 - 638
December 31, 2022
( )
Financial assets
( )€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non-financial assets Total carrying amount by balance sheet item
Non-current assets
Other equity investments - 55 - - 55
Derivative financial instruments - - 81 - 81
Other non-current assets 180 - - 182 362
( ) ( )
Current assets
Trade receivables 1,330 - - - 1,330
Other current assets 308 - - 918 1,226
Derivative financial instruments - - 645 - 645
Other current interest-bearing deposits 403 - - - 403
Cash and cash equivalents 9,196 - - - 9,196
( ) ( ) Financial liabilities
( )€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non- Total
financial carrying
liabilities amount by
balance sheet
item
Non-current liabilities
Lease liabilities 7,853 - - - 7,853
Interest-bearing long-term borrowings 8,692 - 596 - 9,288
Derivative financial instruments - - 84 - 84
Other long-term liabilities 131 - - 69 200
( ) ( )
Current liabilities
Lease liabilities 1,766 - - - 1,766
Current portion of long-term borrowings 1,068 - 9 - 1,077
Trade and other payables 4,898 - - 311 5,209
Derivative financial instruments - - 387 - 387
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 using forward pricing models, which include
forward exchange rates, forward interest rates, forward fuel curves and
corresponding volatility surface data at the reporting date. The determination
of the fair value of derivative financial assets and liabilities are detailed
in the 2022 Annual report and accounts.
The fair value of the Group's interest-bearing borrowings including leases is
determined by discounting the remaining contractual cash flows at the relevant
market interest rates at the balance sheet date. The fair value of the Group's
interest-bearing borrowings is 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. For the methodology in the
determination of the fair value of the investment in Air Europa Holdings,
refer to note 10.
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, 2023 are as follows:
Fair value Carrying
value
€ million Level 1 Level 2 Level 3 Total Total
Financial assets
Other equity investments - - 117 117 117
Other non-current financial assets - 18 - 18 31
Derivative financial assets(1) - 232 - 232 232
Financial liabilities
Interest-bearing loans and borrowings 2,781 7,151 - 9,932 10,678
Derivative financial liabilities(2) - 744 - 744 744
(1)Current portion of derivative financial assets is €173 million.
(2)Current portion of derivative financial liabilities is €638 million.
The carrying amounts and fair values of the Group's financial assets and
liabilities at December 31, 2022 are as follows:
Fair value Carrying value
€ million Level 1 Level 2 Level 3 Total Total
Financial assets
Other equity investments - - 55 55 55
Other non-current financial assets - 20 - 20 31
Derivative financial assets(1) - 726 - 726 726
Financial liabilities
Interest-bearing loans and borrowings 2,538 6,416 - 8,954 10,365
Derivative financial liabilities(2) - 471 - 471 471
(1)Current portion of derivative financial assets is €645 million.
(2)Current portion of derivative financial liabilities is €387 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 €825 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:
€ million June 30, 2023 December 31, 2022
Opening balance for the period 55 31
Addition of Air Europa Holdings - 22
Additions - other - 2
Losses recognised in Income statement - (2)
Net gains recognised in Other comprehensive income 62 2
Closing balance for the period 117 55
13. SHARE BASED PAYMENTS
During the six months to June 30, 2023, 24,323,265 awards were made under the
Group's 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 the share price at the date of the grant. The Group settles the
employees' tax obligations arising from the issue of the shares directly with
the relevant tax authority in cash and an equivalent number of shares is
withheld by the Group upon vesting. The fair value of equity-settled share
awards granted is the share price at the time of the grant.
The Group also made awards under the Group's Incentive Award Deferral Plan
during the period, under which 1,007,562 conditional shares were awarded.
14. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the Group are the
Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both
of which are British Airways schemes in the UK and are closed to new members.
APS has been closed to new members since 1984, but remains open to future
accrual. The benefits provided under APS are based on final average
pensionable pay and, for the majority of members, are subject to inflationary
increases in payment.
NAPS has been closed to new members since 2003 and closed to future accrual
since 2018, resulting in a reduction of the defined benefit obligation.
Following closure members' deferred pensions will now be increased annually by
inflation up to five per cent per annum (measured using the Government's
annual Pension Increase (Review) Orders, which since 2011 have been based on
CPI).
Triennially, the Trustees of APS and NAPS undertake actuarial valuations,
which are subsequently agreed with British Airways to determine the cash
contributions and any deficit payment plans through to the next valuation
date, as well as ensuring that the schemes have sufficient funds available to
meet future benefit payments to members. These actuarial valuations are
prepared using the principles set out in UK Pension legislation. This differs
from the IAS 19 'Employee benefits' valuation, which is used for deriving the
Income statement and Balance sheet positions and uses a best-estimate approach
overall. The different purpose and principles lead to different assumptions
being used, and therefore a different estimate for the liabilities and funding
levels.
During 2022, the triennial valuations, as at March 31, 2021, were finalised
for APS and NAPS which resulted in a technical surplus of €343 million
(£295 million) for APS and a technical deficit of €1,887 million (£1,650
million) for NAPS. The actuarial valuations performed for APS and NAPS are
different to the valuation performed as at June 30, 2023 under IAS 19
'Employee Benefits' mainly due to timing differences of the measurement dates
and to the specific scheme assumptions in the actuarial valuation performed as
at March 31, 2021 compared with IAS 19 requirements used in the accounting
valuation assumptions as at the reporting date.
Cash payments and funding arrangements
Cash payments in respect to pension obligations comprise normal employer
contributions by the Group and deficit contributions based on the agreed
deficit payment plan with APS and NAPS. Total payments for the six months to
June 30, 2023 net of service costs made by the Group were €20 million (six
months to June 30, 2022: €8 million). The Group expects to pay €1 million
in employer contributions to APS and NAPS over the six month period to
December 31, 2023.
Deficit contributions and deferred deficit contributions
At the date of the actuarial valuation, being March 31, 2021, the actuarial
deficit of NAPS amounted to €1,887 million. In order to address the deficit
in the scheme, the Group has also committed to deficit contribution payments
through to May 31, 2032. The deficit contribution plan includes an
over-funding protection mechanism, based on the triennial valuation
methodology for measuring the deficit, whereby deficit contributions are
suspended if the funding position reaches 100 per cent, with a mechanism for
contributions to resume if the contribution level subsequently falls below 100
per cent, or until such point as the scheme funding level reaches 100 per
cent.
During the six months to June 30, 2023, the NAPS funding position exceeded 100
per cent and accordingly deficit contributions were suspended. At June 30,
2023, the valuation of the funding level incorporates significant
forward-looking assumptions, such that the Group currently does not expect to
make further deficit contributions. Given the long-term nature of the NAPS
scheme, these assumptions are subject to uncertainty and there can be no
guarantee that deficit contributions will not resume in the future or that
additional deficit contributions will be incorporated into future triennial
actuarial valuations.
June 30, 2023
€ million APS NAPS Other Total
Scheme assets at fair value(1, 3) 6,032 16,468 393 22,893
Present value of scheme liabilities(1) (5,929) (13,592) (572) (20,093)
Net pension asset/(liability) 103 2,876 (179) 2,800
Effect of the asset ceiling(2) (36) (1,007) (7) (1,050)
Other employee benefit obligations - - (9) (9)
June 30, 2023 67 1,869 (195) 1,741
Represented by:
Employee benefit assets 1,951
Employee benefit obligations (210)
Net employee benefit asset 1,741
December 31, 2022
€ million APS NAPS Other Total
Scheme assets at fair value(1) 6,283 17,029 356 23,668
Present value of scheme liabilities(1) (6,052) (13,692) (548) (20,292)
Net pension asset/(liability) 231 3,337 (192) 3,376
Effect of the asset ceiling(2) (80) (1,168) - (1,248)
Other employee benefit obligations - - (11) (11)
December 31, 2022 151 2,169 (203) 2,117
Represented by:
Employee benefit assets 2,334
Employee benefit obligations (217)
Net employee benefit asset 2,117
(1)Includes Additional Voluntary Contributions (AVCs), which the Trustees hold
as assets to secure additional benefits on a defined contribution basis for
those members who elect to make such AVCs. At June 30, 2023, such assets were
€322 million (December 31, 2022: €320 million) with a corresponding amount
recorded in the scheme liabilities.
(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.
(3)Included within the fair value of scheme assets are €1.5 billion of
private equities and alternatives at June 30, 2023, where the fair value has
been determined based on the most recent third-party valuations. The dates of
these valuations typically precede the reporting date and have been adjusted
for any cash movements between the date of the valuation and the reporting
date. Typically, the valuation approach and inputs for these investments are
not through to the reporting date unless there are indications of significant
market movements.
Scheme liability assumptions
At June 30, 2023, the assumptions used to determine the obligations under the
APS and NAPS were reviewed and updated to reflect the market condition at that
date. Principal assumptions were as follows:
June 30, 2023 December 31, 2022
Per cent per annum APS NAPS APS NAPS
Discount rate 5.40 5.25 4.85 4.80
Rate of increase in pensionable pay 3.45 - 3.40 -
Rate of increase of pensions in payment 3.45 2.85 3.40 2.80
RPI rate of inflation 3.45 3.25 3.40 3.20
CPI rate of inflation 2.85 2.85 2.80 2.80
Further information on the basis of the assumptions is included in note 32 of
the Annual report and accounts for the year to December 31, 2022.
15. pROVISIONS
€ million Restoration and handback provisions Restructuring Employee leaving indemnities and other employee related provisions Legal claims provisions ETS provisions Other provisions Total
provisions
Net book value January 1, 2023 2,400 194 673 89 132 60 3,548
Provisions recorded during the period 251 1 19 6 110 14 401
Reclassifications (40) - - (1) - (6) (47)
Utilised during the period (135) (38) (18) (6) - (14) (211)
Extinguished during the period - - - - (118) - (118)
Release of unused amounts (33) (2) - (10) - - (45)
Unwinding of discount 36 - 6 - - - 42
Remeasurements 11 - - - - - 11
Exchange differences (44) (1) - 3 1 - (41)
Net book value June 30, 2023 2,446 154 680 81 125 54 3,540
Analysis:
Current 541 94 62 58 125 8 888
Non-current 1,905 60 618 23 - 46 2,652
2,446 154 680 81 125 54 3,540
16. FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: market risk (including
commodity risk, foreign currency risk and interest rate risk), credit risk and
liquidity risk. The principal impact of these on the interim financial
statements are discussed below.
Fuel price risk
The Group is exposed to fuel price risk. In order to mitigate such risk, under
the Group's fuel price risk management strategy a variety of over the counter
derivative instruments are entered into. The Group strategy is to hedge a
proportion of anticipated fuel consumption for the coming two years within the
approved hedging profile.
At June 30, 2023, the fair value of such net liability derivative instruments
was €254 million, representing a decrease of €341 million since January 1,
2023.
Foreign currency risk
The Group is exposed to foreign currency risk on revenue, purchases and
borrowings that are denominated in a currency other than the functional
currency of the Group. The currencies in which these transactions are
denominated are primarily euro, US dollar and pound sterling. The Group has a
number of strategies to hedge foreign currency risk. The Group strategy is to
hedge a proportion of its foreign currency sales and purchases for the coming
three years.
At June 30, 2023, the fair value of foreign currency net liability derivative
instruments was €323 million, representing a decrease of €431 million
since January 1, 2023.
Interest rate risk
The Group is exposed to changes in interest rates on debt and on cash
deposits. In order to mitigate the interest rate risk, the Group's policies
allow a variety of over the counter derivative instruments to be entered into.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risk from its financing activities,
including deposits with banks and financial institutions, foreign exchange
transactions and other financial instruments. The Group has policies and
procedures to monitor the risk by assigning limits to each counterparty by
underlying exposure and by operating company and by only entering into
transactions with counterparties with an acceptable level of credit risk.
At each period end, the Group assesses the effect of counterparties' and the
Group's own credit risk on the fair value of derivatives and any
ineffectiveness arising is immediately recycled from Other comprehensive
income to the Income statement with Other non-operating expenses.
17. CONTINGENT LIABILITIES
There are a number of legal and regulatory proceedings against the Group in a
number of jurisdictions which at June 30, 2023, where they could be reliably
estimated, amounted to €57 million (December 31, 2022: €11 million). The
Group does not consider it probable that there will be an outflow of economic
resources with regard to these proceedings and accordingly no provisions have
been recorded.
Contingent liabilities associated with income taxes, deferred taxes and
indirect taxes are presented in note 6.
Included in contingent liabilities is the following:
Air Europa Holdings acquisition break-fee
On February 23, 2023, the Group entered into an agreement to acquire the
remaining 80 per cent of the share capital of Air Europa Holdings from
Globalia that it had not previously owned. The acquisition is conditional on
Globalia receiving approval from the syndicated banks that provide the loan
agreements that are partially guaranteed by the Instituto de Crédito Oficial
(ICO) and Sociedad Estatal de Participaciones Industriales (SEPI) in Spain.
The acquisition is also subject to approval by relevant competition
authorities.
In the event that the relevant approvals, detailed above, are not forthcoming
within 24 months of entering into the agreement or the Group terminates the
agreement at any time prior to completion, then the Group is required to pay a
break-fee to Globalia of €50 million. Under the agreement, this 24-month
period can be extended, by mutual consent.
At June 30, 2023 and through to the date of these condensed consolidated
interim financial statements, the Group considers that it is probable that the
acquisition will successfully complete and accordingly does not consider it
probable that the break-fee shall be paid. Given the above the Group does not
consider it appropriate to record a provision for the break-fee.
18. 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
€ million 2023 2022
Sales of goods and services
Sales to associates 3 2
Sales to significant shareholders 142 41
Purchases of goods and services
Purchases from associates 28 31
Purchases from significant shareholders 69 72
Period end balances arising from sales and purchases of goods and services:
€ million June 30, December 31,
2023 2022
Receivables from related parties
Amounts owed by associates 1 1
Amounts owed by significant shareholders 63 25
Payables to related parties
Amounts owed to associates 2 -
Amounts owed to significant shareholders 13 26
For the six months to June 30, 2023 the Group has not made any allowance on
expected credit losses relating to amounts owed by related parties (2022:
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
€ million 2023 2022
Base salary, fees and benefits
Board of Directors' remuneration 2 2
Management Committee remuneration 4 4
For the six months to June 30, 2023 the remuneration for the Board of
Directors includes one Executive Director (June 30, 2022: one Executive
Director). The Management Committee includes remuneration for 13 members (June
30, 2022: 12 members).
The Company provides life insurance for all Executive Directors and the
Management Committee. For the six months to June 30, 2023 the Company's
obligation was €23,000 (2022: €20,000).
At June 30, 2023 the transfer value of accrued pensions covered under defined
benefit pension obligation schemes, relating to the current members of the
Management Committee totalled €3 million (2022: €6 million).
No loan or credit transactions were outstanding with Directors or officers of
the Group at June 30, 2023 (2022: nil).
19. CHANGE IN PRESENTATION OF THE CASH FLOW STATEMENT
During the course of 2023, the Group has made a number of changes to its Cash
flow statement. These changes have been applied retrospectively to the Cash
flow statement and are detailed below.
Net gain on disposal of property plant and equipment
Previously gains/losses on the disposal of property, plant and equipment were
recorded in the Income statement within Other non-operating charges. Under the
updated presentation, gains/losses on the disposal of property, plant and
equipment are presented separately in the Income statement and included within
Operating profit. Accordingly, operating profit included within Net cash flows
from operating activities has been updated. See note 1 for further
information.
Unrealised currency differences
Previously all unrealised foreign currency gains/losses arising in the Cash
flow statement were recorded within Net foreign exchange differences. Under
the updated presentation, Net foreign exchange differences has been amended to
only include those unrealised currency differences arising from the
retranslation of opening cash and cash equivalent balances, while unrealised
currency differences arising from working capital used in operating activities
are presented within Net cash flows from operating activities.
Other cash flows from operating activities
Previously movements in working capital balances were presented aggregated
between working capital assets and working capital liabilities. Under the
updated presentation working capital balances have been disaggregated by their
nature to allow greater visibility as to the cash flow impacts associated with
these balances. There has been no change in the overall total movement in
working capital.
In addition previously the Group presented the non-cash movements in
provisions combined with other non-cash movements. Under the updated
presentation these items have been separated into individual row items within
the Cash flow statement.
The following table summarises the impact of the changes in presentation in
the Cash flow statement for the six month period to June 30, 2022:
Cash flow statement (extract for the six months to June 30, 2022)
€ million As reported Adjustment - net gain on disposal of PPE Adjustment - unrealised currency differences Adjustment - operating cash flow items Restated
Cash flows from operating activities
Operating loss (438) 21 (417)
Depreciation, amortisation and impairment 1,015 1,015
Net gain on disposal of property, plant and equipment - (21) (21)
Movement in working capital 2,738 (2,738) -
Increase in trade receivables, inventories and other current assets (996) 996 -
Increase in trade and other payables and deferred revenue on ticket sales 3,734 (3,734) -
Employer contributions to pension schemes (10) (10)
Pension scheme service costs 1 1
Payments related to restructuring (41) 41 -
Provisions and other non-cash movements 349 (349) -
Increase in provisions - 291 291
Unrealised currency differences - 38 38
Other movements - 17 17
Interest paid (403) (403)
Interest received 3 3
Tax paid (2) (2)
Net cash flows from operating activities before movements in working capital 3,212 - 38 (2,738) 512
Increase in trade receivables - (811) (811)
Increase in inventories - 4 4
Increase in other receivables and current assets - (85) (85)
Increase in trade payables - 733 733
Increase in deferred revenue - 2,370 2,370
Increase in other payables and current liabilities - 527 527
Movement in working capital - - - 2,738 2,738
Net cash flows from operating activities 3,212 - 38 - 3,250
Net cash flows from investing activities (2,100) - - - (2,100)
Net cash flows from financing activities (19) - - - (19)
Net increase in cash and cash equivalents 1,093 38 1,131
Net foreign exchange differences 19 (38) (19)
Cash and cash equivalents at 1 January 7,892 7,892
Cash and cash equivalents at period end 9,004 - - - 9,004
Interest-bearing deposits maturing after more than three months 186 - - - 186
Cash, cash equivalents and interest-bearing deposits 9,190 - - - 9,190
20. POST BALANCE SHEET EVENTS
On July 4, 2023, the Group redeemed upon maturity the senior unsecured €500
million fixed rate bond.
On July 27, 2023, the Group announced that it had converted six Boeing 787-10
options held by British Airways into firm orders and at the same time is
adding a further six 787-10 options to its longhaul order book. The Group is
also converting one Airbus A350-900 option held by Iberia into a firm order.
The firm aircraft will be delivered in 2025 and 2026 and will be used by
British Airways and Iberia to restore capacity in the airlines' longhaul
fleets.
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 27, 2023, 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, 2023, 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 27, 2023
Javier Ferrán Larraz Luis Gallego Martín
Chairman Chief Executive Officer
Giles Agutter Peggy Bruzelius
Eva Castillo Sanz Margaret Ewing
Maurice Lam Heather Ann McSharry
Robin Phillips Emilio Saracho Rodríguez de Torres
Lucy Nicola Shaw
Limited Review Report on the Condensed Consolidated Interim Financial
Statements
To the Shareholders of International Consolidated Airlines Group, S.A.
commissioned by management:
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Introduction
We have carried out a limited review of the accompanying condensed
consolidated interim financial statements (the "interim financial statements")
of International Consolidated Airlines Group, S.A. (the "Company") and
subsidiaries (together the "Group"), which comprise the balance sheet at 30
June 2023, 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 2023 have not been prepared, in all material respects, in accordance with
International Accounting Standard (IAS) 34 "Interim Financial Reporting", as
adopted by the European Union, pursuant to article 12 of Royal Decree
1362/2007 as regards the preparation of condensed interim financial
statements.
Emphasis of Matter
We draw your attention to the accompanying note 1, which states that these
interim financial statements do not include all the information that would be
required in a complete set of consolidated financial statements prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union. The accompanying interim financial statements should therefore
be read in conjunction with the Group's consolidated annual accounts for the
year ended 31 December 2022. This matter does not modify our conclusion.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
The accompanying consolidated interim management report for the six-month
period ended 30 June 2023 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 management 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 2023. Our work is
limited to the verification of the consolidated interim management 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 100 of Law
6/2023 of 17 March 2023 on Securities Markets and Investment Services.
KPMG Auditores, S.L.
Bernardo Rücker-Embden
27 July 2023
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, may differ to definitions given by regulatory
bodies applicable to the Group and may differ to similarly titled measures
presented by other companies. 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'.
During the six months to June 30, 2023, the Group has made no changes to its
pre-existing disclosures and treatments of APMs compared to those disclosed in
the Annual Report and Accounts for the year to December 31, 2022.
The impact of and the recovery from the COVID-19 pandemic has significantly
changed the basis on which the Board, Management Committee and external
parties monitor the performance of the Group. In this regard measures relating
to Levered free cash flow, Net debt to EBITDA before exceptional items and
Return on capital employed do not provide the level of meaningful additional
information that they have done in the past. However, the Group continues to
present these APMs for consistency and they will become more prominent and
relevant subsequent to the recovery from the COVID-19 pandemic.
The definition of each APM, together with a reconciliation to the nearest
measure prepared in accordance with IFRS is presented below
a Profit/(loss) after tax before exceptional items
Exceptional items are those that in the Board's and management's view need to
be separately disclosed by virtue of their size or incidence to supplement the
understanding of the entity's financial performance. The Management Committee
of the Group uses financial performance on a pre-exceptional basis to evaluate
operating performance and to make strategic, financial and operational
decisions, and externally because it is widely used by security analysts and
investors in evaluating the performance of the Group between reporting periods
and against other companies.
While there have been no exceptional items recorded in the six months to June
30, 2023, exceptional items in the six months to June 30, 2022 include:
significant changes in the long-term fleet plans that result in the reversal
of impairment of fleet assets and legal re-imbursements.
The table below reconciles the statutory Income statement to the Income
statement before exceptional items of the Group:
Six months to June 30
€ million Statutory 2023 Exceptional items Before exceptional items 2023 Statutory 2022(1) Exceptional items Before exceptional items 2022
Passenger revenue 11,784 - 11,784 7,604 - 7,604
Cargo revenue 603 - 603 843 - 843
Other revenue 1,196 - 1,196 904 - 904
Total revenue 13,583 - 13,583 9,351 - 9,351
Employee costs 2,610 - 2,610 2,167 - 2,167
Fuel, oil costs and emissions charges 3,550 - 3,550 2,566 - 2,566
Handling, catering and other operating costs 1,796 - 1,796 1,322 - 1,322
Landing fees and en-route charges 1,104 - 1,104 847 - 847
Engineering and other aircraft costs 1,208 - 1,208 928 - 928
Property, IT and other costs(2) 515 - 515 435 (23) 458
Selling costs 578 - 578 442 - 442
Depreciation, amortisation and impairment(3) 983 - 983 1,015 (6) 1,021
Net gain on sale of property, plant and equipment (17) - (17) (21) - (21)
Currency differences (4) - (4) 67 - 67
Total expenditure on operations 12,323 - 12,323 9,768 (29) 9,797
Operating profit/(loss) 1,260 - 1,260 (417) 29 (446)
Finance costs (565) - (565) (480) - (480)
Finance income 167 - 167 3 - 3
Net change in fair value of financial instruments (13) - (13) 130 - 130
Net financing credit/(charge) relating to pensions 51 - 51 13 - 13
Net currency retranslation charges 149 - 149 (197) - (197)
Other non-operating credits (12) - (12) 105 - 105
Total net non-operating costs (223) - (223) (426) - (426)
Profit/(loss) before tax 1,037 - 1,037 (843) 29 (872)
Tax (116) - (116) 189 - 189
Profit/(loss) after tax for the period 921 - 921 (654) 29 (683)
Three months to June 30
€ million Statutory 2023 Exceptional items Before exceptional items 2023 Statutory 2022(1) Exceptional items Before exceptional items 2022
Passenger revenue 6,743 - 6,743 4,949 - 4,949
Cargo revenue 280 - 280 411 - 411
Other revenue 671 - 671 556 - 556
Total revenue 7,694 - 7,694 5,916 - 5,916
Employee costs 1,353 - 1,353 1,122 - 1,122
Fuel, oil costs and emissions charges 1,792 - 1,792 1,648 - 1,648
Handling, catering and other operating costs 1,020 - 1,020 780 - 780
Landing fees and en-route charges 620 - 620 489 - 489
Engineering and other aircraft costs 621 - 621 553 - 553
Property, IT and other costs 266 - 266 231 - 231
Selling costs 298 - 298 241 - 241
Depreciation, amortisation and impairment(3) 497 - 497 484 (6) 490
Net gain on sale of property, plant and equipment (7) - (7) (8) - (8)
Currency differences (17) - (17) 75 - 75
Total expenditure on operations 6,443 - 6,443 5,615 (6) 5,621
Operating profit 1,251 - 1,251 301 6 295
Finance costs (291) - (291) (247) - (247)
Finance income 99 - 99 2 - 2
Net change in fair value of financial instruments (12) - (12) 70 - 70
Net financing credit/(charge) relating to pensions 26 - 26 6 - 6
Net currency retranslation charges 89 - 89 (136) - (136)
Other non-operating credits (4) - (4) 77 - 77
Total net non-operating costs (93) - (93) (228) - (228)
Profit/(loss) before tax 1,158 - 1,158 73 6 67
Tax (150) - (150) 60 - 60
Profit/(loss) after tax for the period 1,008 - 1,008 133 6 127
(1) The 2022 results include a reclassification to confirm with the current
period presentation for the Net (gains)/losses on sale of property, plant and
equipment. Accordingly, for the six month and three month periods to June 30,
2022, the Group has reclassified €21 million and €8 million, respectively,
of gains from Other non-operating (charges)/credits to Net (gains)/losses on
sale of property, plant and equipment within Operating expenses. There is no
impact on the Loss after tax.
The rationale for each exceptional item is given below.
(2) Partial reversal of historical fine
The exceptional credit of €23 million for the six months to June 30, 2022,
relates to the partial reversal of the fine, plus accrued interest, initially
issued by the European Commission, in 2010, to British Airways regarding its
involvement in cartel activity in the air cargo sector and that had been
recognised as an exceptional charge. The exceptional credit was recorded
within Property, IT and other costs in the Income statement with no resultant
tax charge arising. The cash inflow associated with the partial reversal of
the fine was recognised during 2022.
(3) Impairment reversal of fleet and associated assets
The exceptional impairment reversal of €6 million for the six months to June
30, 2022, relates to four Airbus A320s in Vueling, previously stood down in
the fourth quarter of 2020 and subsequently stood up in the second quarter of
2022. The exceptional impairment reversal was recorded within Right of use
assets on the Balance sheet and within Depreciation, amortisation and
impairment in the Income statement.
b Adjusted earnings/(loss) per share ((KPI))
Adjusted earnings are based on results before exceptional items after tax and
adjusted for earnings attributable to equity holders and interest on
convertible bonds, divided by the weighted average number of ordinary shares,
adjusted for the dilutive impact of the assumed conversion of the bonds and
employee share schemes outstanding.
Six months to June 30
€ million 2023 2022
Profit/(loss) after tax attributable to equity holders of the parent 921 (654)
Exceptional items - 29
Profit/(loss) after tax attributable to equity holders of the parent before 921 (683)
exceptional items
Income statement impact of convertible bonds 13 -
Adjusted profit/(loss) 934 (683)
Weighted average number of shares used for basic earnings/(loss) per share 4,950 4,963
Weighted average number of shares used for diluted earnings/(loss) per share 5,297 4,963
Basic earnings/(loss) per share (€ cents) 18.6 (13.8)
Basic earnings/(loss) per share before exceptional items (€ cents) 18.6 (13.8)
Adjusted earnings/(loss) per share before exceptional items (€ cents) 17.6 (13.8)
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 (abbreviated to
'ccy').
€ million Six months to June 30, 2023 Reported ccy adjustment(1) Six months to June 30, 2023 ccy Six months to June 30, 2022
Total expenditure on operations 12,323 177 12,500 9,768
Add: exceptional items in operating expenditure - - - (29)
Less: fuel, oil costs and emission charges 3,550 (58) 3,492 2,566
Non-fuel costs 8,773 235 9,008 7,231
Less: Non-flight specific costs 1,030 17 1,047 757
Airline non-fuel costs 7,743 218 7,961 6,474
ASKs (millions) 154,034 - 154,034 117,710
Airline non-fuel unit costs per ASK (€ cents) 5.03 - 5.17 5.50
(1)Refer to note g for the definition of the ccy adjustment.
d Levered free cash flow ((KPI))
Levered free cash flow represents the cash generated, and the financing
raised, by the businesses before shareholder returns and is defined as the net
increase in cash and cash equivalents taken from the Cash flow statement,
adjusting for movements in Current interest-bearing deposits and adding back
the cash outflows associated with dividends paid and the acquisition of
treasury shares. The Group believes that this measure is useful to the users
of the financial statements in understanding the cash generating ability of
the Group that is available to return to shareholders, to improve leverage
and/or to undertake inorganic growth opportunities.
Six months to June 30
€ million 2023 2022
Net Increase in cash and cash equivalents 1,387 1,131
Add: Increase in other current interest-bearing deposits 869 134
Levered free cash flow 2,256 1,265
e Net debt to EBITDA before exceptional items ((KPI))
To supplement total borrowings as presented in accordance with IFRS, the Group
reviews net debt to EBITDA before exceptional items to assess its level of net
debt in comparison to the underlying earnings generated by the Group in order
to evaluate the underlying business performance of the Group. This measure is
used to monitor the Group's leverage and to assess financial headroom against
internal and external security analyst and investor benchmarks.
Net debt is defined as long-term borrowings (both current and non-current),
less cash, cash equivalents and current interest-bearing deposits. Net debt
excludes supply chain financing arrangements which are classified within trade
payables.
EBITDA before exceptional items is defined as the rolling four quarters
operating result before exceptional items, interest, taxation, depreciation,
amortisation and impairment.
The Group believes that this additional measure, which is used internally to
assess the Group's financial capacity, is useful to the users of the financial
statements in helping them to see how the Group's financial capacity has
changed over the period. It is a measure of the profitability of the Group and
of the core operating cash flows generated by the business model.
€ million Six months to June 30, 2023 December 31, 2022(1)
Interest-bearing long-term borrowings 19,623 19,984
Less: Cash and cash equivalents (10,728) (9,196)
Less: Other current interest-bearing deposits (1,282) (403)
Net debt 7,613 10,385
Operating profit 2,955 1,278
Add: Depreciation, amortisation and impairment 2,038 2,070
EBITDA 4,993 3,348
Add: Exceptional items (excluding those reported within Depreciation, - (23)
amortisation and impairment)
EBITDA before exceptional items 4,993 3,325
Net debt to EBITDA before exceptional items (times) 1.5 3.1
(1)The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment.
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 the
rolling four quarters EBITDA before exceptional items, 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.
€ million June 30, 2023 December 31, 2022(1)
EBITDA before exceptional items 4,993 3,325
Less: Fleet depreciation multiplied by inflation adjustment (1,901) (1,944)
Less: Other property, plant and equipment depreciation (214) (247)
Less: Software intangible amortisation (207) (210)
2,671 924
Invested capital
Average fleet value(2) 16,448 15,717
Less: Average progress payments(3) (1,055) (910)
Fleet book value less progress payments 15,393 14,807
Inflation adjustment(4) 1.18 1.18
18,114 17,435
Average net book value of other property, plant and equipment(5) 2,098 2,037
Average net book value of software intangible assets(6) 664 640
Total invested capital 20,876 20,112
Return on Invested Capital 12.8% 4.6%
(1) The 2022 results include a reclassification to conform with the current
period presentation for the Net gain on sale of property, plant and equipment.
See note 1.
(2) The average net book value of aircraft is calculated from an amount of
€16,087 million at June 30, 2022 and €16,809 million at June 30, 2023.
(3) The average net book value of progress payments is calculated from an
amount of €1,141 million at June 30, 2022 and €969 million at June 30,
2023.
(4) Presented to two decimal places and calculated using a 1.5 per cent
inflation (June 30, 2022: 1.5 per cent inflation) rate over the weighted
average age of the fleet at June 30, 2023: 11.1 years (June 30, 2022: 10.8
years).
(5) The average net book value of other property, plant and equipment is
calculated from an amount of €2,077 million at June 30, 2022 and €2,119
million at June 30, 2023.
(6) The average net book value of software intangible assets is calculated
from an amount of €640 million at June 30, 2022 and €689 million at June
30, 2023.
g Results on a constant currency 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. The Group calculates these financial measures at constant
rates of exchange based on a retranslation, at prior period exchange rates, of
the current period'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 2023 figures are stated at a constant currency
basis, they have applied the 2022 rates stated below:
Foreign exchange rates Weighted average six months to June 30 Closing at June 30 Closing at December 31
2023 2022 2023 2022
Pound sterling to euro 1.14 1.19 1.17 1.14
Euro to US dollar 1.08 1.16 1.09 1.06
Pound sterling to US dollar 1.24 1.38 1.28 1.21
h Liquidity
The Board and the Management Committee monitor liquidity in order to assess
the resilience of the Group to adverse events and uncertainty and develop
funding initiatives to maintain this resilience.
Liquidity is used by analysts, investors and other users of the financial
statements as a measure to the financial health and resilience of the Group.
Liquidity is defined as Cash and cash equivalents plus Current
interest-bearing deposits, plus committed and undrawn general, aircraft and
overdraft facilities.
€ million June 30, 2023 December 31, 2022
Cash and cash equivalents 10,728 9,196
Current interest-bearing deposits 1,282 403
Committed general undrawn facilities 3,255 3,231
Committed aircraft undrawn facilities 234 1,116
Overdrafts and other facilities 53 53
Total liquidity 15,552 13,999
AIRCRAFT FLEET
( ) ( ) ( ) Number in service with Group companies
( ) ( ) ( )
( ) Owned Finance lease Operating lease Total Total Changes since Future Options(1)
June 30, December 31, 2022 December 31, deliveries
2023 2022
( )
Airbus A319ceo 9 - 33 42 41 1 - -
Airbus A320ceo 46 16 132 194 199 (5) - -
Airbus A320neo 1 38 23 62 60 2 53 40
Airbus A321ceo 11 3 29 43 44 (1) - -
Airbus A321neo - 2 18 20 16 4 42 -
Airbus A321 LR - - 8 8 8 - - -
Airbus A321 XLR - - - - - - 14 14
Airbus A330-200 2 1 15 18 16 2 - -
Airbus A330-300 4 4 12 20 20 - - -
Airbus A350-900 - 6 10 16 15 1 7 16
Airbus A350-1000 1 13 - 14 13 1 4 36
Airbus A380 2 10 - 12 12 - - -
Boeing 737-8200 - - - - - - 25 100
Boeing 737-10 - - - - - - 25 -
Boeing 777-200 38 2 3 43 43 - - -
Boeing 777-300 7 2 7 16 16 - - -
Boeing 777-9 - - - - - - 18 24
Boeing 787-8 - 10 2 12 12 - - -
Boeing 787-9 1 8 9 18 18 - - -
Boeing 787-10 2 5 - 7 4 3 5 6
Embraer E190 9 - 11 20 21 (1) - -
Group total 133 120 312 565 558 7 193 236
Aircraft are reported based on their contractual definitions as opposed to
their accounting determination. For accounting purposes, while all operating
leases are presented as lease liabilities, finance leases are presented as
either lease liabilities or asset financed liabilities, depending on the
nature of the individual arrangement.
(1)The options to purchase 100 Boeing 737 aircraft allow for flexibility in
the choice of variant.
As well as those aircraft in service, the Group also holds 10 aircraft
(December 31, 2022: 18) not in service.
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