REG - Intl Con Airline Grp - Half-year Report <Origin Href="QuoteRef">ICAG.L</Origin> - Part 1

International Consolidated Airlines SAAnnouncement

28/07/2017 07:05

RNS Number : 3657M
International Cons Airlines Group
28 July 2017
SIX MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (July 28, 2017) presented Group consolidated results for the six months to June 30, 2017.
IAG period highlights on results:
 Second quarter operating profit 805 million before exceptional items (2016: 555 million)
 Passenger unit revenue for the quarter up 1.5 per cent, up 4.0 per cent at constant currency
 Non-fuel unit costs before exceptional items for the quarter down 0.3 per cent, up 3.5 per cent at constant currency
 Fuel unit costs before exceptional items for the quarter down 10.4 per cent, down 13.2 per cent at constant currency
 Operating profit before exceptional items for the half year 975 million (2016: 710 million), up 37.3 per cent, including the adverse foreign exchange impact for the half year of 44 million
 Cash of 7,944 million at June 30, 2017 was up 1,516 million on 2016 year end
 Adjusted net debt to EBITDAR improved by 0.4 to 1.4 times
Performance summary:
Six months to June 30

Financial data  million 
2017
2016
Higher / (lower) 
Passenger revenue 
9,575 
9,539 
0.4 %
Total revenue 
10,888 
10,786 
0.9 %
Operating profit before exceptional items 
975 
710 
37.3 %
Exceptional items 
(77)
79 
nm
Operating profit after exceptional items 
898 
789 
13.8 %
Profit after tax 
567 
554 
2.3 %
Adjusted earnings per share ( cents) 
28.5 
22.7 
25.6 %
Operating figures 
2017
2016
Higher / (lower) 
Available seat kilometres (ASK million) 
147,210 
142,915 
3.0 %
Seat factor (per cent) 
80.9 
80.0 
0.9pts
Passenger unit revenue per ASK ( cents) 
6.50 
6.67 
(2.6)%
Non-fuel unit costs per ASK ( cents) 
5.21 
5.33 
(2.1)%
June 30,
2017
December 31,
2016
Higher / (lower) 
Cash and interest-bearing deposits 
7,944 
6,428 
23.6 %
Adjusted net debt
7,024 
8,159 
(13.9)%
Adjusted net debt to EBITDAR
1.4 
1.8 
(0.4pts)
Adjusted gearing
50%
51%
(1pt)



Definitions included in Alternative performance measures section.

Willie Walsh, IAG Chief Executive Officer, said:
"We're reporting a very strong performance in quarter 2 with an operating profit of 805 million before exceptional items which is up from 555 million last year. 
"The underlying trend in unit revenue improved, benefitting partially from Easter and a weak base last year.
"Non-fuel unit costs before exceptional items are up, at constant currency. These costs include the financial impact of the power failure which affected British Airways' customers. 
"In June, LEVEL started longhaul flights from Barcelona to four destinations. Sales continue to be well ahead of our expectations. We've ordered three additional aircraft and are considering other European bases for the operation."
Trading outlook
At current fuel prices and exchange rates, IAG expects its operating profit for 2017 to show a double-digit percentage improvement year-on-year. The Group expects second half passenger unit revenue (passenger revenue per ASK) to show an increase versus last year, at constant currency.
LEI: 959800TZHQRUSH1ESL13
This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014. 
Enrique Dupuy, Chief Financial Officer
Forward-looking statements: 
Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.
Forward-looking statements can typically be identified by the use of forward-looking terminology, such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" and include, without limitation, any projections relating to 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 expenditures and divestments relating to the Group and discussions of the Group's Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2016; these documents are available on www.iagshares.com.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Tel: +44 (0)208 564 2900
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Six months to June 30

 million
Before
exceptional
items
2017
Exceptional
items
Total
2017
Before
exceptional
items
2016
Exceptional
items
Total
2016
Higher/
(lower) 







Passenger revenue
9,575 

9,575 
9,539 

9,539 
0.4 %
Cargo revenue
516 

516 
503 

503 
2.6 %
Other revenue
797 

797 
744 

744 
7.1 %
Total revenue
10,888 

10,888 
10,786 

10,786 
0.9 %


Employee costs
2,370 
77 
2,447 
2,467 
(51)
2,416 
(3.9)%
Fuel, oil costs and emissions charges
2,236 

2,236 
2,465 
(28)
2,437 
(9.3)%
Handling, catering and other operating costs
1,357 

1,357 
1,297 

1,297 
4.6 %
Landing fees and en-route charges
1,045 

1,045 
1,044 

1,044 
0.1 %
Engineering and other aircraft costs
915 

915 
811 

811 
12.8 %
Property, IT and other costs
438 

438 
442 

442 
(0.9)%
Selling costs
494 

494 
489 

489 
1.0 %
Depreciation, amortisation and impairment
603 

603 
658 

658 
(8.4)%
Aircraft operating lease costs
446 

446 
337 

337 
32.3 %
Currency differences
9 

9 
66 

66 
(86.4)%
Total expenditure on operations
9,913 
77 
9,990 
10,076 
(79)
9,997 
(1.6)%
Operating profit
975 
(77)
898 
710 
79 
789 
37.3 %
Net non-operating costs
(192)

(192)
(101)

(101)
90.1 %
Profit before tax
783 
(77)
706 
609 
79 
688 
28.6 %
Tax
(154)
15 
(139)
(120)
(14)
(134)
28.3 %
Profit after tax for the period
629 
(62)
567 
489 
65 
554 
28.6 %





Operating figures
2017(1)


2016(1)


Higher/
(lower) 
Available seat kilometres (ASK million)
147,210 


142,915 


3.0 %
Revenue passenger kilometres (RPK million)
119,157 


114,295 


4.3 %
Seat factor (per cent)
80.9 


80.0 


0.9pts
Cargo tonne kilometres (CTK million)
2,786 


2,654 


5.0 %
Passenger numbers (thousands)
48,806 


46,676 


4.6 %
Tonnes of cargo carried (thousands)
330 


326 


1.2 %
Sectors
342,428 


338,804 


1.1 %
Block hours (hours)
1,006,319 


988,814 


1.8 %
Average manpower equivalent
63,240 


63,032 


0.3 %
Aircraft in service
549 


541 


1.5 %
Passenger revenue per RPK ( cents)
8.04 


8.35 


(3.7)%
Passenger revenue per ASK ( cents)
6.50 


6.67 


(2.6)%
Cargo revenue per CTK ( cents)
18.52 


18.95 


(2.3)%
Fuel cost per ASK ( cents)
1.52 


1.72 


(11.9)%
Non-fuel costs per ASK ( cents)
5.21 


5.33 


(2.1)%
Total cost per ASK ( cents)
6.73 


7.05 


(4.5)%






(1)Financial ratios are before exceptional items.
CONSOLIDATED INCOME STATEMENT
 
Three months to June 30

 million
Before
exceptional
items
2017
Exceptional
items
Total
2017
Before
exceptional
items
2016
Exceptional
items
Total
2016
Higher/
(lower) 
 


 


Passenger revenue
5,296 

5,296 
5,074 

5,074 
4.4 %
Cargo revenue
260 

260 
241 

241 
7.9 %
Other revenue
398 

398 
393 

393 
1.3 %
Total revenue
5,954 

5,954 
5,708 

5,708 
4.3 %
 


 



Employee costs
1,218 
58 
1,276 
1,241 
(51)
1,190 
(1.9)%
Fuel, oil costs and emissions charges
1,174 

1,174 
1,274 
(15)
1,259 
(7.8)%
Handling, catering and other operating costs
745 

745 
690 

690 
8.0 %
Landing fees and en-route charges
569 

569 
570 

570 
(0.2)%
Engineering and other aircraft costs
437 

437 
407 

407 
7.4 %
Property, IT and other costs
223 

223 
218 

218 
2.3 %
Selling costs
242 

242 
237 

237 
2.1 %
Depreciation, amortisation and impairment
301 

301 
320 

320 
(5.9)%
Aircraft operating lease costs
223 

223 
149 

149 
49.7 %
Currency differences
17 

17 
47 

47 
(63.8)%
Total expenditure on operations
5,149 
58 
5,207 
5,153 
(66)
5,087 
(0.1)%
Operating profit
805 
(58)
747 
555 
66
621 
45.0 %
Net non-operating costs
(76)

(76)
(57)

(57)
33.3 %
Profit before tax
729 
(58)
671 
498 
66
564 
46.4 %
Tax
(142)
11 
(131)
(102)
(12)
(114)
39.2 %
Profit after tax for the period
587 
(47)
540 
396 
54
450 
48.2 %
 
 




Operating figures
2017(1)


2016(1)

 
Higher/
(lower) 
Available seat kilometres (ASK million)
78,906


76,764

2.8 %
Revenue passenger kilometres (RPK million)
65,213


62,073

5.1 %
Seat factor (per cent)
82.6


80.9

1.7pts
Cargo tonne kilometres (CTK million)
1,419


1,334

6.4 %
Passenger numbers (thousands)
27,659


26,307

5.1 %
Tonnes of cargo carried (thousands)
168


163

3.1 %
Sectors
188,755


186,741

1.1 %
Block hours (hours)
545,609


538,686

1.3 %
Average manpower equivalent
64,255


64,323

(0.1)%
Passenger revenue per RPK ( cents)
8.12


8.17

(0.7)%
Passenger revenue per ASK ( cents)
6.71


6.61

1.5 %
Cargo revenue per CTK ( cents)
18.32


18.07

1.4 %
Fuel cost per ASK ( cents)
1.49


1.66

(10.4)%
Non-fuel costs per ASK ( cents)
5.04


5.05

(0.3)%
Total cost per ASK ( cents)
6.53


6.71

(2.8)%
 
(1)Financial ratios are before exceptional items.

Operating profit overview 
IAG's operating profit for the six months to June 30, 2017 was 975 million before exceptional items, an improvement of 265 million from last year. British Airways made a profit of 741 million before exceptional items (2016: 631 million); Iberia made a profit of 84 million (2016: loss 6 million); Aer Lingus made a profit of 59 million (2016: 42 million) and Vueling's loss was 6 million (2016: loss 54 million). 
Strategic overview
On March 17th, IAG launched LEVEL, a new longhaul low cost airline brand that started its operations in June 2017 with flights from Barcelona to Los Angeles, San Francisco, Buenos Aires and Punta Cana. LEVEL is flying two new Airbus A330 aircraft fitted with 293 economy and 21 premium economy seats. LEVEL's trading performance for the period was positive.
Operating and market environment
In the first half of 2017 fuel commodity prices rose versus last year however the Group's fuel price net of hedging was positive. Exchange rates were net adverse for the Group. The pound sterling devalued against the euro and the US dollar. The euro was also weaker against the US dollar, although to a lesser extent. 
Principal risks and uncertainties 
We have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 27 to 32 of the December 31, 2016 Annual Report and Accounts, remain relevant for this period and the remaining six months of the year. 
Basis of presentation 
The Group's performance for the six month period to June 30, 2017 includes LEVEL's operations since its inception on March 17, 2017. The comparator period does not include any results for LEVEL.
In order to provide additional information on non-operating items included in the Income statement, the Group has included an additional line to separate the unrealised movements on open derivatives from realised gains and losses. Comparative information has been aligned to this format.
 
Capacity 
In the first six months of 2017, IAG capacity (available seat kilometres or ASKs) was higher by 3.0 per cent with increases across all regions. British Airways increased capacity in the Middle East and launched new routes in quarter 1 2017 (Santiago de Chile and Oakland). These were partially offset by lower capacity to Asia Pacific through discontinuation of Chengdu, gauge changes in Japan and the introduction of the Club Europe product in domestic. Iberia grew in Spain in Jerez, Balearics and Canaries and continued to see longhaul increases from routes launched in 2016 with the full year effect of Shanghai, Tokyo and Johannesburg and frequency increases in Mexico and Buenos Aires. Aer Lingus capacity was increased through the annualisation of its expansion across the North Atlantic. Vueling grew in Spain partially reducing its seasonality and strengthening its share. Passenger load factor rose 0.9 pts to 80.9 per cent.
Revenue
Passenger revenue increased 0.4 per cent compared to the prior period, excluding currency up 3.7 per cent. Passenger unit revenue (passenger revenue per ASK) was up 0.7 per cent at constant currency ('ccy') with slightly lower yields (passenger revenue/revenue passenger kilometre) more than offset by an increase in volumes. Passenger unit revenues improved throughout the period and were up 4.0 per cent at ccy for quarter 2 benefitting from strong performance across all the regions, in particular Latin America and the Caribbean and Asia Pacific. Our largest markets North America and Europe also performed well and British Airways saw strength in its corporate bookings. Passengers carried by the Group rose 4.6 per cent to 48,806 thousand and seat factor increased 0.9 points to 80.9 per cent.
Cargo revenue for the period increased by 2.6 per cent, 2.5 per cent at constant currency. Despite trading conditions remaining challenging in many regions, the result benefits from strong performance in the Asia Pacific region following a weaker performance in the same period last year. Cargo volumes grew 5.0 per cent versus the same period in 2016.
Other revenue was up 7.1 per cent, excluding currency up 9.2 per cent. The Group saw higher activity at BA Holidays, and in Iberia's third party maintenance (MRO) and handling businesses. Customer redemption of Avios loyalty points also increased. 
Costs
Employee costs decreased 3.9 per cent for the period. Excluding currency and on a unit basis, employee unit costs were down 1.0 per cent. Pay increases and a higher pension charge due to lower AA bond yields were more than offset by productivity and efficiency improvements. The average number of employees rose 0.3 per cent for the Group while productivity increased 2.7 per cent, with improvements at British Airways, Iberia and Aer Lingus. Vueling employee unit costs increased as they focus on reducing seasonality and improving operational resilience.

Fuel costs decreased 9.3 per cent, with fuel unit costs down 14.6 per cent at ccy primarily from lower average fuel prices net of hedging. The Group also continued to benefit from the introduction of new fleet and from improved operational procedures. 
Handling, catering and other operating costs rose 4.6 per cent, excluding currency up 11.2 per cent. The increase includes 65 million (c. 5 points) of additional compensation fees and baggage claims related to operational disruption at British Airways due to a power failure over the second May bank holiday weekend. In addition, the airlines carried 4.6 per cent more passengers and the Group's non-ASK businesses BA Holidays, handling and Avios grew, with related revenues and costs. 
Landing fees and en-route charges were broadly flat, excluding currency up 2.1 per cent. The increase is from higher activity, with flying hours up 1.8 per cent and sectors flown up 1.1 per cent, partially offset by price reductions in Europe and Africa. The Group has also recognised elements of airport recharges as a cost in the half year, rather than against revenues as in prior years, following a change in contractual arrangements.
Engineering and other aircraft costs rose 12.8 per cent, excluding currency up 11.5 per cent. Increases are driven equally by additional third party maintenance activity at Iberia and from higher flying hours, and price escalation on pay as you go engine contracts at British Airways. 
Property, IT and other costs decreased 0.9 per cent, excluding currency up 4.3 per cent. The increase reflects lower capitalised IT charges reflecting the progress of internal projects and the impact of one-off releases in the base. 
Selling costs increased 1.0 per cent, excluding currency up 2.6 per cent due to higher volumes. 
Ownership costs rose 5.4 per cent, excluding currency up 8.3 per cent. Depreciation costs are down primarily due to the retirement of Iberia's Airbus A340-300s, partially offset by IT charges from the new check-in and aircraft boarding system at British Airways. Aircraft operating lease costs are up due to a tax provision release which benefitted the base and from 9 additional Boeing 787-9s and 10 Airbus A330s. 
At constant currency non-fuel unit costs increased 2.5 per cent. Adjusted for non-airline businesses (such as MRO, handling, BA Holidays) and currency up 1.6 per cent, and on this basis improvements were noted at all carriers except British Airways. British Airways' non-fuel unit costs were adversely impacted by the operational disruption and higher maintenance costs described above. 
Exceptional items
In 2017, the Group recognised an exceptional charge of 77 million related to the British Airways transformation initiatives. 
In 2016, the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to bring the level of benefits in line with national trends in the US. These changes resulted in recognition of a one-off gain in employee costs of 51 million during the period. 
Under the Business combination standard, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in the before exceptional items column. In 2016, a credit was recognised in the exceptional column reversing the impact of unwinding the cash flow hedges to reach the total Fuel, oil costs and emissions charges.
Non-operating items
The total net non-operating charge rose 91 million to 192 million for the six months compared to 101 million last year. The movement on remeasurement of derivatives not qualifying for hedge accounting, realised and unrealised, was 100 million adverse. This was partially offset by a reduction in finance costs of 40 million following a lower debt. 
Taxation after exceptional items
The tax charge for the six months to June 30, 2017 is 139 million (2016: 134 million charge) with an effective tax rate of 20 per cent (2016: 20 per cent). 
Profit after tax and exceptional items
The profit after tax for the six month period to June 30 was 567 million (2016: 554 million).
Exchange rates
IAG's results are impacted by exchange rates used for the translation of British Airways' and Avios' financial results from sterling to the Group's reporting currency of euro. For the six months, the net impact of translation exchange on operating profit was 71 million adverse, with a decrease in revenues of 734 million and a decrease in cost of 663 million. 
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 net transaction impact on operating profit was positive by 27 million for the period, increasing revenues by 398 million and costs by 371 million. 
In summary, during the period the devaluation of the pound sterling against the euro was partially offset by the strengthening of the US dollar against both the euro and the pound sterling. The net impact of translation and transaction exchange for the Group was 44 million adverse. 
Cash 
The Group's cash position was 7,944 million up 1,516 million from December 31, 2016. British Airways' cash position was 3,708 million, Iberia 1,317 million, Aer Lingus 1,158 million, Vueling 906 million and the parent and other Group companies 855 million.
Compared to December 31, 2016, the Group's adjusted net debt decreased by 1,135 million to 7,024 million and adjusted net debt to EBITDAR improved 0.4 points.Adjusted gearing improved by one point. 

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial Statements
January 1, 2017 - June 30, 2017
CONSOLIDATED INCOME STATEMENT

Six months to June 30
 million
Before
exceptional
items
2017
Exceptional
items
Total
2017

Before
exceptional
items
2016
Exceptional
items
Total
2016
Passenger revenue
9,575 

9,575 

9,539 

9,539 
Cargo revenue
516 

516 

503 

503 
Other revenue
797 

797 

744 

744 
Total revenue
10,888 

10,888 

10,786 

10,786 
Employee costs
2,370 
77 
2,447 

2,467 
(51)
2,416 
Fuel, oil costs and emissions charges
2,236 

2,236 

2,465 
(28)
2,437 
Handling, catering and other operating costs
1,357 

1,357 

1,297 

1,297 
Landing fees and en-route charges
1,045 

1,045 

1,044 

1,044 
Engineering and other aircraft costs
915 

915 

811 

811 
Property, IT and other costs
438 

438 

442 

442 
Selling costs
494 

494 

489 

489 
Depreciation, amortisation and impairment
603 

603 

658 

658 
Aircraft operating lease costs
446 

446 

337 

337 
Currency differences
9 

9 

66 

66 
Total expenditure on operations
9,913 
77 
9,990 

10,076 
(79)
9,997 
Operating profit
975 
(77)
898 

710 
79 
789 








Finance costs
(113)

(113)

(153)

(153)
Finance income
15 

15 

18 

18 
(Loss)/profit on sale of property, plant and equipment and investments
(3)

(3)

3 

3 
Net gain related to available-for-sale financial assets
1 

1 

3 

3 
Share of profits in investments accounted for using the equity method
1 

1 

3 

3 
Realised (losses)/gains on derivatives not qualifying for hedge accounting
(7)

(7)

9 

9 
Unrealised (losses)/gains on derivatives not qualifying for hedge accounting
(72)

(72)

12 

12 
Net financing (charge)/credit relating to pensions
(16)

(16)

8 

8 
Net currency retranslation credits/(charges)
2 

2 

(4)

(4)
Profit before tax
783 
(77)
706 

609 
79 
688 
Tax
(154)
15 
(139)

(120)
(14)
(134)
Profit after tax for the period
629 
(62)
567 

489 
65 
554 








Attributable to:







Equity holders of the parent
619

557

479

544
Non-controlling interest
10

10

10

10

629

567

489

554
















Basic earnings per share ( cents)
29.3

26.4

23.6

26.8
Diluted earnings per share ( cents)
28.5

25.7

22.7

25.6
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

Six months to June 30
 million
2017
2016
Items that may be reclassified subsequently to net profit


Cash flow hedges:


 Fair value movements in equity
(470)
(392)
 Reclassified and reported in net profit
7 
712 
Available-for-sale financial assets:


 Fair value movements in equity
5 
1 
Currency translation differences
(128)
(468)



Items that will not be reclassified to net profit


Remeasurements of post-employment benefit obligations
184 
(1,256)
Total other comprehensive income for the period, net of tax
(402)
(1,403)
Profit after tax for the period
567 
554 
Total comprehensive income for the period
165 
(849)



Total comprehensive income is attributable to:


Equity holders of the parent
155 
(859)
Non-controlling interest
10 
10 

165 
(849)

Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.
CONSOLIDATED BALANCE SHEET
 million
June 30,
2017
December 31,
2016
Non-current assets


Property, plant and equipment
11,725 
12,227 
Intangible assets
2,990 
3,037 
Investments accounted for using the equity method
27 
29 
Available-for-sale financial assets
75 
73 
Employee benefit assets
989 
1,028 
Derivative financial instruments
34 
169 
Deferred tax assets
555 
526 
Other non-current assets
425 
499 

16,820 
17,588 
Current assets


Non-current assets held for sale
23 
38 
Inventories
449 
458 
Trade receivables
1,686 
1,405 
Other current assets
992 
899 
Current tax receivable
140 
228 
Derivative financial instruments
79 
329 
Other current interest-bearing deposits
3,870 
3,091 
Cash and cash equivalents
4,074 
3,337 

11,313 
9,785 
Total assets
28,133 
27,373 



Shareholders' equity 


Issued share capital
1,066 
1,066 
Share premium
6,105 
6,105 
Treasury shares
(577)
(96)
Other reserves
(1,839)
(1,719)
Total shareholders' equity
4,755 
5,356 
Non-controlling interest
308 
308 
Total equity
5,063 
5,664 
Non-current liabilities


Interest-bearing long-term borrowings
7,017 
7,589 
Employee benefit obligations
1,635 
2,363 
Deferred tax liability
234 
176 
Provisions for liabilities and charges
1,960 
1,987 
Derivative financial instruments
107 
20 
Other long-term liabilities
246 
238 

11,199 
12,373 
Current liabilities


Current portion of long-term borrowings
1,007 
926 
Trade and other payables
4,170 
3,305 
Deferred revenue on ticket sales
5,726 
4,145 
Derivative financial instruments
271 
88 
Current tax payable
48 
101 
Provisions for liabilities and charges
649 
771 

11,871 
9,336 
Total liabilities
23,070 
21,709 
Total equity and liabilities
28,133 
27,373 
CONSOLIDATED CASH FLOW STATEMENT

Six months to June 30
 million
2017
2016
Cash flows from operating activities


Operating profit
898 
789 
Depreciation, amortisation and impairment
603 
658 
Movement in working capital
1,731 
1,620 
Increase in trade and other receivables, prepayments, inventories and current assets
(421)
(739)
Increase in trade and other payables, deferred revenue on ticket sales and current liabilities
2,152 
2,359 
Payments related to restructuring
(122)
(91)
Employer contributions to pension schemes
(569)
(680)
Pension scheme service costs
117 
108 
Provision and other non-cash movements
65 
66 
Interest paid
(63)
(107)
Interest received
17 
21 
Taxation
18 
(104)
Net cash flows from operating activities
2,695 
2,280 



Cash flows from investing activities


Acquisition of property, plant and equipment and intangible assets
(687)
(1,731)
Sale of property, plant and equipment and intangible assets
236 
83 
Net proceeds from sale of investments
15 
- 
Increase in other current interest-bearing deposits
(887)
(861)
Other investing movements
37 
(97)
Net cash flows from investing activities
(1,286)
(2,606)



Cash flows from financing activities


Net proceeds from long-term borrowings
92 
1,083 
Repayment of borrowings
(59)
(74)
Repayment of finance leases
(313)
(259)
Acquisition of treasury shares
(198)
(25)
Distributions made to holders of perpetual securities and other
(10)
(10)
Dividend paid
(43)
(40)
Net cash flows from financing activities
(531)
675 



Net increase in cash and cash equivalents
878 
349 
Net foreign exchange differences
(141)
(190)
Cash and cash equivalents at 1 January
3,337 
2,909 
Cash and cash equivalents at period end
4,074 
3,068 



Interest-bearing deposits maturing after more than three months
3,870 
3,493 



Cash, cash equivalents and other interest-bearing deposits
7,944 
6,561 
At June 30, 2017 Aer Lingus held 45 million of restricted cash (2016: 48 million) within interest-bearing deposits maturing after more than three months to be used for employee related obligations.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2017













 million 
Issued share capital
Share premium
Treasury shares
Other reserves(1)
Total shareholders' equity
Non-controlling interest
Total equity
January 1, 2017
1,066 
6,105 
(96)
(1,719)
5,356 
308 
5,664 








Total comprehensive income for the period (net of tax)
- 
- 
- 
155 
155 
10 
165 








Cost of share-based payments
- 
- 
- 
18 
18 
- 
18 
Vesting of share-based payment schemes
- 
- 
19 
(31)
(12)
- 
(12)
Acquisition of treasury shares
- 
- 
(500)
- 
(500)
- 
(500)
Dividend
- 
- 
- 
(262)
(262)
- 
(262)
Distributions made to holders of perpetual securities
- 
- 
- 
- 
- 
(10)
(10)
June 30, 2017
1,066 
6,105 
(577)
(1,839)
4,755 
308 
5,063 








(1)Closing balance includes retained earnings of 1,418 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of 3,467 million).
For the six months to June 30, 2016








 million
Issued share capital
Share premium
Treasury shares
Other reserves(1)
Total shareholders' equity
Non-controlling interest
Total equity
January 1, 2016
1,020 
5,867 
(113)
(1,548)
5,226 
308 
5,534 








Total comprehensive income for the period (net of tax)
- 
- 
- 
(859)
(859)
10 
(849)








Cost of share-based payments
- 
- 
- 
26 
26 
- 
26 
Vesting of share-based payment schemes
- 
- 
42 
(76)
(34)
- 
(34)
Acquisition of treasury shares
- 
- 
(25)
- 
(25)
- 
(25)
Dividend
- 
(106)
- 
(106)
(212)
- 
(212)
Issue of ordinary shares related to conversion of convertible bond
46 
344 
- 
(33)
357 
- 
357 
Distributions made to holders of perpetual securities
- 
- 
- 
- 
- 
(10)
(10)
June 30, 2016
1,066 
6,105 
(96)
(2,596)
4,479 
308 
4,787 








(1)Closing balance includes a retained earnings of 331 million (excluding cumulative charge to reserves following amendment to 'Employee benefits' accounting standard: retained earnings of 2,380 million).

1. CORPORATE INFORMATION AND BASIS OF PREPARATION
International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Lneas Areas de Espaa 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 Espaol). 
The condensed consolidated interim financial statements were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on July 27, 2017. The condensed consolidated interim financial statements herein are not the Company's statutory accounts and are unaudited. 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 interim financial statements.
The basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2016 have been applied in the preparation of these condensed consolidated interim financial statements. IAG's financial statements for the year to December 31, 2016 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.
In order to provide additional information on non-operating items included in the Income statement, the Group has included an additional line to separate the unrealised movements on open derivatives from realised gains and losses.
The financial statements for the prior year include reclassifications that were made to conform to the current year presentation.

2. ACCOUNTING POLICIES
The Group has not adopted any standard, interpretation or amendment in the six months to June 30, 2017 which has had an impact on its accounting policies and has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective. The following standards are effective for periods beginning on or after January 1, 2018:
IFRS 15 'Revenue from contracts with customers' effective from January 1, 2018. IAG is currently in the process of finalising its accounting policies under the new standard. It is anticipated that the main changes on adoption will be as follows:
 Passenger revenue - revenue associated with ancillary services that is currently recognised when paid, such as change fees, will be deferred to align with the recognition of revenue associated with the related travel.
 Cargo revenue - interline cargo revenue will be presented gross rather than net of related costs as IAG is considered to be principal rather than agent in these transactions.
 Other revenue - loyalty revenue associated with the redemption of Avios points with third parties will be presented net of the related costs as IAG is considered to be agent rather than principal in these transactions. In addition, revenue associated with maintenance activities and holiday revenue with performance obligations that are fulfilled over time, will be deferred (with the related costs) and recognised over the performance obligation period.
The Group expects to apply the standard on a fully retrospective basis and does not expect a significant change to its financial performance or position on adoption of the standard.
IFRS 9 'Financial Instruments' effective from January 1, 2018. The standard amends the classification and measurement models for financial assets and adds new requirements to address the impairment of financial assets and hedge accounting. IFRS 9 will allow the Group to hedge specific risk components of its fuel purchases, such as crude oil price risk. It also requires movements in the time value of options (currently recognised in the Income statement) to be recognised in Other comprehensive income. These changes will result in a reduction in the gains and losses on derivatives not qualifying for hedge accounting recognised in the Income statement. The standard also requires the Group to make a policy choice on whether gains and losses on equity instruments measured at fair value should be recognised in the Income statement or Other comprehensive income, with no recycling. The Group is currently in the process of finalising its accounting policies under the new standard. The Group does not expect any significant changes to its financial performance or position or its hedging activities on the adoption of the standard.
2. ACCOUNTING POLICIES continued
IFRS 16 'Leases' (not yet endorsed by the EU) effective from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. The Group is currently assessing the impact of the new standard. Interest-bearing borrowings and non-current assets will increase on implementation of this standard as obligations to make future payments under leases currently classified as operating leases will be recognised on the Balance sheet, along with the related 'right-of-use' asset. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are replaced with depreciation and lease interest expense. Foreign exchange movements on lease obligations, which are predominantly denominated in US dollars, will be remeasured at each balance sheet date, creating volatility in the Income statement.
3. exceptional items

Six months to June 30
 million
2017
2016
Employee costs (1)
77 
(51)
Pre-acquisition cash flow hedge impact (2)
-
(28)
Recognised in expenditure on operations
77 
(79)
Total exceptional charge/(credit) before tax
77 
(79)
Tax on exceptional items
(15)
14 
Total exceptional charge/(credit) after tax
62 
(65)
(1)Employee costs
British Airways has embarked on a series of transformation proposals to develop a more efficient and cost effective structure. The overall costs of the programme principally comprise employee severance costs. Costs incurred in the six months to June 30, 2017 in respect of this programme amount to 77 million, with a related tax credit of 15 million. 
During the six months to June 30, 2016 the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to further bring the level of benefits in line with national trends seen in the US. This scheme is accounted for in a similar way to a defined benefit plan, so any reduction in benefit results in the recognition of a past service gain when the plan amendment occurs. This change has resulted in a one-off gain in employee costs of 51 million in the period, and a related tax charge of 10 million.
In the period to June 30, 2016:
(2)Pre-acquisition cash flow hedge impact
Under IFRS 3 Business combinations, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in reported fuel expense. For the six months to June 30, 2016, a credit of 28 million was recognised as an exceptional item, reversing the impact of unwinding the cash flow hedges to arrive at the total Fuel, oil costs and emissions charges. A related tax charge of 4 million was also recognised.
4. Seasonality
The Group's business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months. 
5. Segment INFORMATION
a. Business segments
The chief operating decision maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as individual operating companies including airline and platform functions. Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results.
Based on the way that the Group treats its businesses and the manner in which resource allocation decisions are made the Group has determined its operating segments. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.
5. SEGMENT INFORMATION continued
a. Business segments continued
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 only incidental to the activities of the Group or are not reviewed by the IAG MC and are included within Other Group companies.
For the six months to June 30, 2017














2017
 million
British Airways
Iberia
Vueling
Aer
Lingus
Other Group companies
Total
Revenue






External revenue
6,763 
2,095 
902 
839 
289 
10,888 
Inter-segment revenue
225 
188 
- 
- 
229 
642 
Segment revenue
6,988 
2,283 
902 
839 
518 
11,530 







Depreciation, amortisation and impairment
(442)
(92)
(10)
(39)
(20)
(603)







Operating profit/(loss) before exceptional items
741 
84 
(6)
59 
97 
975 
Exceptional items (note 3)
(77)
- 
- 
- 
- 
(77)
Operating profit/(loss) after exceptional items
664 
84 
(6)
59 
97 
898 
Net non-operating costs





(192)
Profit before tax





706 
For the six months to June 30, 2016














2016
 million
British Airways
Iberia
Vueling
Aer Lingus
Other Group companies
Total
Revenue






External revenue
6,875 
1,982 
857 
787 
285 
10,786 
Inter-segment revenue
238 
151 
- 
- 
230 
619 
Segment revenue
7,113 
2,133 
857 
787 
515 
11,405 







Depreciation, amortisation and impairment
(487)
(115)
(9)
(37)
(10)
(658)







Operating profit/(loss) before exceptional items
631 
(6)
(54)
42 
97 
710 
Exceptional items (note 3)
51 
- 
- 
- 
28 
79 
Operating profit/(loss) after exceptional items
682 
(6)
(54)
42 
125 
789 
Net non-operating costs





(101)
Profit before tax





688 
b. Geographical analysis
Revenue by area of original sale

Six months to June 30
 million
2017
2016
UK
3,525
3,854
Spain
1,630
1,659
USA
1,969
1,731
Rest of world
3,764
3,542

10,888
10,786
5. SEGMENT INFORMATIONcontinued
b. Geographical analysis continued
Assets by area
June 30, 2017


 million
Property, plant
and equipment
Intangible
assets
UK
9,020 
1,159 
Spain
1,924 
1,230 
USA
21 
9 
Rest of world
760 
592 

11,725 
2,990 



December 31, 2016


 million
Property, plant
and equipment
Intangible
assets
UK
9,608 
1,196 
Spain
1,877 
1,236 
USA
20 
18 
Rest of world
722 
587 

12,227 
3,037 
6. FINANCE COSTS AND INCOME

Six months to June 30
 million
2017
2016
Finance costs


Interest payable on bank and other loans, finance charges payable under finance leases
(106)
(141)
Unwinding of discount on provisions
(9)
(11)
Capitalised interest on progress payments
3 
1 
Change in fair value of cross currency swaps
(1)
(2)
Total finance costs
(113)
(153)



Finance income


Interest on other interest-bearing deposits
15 
18 
Total finance income
15 
18 
7. TAX
The tax charge for the six months to June 30, 2017 is 139 million (2016: 134 million), and the effective tax rate is 20 per cent (2016: 20 per cent).
The tax charge is calculated at the domestic rates applicable to prots or losses in the main countries of operation.
8. EARNINGS PER SHARE AND SHARE CAPITAL

Six months to June 30
Millions
2017
2016
Weighted average number of ordinary shares in issue
2,111
2,030
Weighted average number for diluted earnings per share
2,202
2,210




Six months to June 30
 cents
2017
2016
Basic earnings per share
26.4
26.8
Diluted earnings per share
25.7
25.6
8. EARNINGS PER SHARE AND SHARE CAPITALcontinued
The number of shares in issue at June 30, 2017 was 2,132,988,743 (December 31, 2016: 2,132,988,743) ordinary shares with a par value of 0.50 each.
In February 2017, the Group announced its intention to carry out a share buyback programme of up to 500 million, as part of its corporate finance strategy to return cash to shareholders while reinvesting in the business and managing leverage. The programme started on March 6, 2017 and will complete by December 29, 2017. During the period to June 30, 2017 the Group purchased 31 million shares, amounting to 203 million. The outstanding payment obligation of the share buyback programme totalling 297 million is included in Trade and other payables in the consolidated Balance sheet.
9. Dividends
The Directors do not propose a dividend for the six months to June 30, 2017 (June 30, 2016: nil).
The final dividend of 12.5  cents per share for the year to December 31, 2016 was approved at the annual general meeting on June 15, 2017. This final dividend, amounting to 262 million, has been recognised as a liability at June 30, 2017 and was paid from July 3, 2017.
10. property, plant and equipment and intaNgible assets
 million
Property, plant
and equipment
Intangible assets
Net book value at January 1, 2017
12,227 
3,037 
Additions
654 
77 
Disposals
(235)
(16)
Depreciation, amortisation and impairment
(543)
(60)
Exchange movements
(378)
(48)
Net book value at June 30, 2017
11,725 
2,990 
 million
Property, plant
and equipment
Intangible
assets
Net book value at January 1, 2016
13,672 
3,246 
Additions
1,685 
70 
Acquired through Business combination
58 
(51)
Disposals
(101)
(18)
Reclassifications
(25)
11 
Depreciation, amortisation and impairment
(609)
(49)
Exchange movements
(1,441)
(171)
Net book value at June 30, 2016
13,239 
3,038 
Capital expenditure authorised and contracted for but not provided for in the accounts amounts to 12,876 million (December 31, 2016: 14,022 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates.
11. IMPAIRMENT REVIEW
Goodwill and intangible assets with indefinite lives are tested for impairment annually (in the fourth quarter) and when circumstances indicate the carrying value may be impaired. The key assumptions used to determine the recoverable amount for the different cash generating units are disclosed in the Annual Report and Accounts for the year to December 31, 2016. For the six months to June 30, 2017 there are no indicators that the carrying value may exceed the recoverable amount.
12. NON-CURRENT ASSETS HELD FOR SALE
The non-current assets held for sale of 23 million represent five Airbus A340-300 aircraft. These are presented within the Iberia operating segment and will exit the business by December 31, 2017.
Assets held for sale with a net book value of 15 million were disposed of during the six months to June 30, 2017, related to the sale of the Group's investment in Propius Holdings Limited ('Propius'), resulting in no gain or loss.
12. NON-CURRENT ASSETS HELD FOR SALE continued
At December 31, 2016 the non-current assets held for sale of 38 million represented 15 million for the Group's investment in Propius and 23 million for five Airbus A340-300 aircraft. These were presented within the Aer Lingus and Iberia operating segments respectively.
13. financial instruments
a. Financial assets and liabilities by category
The detail of the Group's nancial instruments at June 30, 2017 and December 31, 2016 by nature and classication for measurement purposes is as follows:
June 30, 2017












Financial assets


 million 
Loans and
receivables
Derivatives
used for
hedging
Available-for-
sale
Non-financial
assets
Total
carrying
amount by
balance sheet
item
Non-current assets 





Available-for-sale financial assets 
- 
- 
75 
- 
75 
Derivative financial instruments 
- 
34 
- 
- 
34 
Other non-current assets 
274 
- 
- 
151 
425 





Current assets 





Trade receivables 
1,686 
- 
- 
- 
1,686 
Other current assets 
364 
- 
- 
628 
992 
Non-current assets held for sale 
-
-
-
23 
23 
Derivative financial instruments 
- 
79 
- 
- 
79 
Other current interest-bearing deposits 
3,870 
- 
- 
- 
3,870 
Cash and cash equivalents 
4,074 
- 
- 
- 
4,074 

Financial liabilities


 million 

Loans and
payables
Derivatives
used for
hedging
Non-
financial
liabilities
Total
carrying
amount by
balance sheet
item
Non-current liabilities 





Interest-bearing long-term borrowings
7,017 
- 
- 
7,017 
Derivative financial instruments 

- 
107 
- 
107 
Other long-term liabilities 

10 
- 
236 
246 





Current liabilities 





Current portion of long-term borrowings
1,007 
- 
- 
1,007 
Trade and other payables 

3,833 
- 
337 
4,170 
Derivative financial instruments 

- 
271 
- 
271 
13. financial instruments continued
a. Financial assets and liabilities by category continued
December 31, 2016











Financial assets


 million 
Loans and receivables
Derivatives used for hedging
Available-for-sale
Non-financial assets
Total carrying amount by balance sheet item
Non-current assets 





Available-for-sale financial assets 
-
-
73
-
73
Derivative financial instruments 
-
169
-
-
169
Other non-current assets 
267
-
-
232
499





Current assets 





Trade receivables 
1,405
-
-
-
1,405
Other current assets 
304
-
-
595
899
Non-current assets held for sale 
-
-
-
38
38
Derivative financial instruments 
-
329
-
-
329
Other current interest-bearing deposits 
3,091
-
-
-
3,091
Cash and cash equivalents 
3,337
-
-
-
3,337

Financial liabilities


 million 

Loans and
payables
Derivatives
used for
hedging
Non-
financial
liabilities
Total
carrying
amount by
balance sheet
item
Non-current liabilities 





Interest-bearing long-term borrowings 

7,589 
- 
- 
7,589 
Derivative financial instruments 

- 
20 
- 
20 
Other long-term liabilities 

16 
- 
222 
238 





Current liabilities 





Current portion of long-term borrowings 

926 
- 
- 
926 
Trade and other payables 

3,049 
- 
256 
3,305 
Derivative financial instruments 

- 
88 
- 
88 
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 as follows:
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 present actual and regularly occurring market transactions on an arm's length basis;
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; and
 
Level 3: Inputs for the asset or liability that are not based on observable market data.
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.
13. financial instruments continued
b.  Fair value of financial assets and financial liabilities continued
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:
Level 1: The fair value of listed asset investments classified as available-for-sale and listed interest-bearing borrowings is based on market value at the balance sheet date.
Level 2: The fair value of derivatives and other interest-bearing borrowings is determined as follows:
 Forward currency transactions and over-the-counter fuel derivatives are measured at the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant. 
 The fair value of the Group's interest-bearing borrowings including leases is determined by discounting the remaining contractual cash flows at the relevant market interest rates at the balance sheet date.
Level 3: Unlisted investments are predominantly measured at historic cost less accumulated impairment losses.
The carrying amounts and fair values of the Group's financial assets and liabilities at June 30, 2017 are as follows:

Fair value

Carrying
value
 million
Level 1
Level 2
Level 3
Total

Total
Financial assets






Available-for-sale financial assets
19 
- 
56 
75 

75 
Derivatives
- 
113 
- 
113 

113 







Financial liabilities






Interest-bearing borrowings
1,088 
7,060 
- 
8,148 

8,024 
Derivatives
- 
378 
- 
378 

378 
The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2016 are as follows:

Fair value

Carrying value
 million
Level 1
Level 2
Level 3
Total

Total
Financial assets






Available-for-sale financial assets
15 
- 
58 
73 

73 
Derivatives
- 
498 
- 
498 

498 







Financial liabilities






Interest-bearing borrowings
1,020 
7,656 
- 
8,676 

8,515 
Derivatives
- 
108 
- 
108 

108 
There have been no transfers between levels of fair value hierarchy during the period.
The financial instruments listed in the previous table are measured at fair value for reporting purposes with the exception of the interest-bearing borrowings.
c. Level 3 financial assets reconciliation 
The following table summarises key movements in Level 3 financial assets:   
 million
June 30, 2017
December 31, 2016
Opening balance for the period
58
65
Exchange movements
(2)
(7)
Closing balance for the period
56
58
13. financial instruments continued
c. Level 3 financial assets reconciliation continued
The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less accumulated impairment losses with the exception of the Group's investment in The Airline Group Limited. This unlisted investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from which to determine a fair value. The investment remains classified as a Level 3 financial asset due to the valuation criteria applied not being observable.
14. borrowings
 million
June 30,
2017
December 31,
2016
Current


Bank and other loans
136 
149 
Finance leases
871 
777 

1,007 
926 
Non-current


Bank and other loans
1,714 
1,764 
Finance leases
5,303 
5,825 

7,017 
7,589 
15. SHARE BASED PAYMENTS
During the period 5,518,776 nil-cost options were awarded under the Group's Performance Share Plan (PSP) to key senior executives and selected members of the wider management team. No payment is due upon the vesting of the shares. The fair value of equity-settled share awards granted is estimated at the date of the award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded, or based on the share price at the date of grant, dependent on the performance criteria attached. The following are the inputs to the model for the PSP awards granted in the period:
Expected share price volatility: 35 per cent
Expected life of options: 4.6 years
Weighted average share price (): 5.46
The Group also made awards under the Group's Incentive Award Deferral Plan during the period, under which 673,054 conditional shares were awarded.
16. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both of which are in the UK and are closed to new members.
 
June 30, 2017
 million 
APS
NAPS
Other
Total
Scheme assets at fair value 
9,165
18,330
432
27,927
Present value of scheme liabilities 
(7,628)
(19,639)
(742)
(28,009)
Net pension asset/(liability)
1,537
(1,309)
(310)
(82)
Effect of the asset ceiling
(554)
- 
- 
(554)
Other employee benefit obligations 
- 
- 
(10)
(10)
June 30, 2017
983
(1,309)
(320)
(646)





Represented by: 


 

Employee benefit assets


 
989
Employee benefit obligations


 
(1,635)
 


 
(646)
16. EMPLOYEE BENEFIT OBLIGATIONS continued
 
December 31, 2016
 million 
APS
NAPS
Other
Total
Scheme assets at fair value 
9,637
18,366
445
28,448
Present value of scheme liabilities 
(8,036)
(20,376)
(781)
(29,193)
Net pension asset/(liability) 
1,601
(2,010)
(336)
(745)
Effect of the asset ceiling
(580)
-
-
(580)
Other employee benefit obligations 
-
-
(10)
(10)
December 31, 2016
1,021
(2,010)
(346)
(1,335)





Represented by: 


 

Employee benefit assets


 
1,028
Employee benefit obligations


 
(2,363)
 


 
(1,335)
At June 30, 2017, the assumptions used to determine the obligations under the APS and NAPS were reviewed and updated to reflect market conditions at that date. The change in assumptions has resulted in a credit to Other comprehensive income of 184 million (net of tax). Key assumptions were as follows:
 
APS
NAPS
Per cent per annum 
June 30, 2017
December 31, 2016
June 30,
2017
December 31, 2016
Inflation (CPI)
2.05
2.10
2.05
2.10
Inflation (RPI)
3.15
3.20
3.15
3.20
Salary increases (as RPI)
3.15
3.20
3.15
3.20
Discount rate
2.55
2.60
2.65
2.70
Further information on the basis of the assumptions is included in note 32 of the IAG Annual Report and Accounts for the year to December 31, 2016.
Pension contributions for APS and NAPS were determined by actuarial valuations made as at March 31, 2012 and March 31, 2015 respectively using assumptions and methodologies agreed between the Group and the Trustees of each scheme.
The triennial valuation as at March 31, 2015 for APS was deferred as a result of legal proceedings (note 18).
17. pROVISIONS FOR LIABILITIES AND CHARGES







 million
Restoration and handback provisions
Restructuring provisions
Employee leaving indemnities and other employee related provisions
Legal claims provisions
Other provisions
Total
Net book value January 1, 2017
1,201 
692 
593 
189 
83 
2,758 
Provisions recorded during the period
177 
87 
10 
36 
104 
414 
Utilised during the period
(128)
(122)
(12)
(122)
(61)
(445)
Release of unused amounts
(10)
(10)
(3)
(11)
(7)
(41)
Unwinding of discount
1 
1 
7 
- 
- 
9 
Exchange differences
(80)
(4)
- 
2 
(4)
(86)
Net book value June 30, 2017
1,161 
644 
595 
94 
115 
2,609 
Analysis:






Current
214 
261 
58 
39 
77 
649 
Non-current
947 
383 
537 
55 
38 
1,960 

1,161 
644 
595 
94 
115 
2,609 
During the period the Group recognised a provision in relation to the restructuring plans at British Airways (note 3).
The legal claims provision includes the payment of 104 million for the reissued fine in March 2017 against British Airways, related to investigations by a number of competition authorities in connection with alleged anti-competitive activity concerning the Group's passenger and cargo businesses (note 18).
Other provisions includes a 65 million provision recognised during the period on additional compensation fees and baggage claims related to operational disruption at British Airways due to a power failure in quarter 2, 2017.
18. CONTINGENT LIABILITIES
Cargo
The Group is party to a number of legal proceedings in the English courts relating to a decision by the European Commission in 2010 which fined British Airways and ten other airline groups for participating in a cartel in respect of air cargo prices. The decision was partially annulled against British Airways but in full against other carriers and the fine was refunded in full. British Airways has appealed the partial annulment judgment and the appeal decision is awaited. In March 2017 the European Commission adopted a new decision and reissued the fine against British Airways for the same amount, being 104 million. British Airways subsequently repaid the fine which had been recognised as a provision. The new decision has been appealed.
Pensions
The Trustees of the Airways Pension Scheme (APS) have proposed an additional discretionary increase above CPI for pensions in payment for the year to March 31, 2014. British Airways has challenged the decision, as it considers the Trustees have no power to grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the legal proceedings was issued in May 2017, which concluded the Trustees do have the power to grant discretionary increases, whilst reiterating they must take into consideration all relevant factors, and ignore irrelevant factors. The Group has appealed the judgment and await an appeal hearing, currently expected to be mid-2018. Payment of the 2013/14 discretionary increase is subject to an injunction as a result of British Airways appeal. The delayed 2015 triennial valuation will now resume. The discretionary increase has not been reflected in the accounting assumptions used, as the outcome is uncertain.
Fuel surcharges on loyalty programme redemption tickets
British Airways is the defendant in a case filed in the United States of America in respect of fuel surcharges on loyalty programme redemption tickets. The class has been certified. British Airways intends to vigorously defend the claim and the outcome of the proceedings is uncertain.
There were no other significant movements in contingent liabilities and guarantees occurring during the period.
19. 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
2017
2016
Sales of goods and services


Sales to associates
3 
4 
Sales to significant shareholders
24 
18 



Purchases of goods and services


Purchases from associates
24 
23 
Purchases from significant shareholders
42 
29 
Period end balances arising from sales and purchases of goods and services:
 million
June 30, 
2017
December 31, 
2016
Receivables from related parties


Amounts owed by associates
1 
2 
Amounts owed by significant shareholders
1 
1 



Payables to related parties


Amounts owed to associates
3 
4 
Amounts owed to significant shareholders
1 
- 
For the six months to June 30, 2017 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2016: 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
2017
2016
Base salary, fees and benefits


Board of Directors' remuneration
2 
2 
Management Committee remuneration
3 
3 
19. RELATED PARTY TRANSACTIONS continued
At June 30, 2017the Board of Directors includes remuneration for two Executive Directors (June 30, 2016: two Executive Directors). The Management Committee includes remuneration for ten members (June 30, 2016: nine members).
The Company provides life insurance for all Executive Directors and the Management Committee. For the six months to June 30, 2017 the Company's obligation was 16,000 (2016: 25,000).
At June 30, 2017 the transfer value of accrued pensions covered under defined benefit obligation schemes, relating to the Management Committee totalled 4 million (2016: 4 million).
No loans were outstanding with Directors or officers of the Group at June 30, 2017(2016: nil).
20. POST BALANCE SHEET EVENTS
There are no post balance sheet events.

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, 2017, 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, 2017, 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 information required.
July 27, 2017



Antonio Vzquez Romero
Chairman

William Matthew Walsh
Chief Executive Officer



Marc Jan Bolland

Patrick Jean Pierre Cescau 



Enrique Dupuy de Lme Chvarri

James Arthur Lawrence



Mara Fernanda Meja Campuzano

Kieran Charles Poynter



Emilio Saracho Rodrguez de Torres

Marjorie Morris Scardino



Alberto Terol Esteban



ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of Alternative Performance Measures (APMs). The Group's results are presented both before and after exceptional items. Exceptional items are those that in management's view need to be separately disclosed by virtue of their size and incidence. Exceptional items are disclosed in note 3 of the unaudited condensed consolidated interim financial statements. In addition, the Group's results are described using certain measures that are not defined under IFRS and are therefore considered to be APMs. These measures have been used to identify the Group's long-term planning goals on 'Profitability', 'Efficient growth' and 'Balance sheet and cash flow', and to monitor performance towards these goals. The definition of each APM presented in this report, together with a reconciliation to the nearest measure prepared in accordance with IFRS is presented below.
Adjusted earnings per share
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.
 million
June 30,
2017
June 30,
2016
Earnings attributable to equity holders of the parent
557
544
Exceptional items
62
(65)
Earnings attributable to equity holders of the parent before exceptional items
619
479
Interest expense on convertible bonds
9
22
Adjusted earnings
628
501



Weighted average number of shares used for diluted earnings per share (million)
2,202
2,210
Weighted average number of shares used for basic earnings per share (million)
2,111
2,030



Adjusted earnings per share ( cents)
28.5
22.7
Basic earnings per share before exceptional items ( cents)
29.3
23.6
EBITDAR
EBITDAR is calculated as the rolling four quarter operating profit before exceptional items, depreciation, amortisation and impairment and aircraft operating lease costs.

June 30,
2017
December 31,
2016
June 30,
2016
 million
Operating profit before exceptional items
2,800
2,535
2,490
Depreciation, amortisation and impairment
1,232
1,287
1,345
Aircraft operating lease costs
868
759
691
EBITDAR
4,900
4,581
4,526
Adjusted net debt to EBITDAR
Adjusted net debt is calculated as long-term borrowings, less cash and cash equivalents and other current interest-bearing deposits, plus annual aircraft operating lease costs multiplied by 8. This is divided by EBITDAR to arrive at adjusted net debt to EBITDAR. June 2016 has been adjusted to include annualised results from Aer Lingus.
 million
June 30,
2017
December 31,
2016
June 30,
2016
Interest-bearing long-term borrowings
8,024
8,515
8,819
Cash and cash equivalents
(4,074)
(3,337)
(3,068)
Other current interest-bearing deposits
(3,870)
(3,091)
(3,493)
Net debt
80
2,087
2,258
Aircraft operating lease costs multiplied by 8
6,944
6,072
5,632
Adjusted net debt
7,024
8,159
7,890




EBITDAR
4,900
4,581
4,636




Adjusted net debt to EBITDAR
1.4
1.8
1.7
ALTERNATIVE PERFORMANCE MEASURES continued
Adjusted gearing
Adjusted gearing is defined as adjusted net debt divided by adjusted net debt and adjusted equity and is expressed as a percentage. Adjusted equity is reported equity adjusted for the cumulative charge to reserves following the amendment to IAS 19 'Employee benefits' accounting standard, up to 2,077 million, representing the adjustment to equity on adoption of the amendment to the standard.
 million
June 30,
2017
December 31,
2016
June 30,
2016
Adjusted net debt
7,024
8,159
7,890




Equity
5,063
5,664
4,787
IAS 19 cumulative charge to reserves (post-tax)
2,077
2,077
2,077
Adjusted equity
7,140
7,741
6,864




Adjusted net debt plus adjusted equity
14,164
15,900
14,754




Adjusted gearing
50%
51%
53%

AIRCRAFT FLEET
Number in service with Group companies












On
balance
sheet fixed
assets
Off
balance
sheet
operating
leases
Total
June 30,
2017
Total
December 31, 2016

Changes since
December 31,
2016

Future
deliveries
Options









Airbus A318
2 
-
2 
2 

-

-
-
Airbus A319
22 
43 
65 
65 

-

-
-
Airbus A320 
69 
153 
222 
227 

(5)

92 
128 
Airbus A321
26 
25 
51 
47 

4 

20 
-
Airbus A330-200
7 
9 
16 
14 

2 

2 
4 
Airbus A330-300
5 
10 
15 
14 

1 

1 
-
Airbus A340-600
7 
10 
17 
17 

-

-
-
Airbus A350
-
-
-
-

-

43 
52 
Airbus A380
12 
-
12 
12 

-

-
7 
Boeing 747-400 
36 
-
36 
37 

(1)

-
-
Boeing 757-200 
1 
2 
3 
3 

-

-
-
Boeing 767-300
8 
-
8 
8 

-

-
-
Boeing 777-200
41 
5 
46 
46 

-

-
-
Boeing 777-300 
9 
3 
12 
12 

-

-
-
Boeing 787-8
8 
-
8 
8 

-

4 
-
Boeing 787-9
7 
9 
16 
16 

-

2 
18 
Boeing 787-10
-
-
-
-

-

12 
-
Embraer E170
6 
-
6 
6 

-

-
-
Embraer E190 
9 
5 
14 
14 

-

-
-
Group total
275
274
549
548

1 

176 
209 









As well as those aircraft in service the Group also holds 6 aircraft (2016: 9) not in service.

This information is provided by RNS
The company news service from the London Stock Exchange
  END
IR BRGDRLDDBGRR