REG - Intl Con Airline Grp - Final Results <Origin Href="QuoteRef">ICAG.L</Origin> - Part 2
24/02/2017 07:18
- Part 2: For the preceding part double click ID:nRSX7399Xa
(184) 139
Cash inflow 1,046 562 484
Opening cash, cash equivalents and interest-bearing deposits 5,856 4,944 912
Net foreign exchange differences (474) 350 (824)
Cash and cash equivalents and other interest-bearing deposits 6,428 5,856 572
E million 2016 2015 Higher/(lower)
British Airways 2,958 2,806 152
Iberia 1,179 832 347
Aer Lingus 855 772 83
Vueling 648 633 15
IAG and other Group companies 788 813 (25)
Cash and cash equivalents and interest-bearing deposits 6,428 5,856 572
In 2016, the Groupnet CAPEX included delivery of 11 new aircraft, two Airbus A380s, two Boeing 787-9s, four Airbus A330s,
and three aircraft from the Airbus A320 family. This capital expenditure has been partially offset by E1,582 million of
proceeds from the sale and leaseback of 26 new aircraft (nine Airbus A321 family, eight Airbus A330 family and nine Boeing
787-9s). The Group also received proceeds for the sale and leaseback of 12 of its owned Airbus A319s, which were divested
to reduce any residual value risk.
In comparison, 2015 deliveries included nine new aircraft, two Airbus A380s, five Boeing B787-9s, one Airbus A320 and one
Embraer E-190. In 2015 the Group sale and leaseback was E111 million. The current year net CAPEX of E1,301 million is below
the Group's long term planning goal of an average of E1,700 million per annum.
Movements in Working capital generated a E235 million increase in free cash flow primarily related to an increase in sales
in advance of carriage. In 2015, the significant use of cash through working capital reflects higher prepayments including
fuel, a reduction in payables primarily with lower fuel prices, and the addition of Aer Lingus from August 18, 2015.
Pension and restructuring payments are higher at British Airways due to an increase in cash sweep of E403 million and from
a low base with some of the 2015 payment made in 2014.
In 2015, the acquisition of Aer Lingus net of its cash and deposits was a cash outflow of E438 million.
In 2016, the cash Dividend paid reflects the 2015 final dividend and the 2016 interim dividend. In 2015, the cash dividend
was only the 2015 interim dividend, the Group's first dividend payment.
Net financing and refinancing are discussed on the next page.
Taking these factors into consideration, the Group's cash in flow for the year was E1,046 million and after net foreign
exchange differences, the increase in cash net of exchange was E572 million. Adequate cash levels are maintained by each
operating company.
Net debt, adjusted net debt and adjusted gearing
Net debt
E million 2016 2015 Higher/(lower)
Debt (8,630) (6,617) (2,013)
Cash and cash equivalents and interest bearing deposits 5,856 4,944 912
Net debt at January 1 (2,774) (1,673) (1,101)
Increase in cash net of exchange 572 - 572
Net cash outflow from repayments of debt and lease financing 1,130 1,026 104
New borrowings and finance leases (1,317) (905) (412)
(Increase)/decrease in net debt from regular financing (187) 121 (308)
Debt - (406) 406
Cash and cash equivalents and interest bearing deposits - 913 (913)
Net debt through acquisition - 507 (507)
Financing raised through acquisition - (1,087) 1,087
Exchange and other non-cash movements 302 (642) 944
Net debt at December 31 (2,087) (2,774) 687
Capitalised aircraft lease costs (6,072) (5,736) (336)
Adjusted net debt at December 31 (8,159) (8,510) 351
Net debt at December 31, 2016 was E2,087 million, a reduction of E687 million in the year from the stronger cash position.
Net debt from regular financing activities increased E187 million, with new borrowings slightly exceeding the current
year's regular debt and lease repayments. The level of 2016 new borrowings and finance leases reflected the timing of fleet
deliveries for the Group.
In 2015, the Group's Net debt through acquisition was E507 million from the addition of Aer Lingus. The improvement
reflected Aer Lingus' strong cash position and mix of operating versus financing leases. Also related to the 2015 Aer
Lingus acquisition, IAG launched two tranches of convertible bonds totalling E1 billion.
Capitalised aircraft lease costs rose during the year from the full year impact of Aer Lingus and from an increase in
leased aircraft at British Airways as part of the regular fleet renewal programme.
Capital commitments and off balance sheet arrangements
Capital expenditure authorised and contracted for amounted to E14,022 million (2015: E16,091 million) for the Group. The
majority of this is in US dollars and includes commitments until 2022 for 106 aircraft from the Airbus A320 family, 18
Boeing 787s, 43 Airbus A350s, and 5 Airbus A330s.
Expected fleet deliveries in each of 2017 and 2022 is nine aircraft, compared to an average of 38 aircraft for each of
2018, 2019, 2020 and 2021. The expected net capital expenditure by year follows the pattern of the fleet deliveries.
Overall, the Group maintains flexibility in its fleet plans through the use of deferrals, options and its renewal terms.
IAG does not have any other off-balance sheet financing arrangements.
Strategic framework
Our mission is to be the leading international airline Group. This means we will:
• Win the customer through service and value across our global network;
• Deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;
• Attract and develop the best people in the industry;
• Provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;
and
• Retain the distinct cultures and brands of individual airlines.
By accomplishing our mission, IAG will help to shape the future of the industry, set new standards of excellence and
provide sustainability, security and growth.
IAG's six core strategic objectives are:
• Leadership in IAG's main cities;
• Leadership across the Atlantic;
• Stronger Europe-to-Asia position in critical markets;
• Grow share of Europe-to-Africa routes;
• Stronger intra-Europe profitability; and
• Competitive cost positions across our businesses.
Principal risks and uncertainties
During the year we have continued to strengthen our risk framework and processes to identify, assess and manage risks. The
principal risks and uncertainties affecting us, detailed on pages 47 to 54 of the Annual Report and Accounts 2015, remain
relevant. The Group faced a number of changes in economic conditions in 2016 including the impact of the UK referendum vote
to exit the EU and adverse exchange rates, partially offset by lower fuel prices. There is continued uncertainty as we move
into 2017 with upward pressure on fuel price and the changing political landscape. We have also seen an increase in the
risk of financial loss, disruption or damage to our reputation as the frequency and sophistication of cyber-attacks on
corporates continues.
International Consolidated Airlines Group S.A.
Unaudited Full year Consolidated Financial Statements
January 1, 2016 - December 31, 2016
Consolidated income statement
Year to December 31
E million Note Beforeexceptionalitems2016 Exceptionalitems Total2016 Beforeexceptionalitems2015 Exceptionalitems Total20151
Passenger revenue 19,924 19,924 20,330 20,330
Cargo revenue 1,022 1,022 1,094 1,094
Other revenue 1,621 1,621 1,434 1,434
Total revenue 4 22,567 22,567 22,858 22,858
Employee costs 5, 8 4,731 93 4,824 4,905 4,905
Fuel, oil costs and emissions charges 5 4,873 (42) 4,831 6,082 (51) 6,031
Handling, catering and other operating costs 2,664 2,664 2,571 2,571
Landing fees and en-route charges 2,151 2,151 1,882 1,882
Engineering and other aircraft costs 1,701 1,701 1,395 1,395
Property, IT and other costs 870 870 765 68 833
Selling costs 896 896 912 912
Depreciation, amortisation and impairment 6 1,287 1,287 1,307 1,307
Aircraft operating lease costs 6 759 759 659 659
Currency differences 100 100 45 45
Total expenditure on operations 20,032 51 20,083 20,523 17 20,540
Operating profit 4 2,535 (51) 2,484 2,335 (17) 2,318
Finance costs 9 (279) (279) (294) (294)
Finance income 9 33 33 42 42
Net currency retranslation charges (25) (25) (56) (56)
Gains/(losses) on derivatives not qualifying for hedge accounting 60 60 (170) (170)
Net gain related to available-for-sale financial assets 18 4 4 5 5
Share of profits in investments accounted for using the equity method 17 6 6 6 6
Profit/(loss) on sale of property, plant and equipment and investments 67 67 (38) (38)
Net financing credit/(charge) relating to pensions 9 12 12 (12) (12)
Profit before tax 2,413 (51) 2,362 1,818 (17) 1,801
Tax 10 (423) 13 (410) (279) (6) (285)
Profit after tax for the year 1,990 (38) 1,952 1,539 (23) 1,516
Attributable to:
Equity holders of the parent 1,969 1,931 1,518 1,495
Non-controlling interest 21 21 21 21
1,990 1,952 1,539 1,516
Basic earnings per share (E cents) 11 94.9 93.0 74.6 73.5
Diluted earnings per share (E cents) 11 90.2 88.5 71.4 70.4
1 The prior year consolidated Income statement includes reclassifications to conform to the current year
presentation. Refer to note 2 for further details.
Consolidated statement of other comprehensive income
Year to December 31
E million Note 2016 2015
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity 31 (182) (1,104)
Reclassified and reported in net profit 31 793 1,290
Available-for-sale financial assets:
Fair value movements in equity 31 4 (9)
Reclassified and reported in net profit 31 - (5)
Currency translation differences 31 (506) 181
Items that will not be reclassified to net profit
Remeasurements of post-employment benefit obligations 31 (1,807) 156
Total other comprehensive income for the year, net of tax (1,698) 509
Profit after tax for the year 1,952 1,516
Total comprehensive income for the year 254 2,025
Total comprehensive income is attributable to:
Equity holders of the parent 233 2,004
Non-controlling interest 31 21 21
254 2,025
Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.
Consolidated balance sheet
E million Note December 312016 December 312015
Non-current assets
Property, plant and equipment 13 12,227 13,730
Intangible assets 16 3,037 3,195
Investments accounted for using the equity method 17 29 41
Available-for-sale financial assets 18 73 74
Employee benefit assets 32 1,028 957
Derivative financial instruments 27 169 62
Deferred tax assets 10 526 723
Other non-current assets 19 499 365
17,588 19,147
Current assets
Non-current assets held for sale 15 38 5
Inventories 458 520
Trade receivables 19 1,405 1,196
Other current assets 19 899 1,235
Current tax receivable 10 228 79
Derivative financial instruments 27 329 198
Other current interest-bearing deposits 20 3,091 2,947
Cash and cash equivalents 20 3,337 2,909
9,785 9,089
Total assets 27,373 28,236
Shareholders' equity
Issued share capital 28 1,066 1,020
Share premium 28 6,105 5,867
Treasury shares 29 (96) (113)
Other reserves 31 (1,719) (1,548)
Total shareholders' equity 5,356 5,226
Non-controlling interest 31 308 308
Total equity 5,664 5,534
Non-current liabilities
Interest-bearing long-term borrowings 23 7,589 7,498
Employee benefit obligations 32 2,363 858
Deferred tax liability 10 176 426
Provisions for liabilities and charges 25 1,987 2,049
Derivative financial instruments 27 20 282
Other long-term liabilities 22 238 223
12,373 11,336
Current liabilities
Current portion of long-term borrowings 23 926 1,132
Trade and other payables 21 3,305 3,803
Deferred revenue on ticket sales 4,145 4,374
Derivative financial instruments 27 88 1,328
Current tax payable 10 101 124
Provisions for liabilities and charges 25 771 605
9,336 11,366
Total liabilities 21,709 22,702
Total equity and liabilities 27,373 28,236
Consolidated cash flow statement
Year to December 31
E million Note 2016 2015
Cash flows from operating activities
Operating profit 2,484 2,318
Depreciation, amortisation and impairment 6 1,287 1,307
Movement in working capital 83 (757)
Increase in trade and other receivables, prepayments, inventories and current assets (592) (556)
Increase/(decrease) in trade and other payables, deferred revenue on ticket sales and current liabilities 675 (201)
Payments related to restructuring 25 (206) (237)
Employer contributions to pension schemes 32 (936) (699)
Pension scheme service costs 32 196 265
Provisions and other non-cash movements 203 213
Interest paid (185) (197)
Interest received 37 48
Taxation (318) (245)
Net cash flows from operating activities 2,645 2,016
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (3,038) (2,040)
Sale of property, plant and equipment and intangible assets 1,737 273
Net proceeds from sale of investments - 6
Acquisition of subsidiary (net of cash acquired) - (1,146)
(Increase)/decrease in other current interest-bearing deposits (450) 1,436
Dividends received 2 9
Other investing movements - 30
Net cash flows from investing activities (1,749) (1,432)
Cash flows from financing activities
Net proceeds from long-term borrowings 1,317 2,757
Net proceeds from equity portion of convertible bond issued - 101
Repayment of borrowings (515) (954)
Repayment of finance leases (615) (837)
Acquisition of treasury shares 29 (25) (163)
Distributions made to holders of perpetual securities and other (20) (21)
Dividend paid (442) (163)
Net cash flows from financing activities (300) 720
Net increase in cash and cash equivalents 596 1,304
Net foreign exchange differences (168) 77
Cash and cash equivalents at 1 January 2,909 1,528
Cash and cash equivalents at year end 20 3,337 2,909
Interest-bearing deposits maturing after more than three months 20 3,091 2,947
Cash, cash equivalents and other interest-bearing deposits 20 6,428 5,856
At December 31, 2016 Aer Lingus held E47 million of restricted cash (2015: E49 million) within interest-bearing deposits
maturing after more than three months to be used for employee related obligations.
Consolidated statement of changes in equity
For the year to December 31, 2016
E million Issued share capital(note 28) Sharepremium(note 28) Treasury shares(note 29) Otherreserves (note 31) Retainedearnings Total shareholders'equity Non-controlling interest(note 31) Totalequity
January 1, 2016 1,020 5,867 (113) (2,708) 1,160 5,226 308 5,534
Profit for the year - - - - 1,931 1,931 21 1,952
Other comprehensive income for the year
Cash flow hedges reclassified and reported in net profit:
Passenger revenue - - - (57) - (57) - (57)
Fuel and oil costs - - - 918 - 918 - 918
Currency differences - - - (68) - (68) - (68)
Net change in fair value of cash flow hedges - - - (182) - (182) - (182)
Net change in fair value of available-for-sale financial assets - - - 4 - 4 - 4
Currency translation differences - - - (506) - (506) - (506)
Remeasurements of post-employment benefit obligations - - - - (1,807) (1,807) - (1,807)
Cost of share-based payments - - - - 35 35 - 35
Vesting of share-based payment schemes - - 42 - (73) (31) - (31)
Acquisition of treasury shares - - (25) - - (25) - (25)
Dividend - (106) - - (339) (445) - (445)
Issue of ordinary shares related to conversion of convertible bond 46 344 - (72) 45 363 - 363
Dividend of a subsidiary - - - - - - (1) (1)
Distributions made to holders of perpetual securities - - - - - - (20) (20)
December 31, 2016 1,066 6,105 (96) (2,671) 952 5,356 308 5,664
Consolidated statement of changes in equity
For the year to December 31, 2015
E million Issued sharecapital(note 28) Sharepremium(note 28) Treasuryshares(note 29) Otherreserves(note 31) Retainedearnings Total shareholders' equity Non-controlling interest(note 31) Totalequity
January 1, 2015 1,020 5,867 (6) (3,162) (234) 3,485 308 3,793
Profit for the year - - - - 1,495 1,495 21 1,516
Other comprehensive income for the year
Cash flow hedges reclassified and reported in net profit:
Passenger revenue - - - 14 - 14 - 14
Fuel and oil costs - - - 1,474 - 1,474 - 1,474
Currency differences - - - (202) - (202) - (202)
Investments - - - 4 - 4 - 4
Net change in fair value of cash flow hedges - - - (1,104) - (1,104) - (1,104)
Available-for-sale assets reclassified and reported in net profit - - - (5) - (5) - (5)
Net change in fair value of available-for-sale financial assets - - - (9) - (9) - (9)
Currency translation differences - - - 181 - 181 - 181
Remeasurements of post-employment benefit obligations - - - - 156 156 - 156
Cost of share-based payments - - - - 45 45 - 45
Vesting of share-based payment schemes - - 56 - (99) (43) - (43)
Equity portion of convertible bond issued - - - 101 - 101 - 101
Acquisition of treasury shares - - (163) - - (163) - (163)
Dividend - - - - (203) (203) - (203)
Dividend of a subsidiary - - - - - - (1) (1)
Distributions made to holders of perpetual securities - - - - - - (20) (20)
December 31, 2015 1,020 5,867 (113) (2,708) 1,160 5,226 308 5,534
Notes to the consolidated financial statements
1 Background and general information
International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a
leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company
registered in Madrid and was incorporated on April 8, 2010. 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).
2 Significant accounting policies
Basis of preparation
The consolidated financial statements herein are not the Group's statutory accounts and are unaudited. The consolidated
financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards as
endorsed by the European Union (IFRSs as endorsed by the EU). The consolidated financial statements are rounded to the
nearest million unless otherwise stated. These financial statements have been prepared on a historical cost convention
except for certain financial assets and liabilities, including derivative financial instruments and available-for-sale
financial assets that are measured at fair value. The carrying value of recognised assets and liabilities that are subject
to fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged. The
financial statements for the prior year include reclassifications that were made to conform to the current year
presentation. The amendments have no material impact on the financial statements.
The Group's financial statements for the year to December 31, 2016 were authorised for issue, and approved by the Board of
Directors on February 23, 2017.
The Directors have considered the business activities, the Group's principal risks and uncertainties, and the Group's
financial position, including cash flows, liquidity position and available committed facilities. The Directors consider
that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to
adopt the going concern basis in preparing the financial statements.
Consolidation
The Group financial statements include the financial statements of the Company and its subsidiaries, each made up to
December 31, together with the attributable share of results and reserves of associates and joint ventures, adjusted where
appropriate to conform to the Group's accounting policies.
Subsidiaries are consolidated from the date of their acquisition, which is the date on which the Group obtains control and
continue to be consolidated until the date that such control ceases. Control exists when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity.
The Group applies the acquisition method to account for business combinations. The consideration paid is the fair value of
the assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired
and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that are not held by the
Group and are presented separately within equity in the consolidated Balance sheet. Acquisition-related costs are expensed
as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity
interest in the acquiree is remeasured to fair value at the acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of
non-controlling interest over the net identifiable assets acquired and liabilities assumed.
All intra-group account balances, including intra-group profits, are eliminated in preparing the consolidated financial
statements.
Segmental reporting
Operating segments are reported in a manner consistent with how resource allocation decisions are made by the chief
operating decision-maker. The chief operating decision-maker, who is responsible for resource allocation and assessing
performance of the operating segments, has been identified as the IAG Management Committee.
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the functional currency,
being the currency of the primary economic environment in which the entity operates. In particular, British Airways and
Avios have a functional currency of pound sterling. The Group's consolidated financial statements are presented in euros,
which is the Group's presentation currency.
b Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing
on the date of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates
ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation at balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the Income statement, except where hedge accounting is applied. Foreign exchange gains and losses arising
on the retranslation of monetary assets and liabilities classified as non-current on the Balance sheet are recognised
within 'Net currency retranslation charges' in the Income statement. All other gains and losses arising on the
retranslation of monetary assets and liabilities are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros at the rate of exchange ruling at the balance sheet date.
Profits and losses of such operations are translated into euros at average rates of exchange during the year. The resulting
exchange differences are taken directly to a separate component of equity until all or part of the interest is sold, when
the relevant portion of the cumulative exchange difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a policy of not revaluing property, plant and equipment.
Depreciation is calculated to write off the cost less the estimated residual value on a straight-line basis, over the
economic life of the asset. Residual values, where applicable, are reviewed annually against prevailing market values for
equivalently aged assets and depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account of
aircraft and other qualifying assets under construction are capitalised and added to the cost of the asset concerned.
All other borrowing costs are recognised in the Income statement in the year in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers' credits. Fleet
assets owned or held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual
value at the end of their planned operational lives on a straight-line basis. Depreciation rates are specific to aircraft
type, based on the Group's fleet plans, within overall parameters of 23 years and 5 per cent residual value for shorthaul
aircraft and 25 years and 5 per cent residual value for longhaul aircraft.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of
five years and the remaining life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased
separately, are carried as property, plant and equipment and generally depreciated in line with the fleet to which they
relate.
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets
(including maintenance provided under 'pay-as-you-go' contracts) are charged to the Income statement on consumption or as
incurred respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land,
is depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties,
over the duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 4
to 20 years.
d Leased assets
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are
transferred to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost of
property, plant and equipment represents the aggregate of the capital elements payable during the lease term. The
corresponding obligation, reduced by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income
statement.
Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged
to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating
lease arrangements allow the Group to terminate the leases after a limited initial period, without further material
financial obligations. In certain cases the Group is entitled to extend the initial lease period on predetermined terms;
such leases are described as extendable operating leases.
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the
consideration paid over the net fair value of the identifiable assets and liabilities of the acquiree. Where the net fair
value of the identifiable assets and liabilities of the acquiree is in excess of the consideration paid, a gain on bargain
purchase is recognised immediately in the Income statement.
For the purposes of assessing impairment, goodwill is grouped at the lowest levels for which there are separately
identifiable cash flows (cash generating units). Goodwill is tested for impairment annually and whenever indicators exist
that the carrying value may not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. Long
established brands that are expected to be used indefinitely are not amortised but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of subsidiaries are initially recognised at fair value at the
acquisition date. A customer loyalty programme with an expected useful life is amortised over the expected remaining useful
life. Established customer loyalty programmes that are expected to be used indefinitely are not amortised but assessed
annually for impairment.
d Landing rights
Landing rights acquired in a business combination are recognised at fair value at the acquisition date. Landing rights
acquired from other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on a straight-line basis over a period not exceeding 20
years. Capitalised landing rights based within the EU are not amortised, as regulations provide that these landing rights
are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination are recognised initially at fair value at the acquisition
date and amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised
separately and amortised on a straight-line basis generally over a period not exceeding five years, with certain specific
software developments amortised over a period of up to 10 years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions allowances are not revalued or amortised but are tested
for impairment whenever indicators exist that the carrying value may not be recoverable.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognised for the value by which the asset's carrying value
exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and
value-in-use. Non-financial assets other than goodwill that were subject to an impairment are reviewed for possible
reversal of the impairment at each reporting date.
a Property, plant and equipment
The carrying value is reviewed for impairment when events or changes in circumstances indicate the carrying value may not
be recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of property, plant and
equipment.
b Intangible assets
Intangible assets are held at cost and are either amortised on a straight-line basis over their economic life, or they are
deemed to have an indefinite economic life and are not amortised. Indefinite life intangible assets are tested annually for
impairment or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable.
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a long-term equity interest and over which it has the power to
exercise significant influence. Where the Group cannot exercise control over an entity in which it has a shareholding
greater than 51 per cent, the equity interest is treated as an associated undertaking.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary to determine
control over subsidiaries. The Group has assessed the nature of its joint arrangement and determined it to be a joint
venture.
Investments in associates and joint ventures are accounted for using the equity method, and initially recognised at cost.
The Group's interest in the net assets of associates and joint ventures is included in Investments accounted for using the
equity method in the Balance sheet and its interest in their results is included in the Income statement, below operating
result. The attributable results of those companies acquired or disposed of during the year are included for the periods of
ownership.
Financial instruments
a Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets including listed and unlisted investments,
excluding interests in associates. After initial recognition, available-for-sale financial assets are measured at fair
value, with changes in fair value recognised in Other comprehensive income until the investment is sold or becomes
impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the Income statement.
The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet
date. Where there is no active market, fair value is determined using valuation techniques. Where fair value cannot be
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