REG - Intl Con Airline Grp - IAG Interim Management Report to June 30 2022
29/07/2022 07:01
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RNS Number : 1662U International Cons Airlines Group 29 July 2022
SIX MONTHS RESULTS ANNOUNCEMENT
International Consolidated Airlines Group (IAG) today (July 29, 2022) presents
its Group consolidated results for the six months to June 30, 2022.
IAG returns to profit in the second quarter following strong recovery in
demand across all airlines
IAG financial results highlights for the period:
· Operating profit for the second quarter €293 million (2021:
operating loss €967 million), and operating profit before exceptional items
€287 million (2021: operating loss before exceptional items €1,045
million)
· Operating loss for the half year €438 million (2021: operating
loss €2,035 million), and operating loss before exceptional items €467
million (2021: operating loss before exceptional items €2,180 million)
· Profit after tax and exceptional items for the second quarter
€133 million (2021: loss €981 million) and profit after tax before
exceptional items €127 million (2021: loss €1,045 million)
· Loss after tax and exceptional items for the half year €654
million (2021: loss €2,048 million) and loss after tax before exceptional
items €683 million (2021: loss €2,169 million)
· Strong liquidity at June 30, 2022:
· Total liquidity increased to €13,489 million (December 31,
2021: €11,986 million)
· Cash(1) of €9,190 million, up €1,247 million on December 31,
2021, with significantly positive working capital, driven principally by
bookings for travel in the second half of the year
· Committed and undrawn general and aircraft financing facilities
of €4,299 million (December 31, 2021: €4,043 million), including an
additional €200 million loan facility for Aer Lingus from the Ireland
Strategic Investment Fund
· Net debt at June 30, 2022 was down €688 million since December
31, 2021 to €10,979 million, reflecting the seasonal benefit on cash of
bookings for travel in the second half of the year
Customer demand continues to recover strongly
· Passenger capacity in quarter 2 was 78% of 2019 (Q1 guidance:
c80%), up from 65% in quarter 1, driven primarily by IAG's key regions of
European shorthaul (capacity 89% of 2019), North America (84%) and Latin
America & Caribbean (81%)
· Passenger unit revenue in quarter 2 increased by 6.4% compared to
2019, helping to offset lower capacity and higher fuel costs, driven by
passenger revenue yield 10.6% higher than in 2019
· Load factor of 81.8% (3.2 points lower than in 2019, but higher
than 72.2% in quarter 1)
· By the end of quarter 2, premium leisure revenue had almost fully
recovered to 2019's level, despite capacity being significantly lower.
Business channel revenue had recovered to c.60% of 2019's level
· In response to the challenging operational environment at
Heathrow, British Airways' capacity was limited to 69.1% in quarter 2
(compared to 57.4% in quarter 1) and plans to increase to c.75% in quarter 3
· IAG's overall passenger capacity plans for the remainder of 2022
are c.80% in quarter 3 and c.85% in quarter 4, a reduction of 5% for the
second half of the year compared to previous guidance, mainly due to the
challenges at Heathrow; full-year capacity is expected to be c.78% of 2019
(compared to c.80% previously), with North America close to 2019 capacity by
the end of the year
· SAF (Sustainable Aviation Fuel) purchase commitments increased to
$865 million (from $400 million previously) for the next 20 years, including a
quarter of IAG's SAF target for 2030 (10% of total fuel needs)
Performance summary:
( ) Six months to June 30
Reported results (€ million) 2022 2021 Higher /
(lower)
Passenger revenue 7,604 1,141 nm
Total revenue 9,351 2,212 nm
Operating loss (438) (2,035) (78.5)%
Loss after tax (654) (2,048) (68.1)%
Basic loss per share (€ cents) (13.2) (41.2) (68.0)%
Cash, cash equivalents and interest-bearing deposits(2) 9,190 7,943 15.7 %
Borrowings(2) 20,169 19,610 2.9 %
( )
Alternative performance measures(3) (€ million) 2022 2021 Higher /
(lower)
Passenger revenue before exceptional items 7,604 1,136 nm
Total revenue before exceptional items 9,351 2,207 nm
Operating loss before exceptional items (467) (2,180) (78.6)%
Loss after tax before exceptional items (683) (2,169) (68.5)%
Adjusted loss per share (€ cents) (13.8) (43.7) (68.4)%
Net debt(2) 10,979 11,667 (5.9)%
Available seat kilometres (ASK million) 117,710 34,041 nm
Passenger revenue per ASK (€ cents) 6.46 3.34 93.6 %
Non-fuel costs per ASK (€ cents) 6.16 11.02 (44.1)%
( )
(1)Cash comprises cash, cash equivalents and interest-bearing deposits.
(2)The prior year comparative is December 31, 2021.
(3)For definitions refer to the IAG 2021 Annual Report and Accounts.
Luis Gallego, IAG Chief Executive Officer, said:
"In the second quarter we returned to profit for the first time since the
start of the pandemic following a strong recovery in demand across all our
airlines. This result supports our outlook for a full year operating profit.
"Our performance reflected a significant increase in capacity, load factor and
yield compared to the first quarter.
"Premium leisure remains strong while business travel continues a steady
recovery in all airlines.
"Iberia and Vueling were the best performing carriers within the Group. The
Spanish domestic market and routes to Latin America continued to lead the
recovery with demand exceeding 2019 levels last month.
"Forward bookings show sustained strength and North Atlantic demand continues
to grow following the lifting of the US COVID testing requirements in June.
"Although bookings into the fourth quarter are seasonally low at this time of
year, we are seeing no signs of any weakness in demand.
"Our industry continues to face historic challenges due to the unprecedented
scaling up in operations, especially in the UK where the operational
challenges of Heathrow airport have been acute. Our airline teams remain
focused on enhancing operational resilience and improving customer experience.
I would like to thank those customers affected for their loyalty and patience
and our colleagues for their hard work and commitment. We will continue
working with the industry to address these issues as aviation emerges from its
biggest crisis ever.
"In line with our net zero commitment by 2050, we have announced the addition
of 50 new Boeing 737s and 59 Airbus A320 Neo family aircraft subject to
shareholder approval. These modern, fuel-efficient planes will see us over 60
per cent through our shorthaul fleet replacement by 2028.
"As we build back operational resilience, our strong portfolio of brands,
ability to deliver efficiencies through our Group scale, strong capital
discipline and our leadership position in sustainability will generate long
term shareholder value."
Trading outlook
IAG expects pre-exceptional operating profit to be significantly improved for
quarter 3 2022 compared to quarter 2 and to be positive for full year 2022.
Net cash flow from operating activities is expected to be significantly
positive for the year. This assumes no further setbacks related to COVID-19
and government-imposed restrictions or material impacts from geopolitical
developments. Net debt is expected to increase by year end compared with the
end of 2021.
Forward-looking statements:
Certain statements included in this announcement are forward-looking. These
statements can be identified by the fact that they do not relate only to
historical or current facts. By their nature, they involve risk and
uncertainties because they relate to events and depend on circumstances that
will occur in the future. Actual results could differ materially from those
expressed or implied by such forward-looking statements.
Forward-looking statements often use words such as "expects", "may", "will",
"could", "should", "intends", "plans", "predicts", "envisages" or
"anticipates" or other words of similar meaning. They include, without
limitation, any and all projections relating to the results of operations and
financial conditions of International Consolidated Airlines Group, S.A. and
its subsidiary undertakings from time to time (the 'Group'), as well as plans
and objectives for future operations, expected future revenues, financing
plans, expected expenditure and divestments relating to the Group and
discussions of the Group's business plan. All forward-looking statements in
this announcement are based upon information known to the Group on the date of
this announcement and speak as of the date of this announcement. Other than in
accordance with its legal or regulatory obligations, the Group does not
undertake to update or revise any forward-looking statement to reflect any
changes in events, conditions or circumstances on which any such statement is
based.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any number of
known and unknown risks, uncertainties and other factors, including, but not
limited to, the current economic and geopolitical environment and ongoing
recovery from the COVID-19 pandemic and uncertainties about its impact and
duration, many of which are difficult to predict and are generally beyond the
control of the Group, and it is not reasonably possible to itemise each item.
Accordingly, readers of this announcement are cautioned against relying on
forward-looking statements. Further information on the primary risks of the
business and the Group's risk management process is set out in the Risk
management and principal risk factors section in the 2021 Annual Report and
Accounts; this document is available on www.iairgroup.com. All forward-looking
statements made on or after the date of this announcement and attributable to
IAG are expressly qualified in their entirety by the primary risks set out in
that section. Many of these risks are, and will be, exacerbated by the ongoing
uncertainty from the recovery from the COVID-19 pandemic and any further
disruption to the global airline industry as well as the current economic and
geopolitical environment.
IAG Investor Relations
Waterside (HAA2),
PO Box 365,
Harmondsworth,
Middlesex,
UB7 0GB
Investor.relations@iairgroup.com
CONSOLIDATED INCOME STATEMENT
Six months to June 30 Three months to June 30
€ million 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (lower)
Passenger revenue 7,604 1,141 nm 4,949 682 nm
Cargo revenue 843 769 9.6 % 411 419 (1.9)%
Other revenue 904 302 nm 556 143 nm
Total revenue 9,351 2,212 nm 5,916 1,244 nm
Employee costs 2,167 1,288 68.2 % 1,122 666 68.5 %
Fuel, oil costs and emissions charges 2,566 497 nm 1,648 271 nm
Handling, catering and other operating costs 1,322 367 nm 780 194 nm
Landing fees and en-route charges 847 287 nm 489 160 nm
Engineering and other aircraft costs 928 419 nm 553 212 nm
Property, IT and other costs 435 353 23.2 % 231 169 36.7 %
Selling costs 442 159 nm 241 89 nm
Depreciation, amortisation and impairment 1,015 920 10.3 % 484 450 7.6 %
Currency differences 67 (43) nm 75 - -
Total expenditure on operations 9,789 4,247 nm 5,623 2,211 nm
Operating (loss)/profit (438) (2,035) (78.5)% 293 (967) nm
Finance costs (480) (401) 19.7 % (247) (224) 10.3 %
Finance income 3 4 (25.0)% 2 1 nm
Net change in fair value of financial instruments 130 38 nm 70 38 84.2 %
Net financing credit relating to pensions 13 1 nm 6 2 nm
Net currency retranslation charges (197) (13) nm (136) - -
Other non-operating credits 126 70 80.0 % 85 30 nm
Total net non-operating costs (405) (301) 34.6 % (220) (153) 43.8 %
(Loss)/profit before tax (843) (2,336) (63.9)% 73 (1,120) nm
Tax 189 288 (34.4)% 60 139 (56.8)%
(Loss)/profit after tax for the period (654) (2,048) (68.1)% 133 (981) nm
(1)The 2021 results include a reclassification to conform with the
presentation adopted in the 2021 Annual Report and Accounts regarding the fair
value movements of the convertible bond. Further information is given in note
1.
ALTERNATIVE PERFORMANCE MEASURES
All figures in the tables below are before exceptional items. Refer to
Alternative performance measures section for more detail.
Six months to June 30 Three months to June 30
Before exceptional items Before exceptional items
€ million 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (lower)
Passenger revenue 7,604 1,136 nm 4,949 682 nm
Cargo revenue 843 769 9.6 % 411 419 (1.9)%
Other revenue 904 302 nm 556 143 nm
Total revenue 9,351 2,207 nm 5,916 1,244 nm
Employee costs 2,167 1,288 68.2 % 1,122 666 68.5 %
Fuel, oil costs and emissions charges 2,566 637 nm 1,648 349 nm
Handling, catering and other operating costs 1,322 367 nm 780 194 nm
Landing fees and en-route charges 847 287 nm 489 160 nm
Engineering and other aircraft costs 928 419 nm 553 212 nm
Property, IT and other costs 458 353 29.7 % 231 169 36.7 %
Selling costs 442 159 nm 241 89 nm
Depreciation, amortisation and impairment 1,021 920 11.0 % 490 450 8.9 %
Currency differences 67 (43) nm 75 - -
Total expenditure on operations 9,818 4,387 nm 5,629 2,289 nm
Operating (loss)/profit (467) (2,180) (78.6)% 287 (1,045) nm
Finance costs (480) (401) 19.7 % (247) (224) 10.3 %
Finance income 3 4 (25.0)% 2 1 nm
Net change in fair value of financial instruments 130 38 nm 70 38 84.2 %
Net financing credit relating to pensions 13 1 nm 6 2 nm
Net currency retranslation charges (197) (13) nm (136) - -
Other non-operating credits 126 70 80.0 % 85 30 nm
Total net non-operating costs (405) (301) 34.6 % (220) (153) 43.8 %
(Loss)/profit before tax (872) (2,481) (64.9)% 67 (1,198) nm
Tax 189 312 (39.4)% 60 153 (60.8)%
(Loss)/profit after tax for the period (683) (2,169) (68.5)% 127 (1,045) nm
( )Operating figures(2) 2022 2021(1) Higher/ 2022 2021(1) Higher/
(lower) (lower)
Available seat kilometres (ASK million) 117,710 34,041 nm 68,630 19,245 nm
Revenue passenger kilometres (RPK million) 91,546 16,748 nm 56,114 9,969 nm
Seat factor (per cent) 77.8 49.2 28.6pts 81.8 51.8 30.0pts
Passenger numbers (thousands) 39,969 8,080 nm 25,592 5,468 nm
Cargo tonne kilometres (CTK million) 1,939 1,853 4.6 % 949 999 (5.0)%
Sold cargo tonnes (thousands) 276 248 11.3 % 137 131 4.6 %
Sectors 277,368 77,956 nm 169,668 50,256 nm
Block hours (hours) 796,719 260,094 nm 474,636 151,186 nm
Average manpower equivalent(3) 55,658 50,813 9.5 % 58,746 50,692 15.9 %
Aircraft in service 549 529 3.8 % n/a n/a -
Passenger revenue per RPK (€ cents) 8.31 6.78 22.5 % 8.82 6.84 28.9 %
Passenger revenue per ASK (€ cents) 6.46 3.34 93.6 % 7.21 3.54 nm
Cargo revenue per CTK (€ cents) 43.48 41.50 4.8 % 43.31 41.94 3.3 %
Fuel cost per ASK (€ cents) 2.18 1.87 16.5 % 2.40 1.81 32.4 %
Non-fuel costs per ASK (€ cents) 6.16 11.02 (44.1)% 5.80 10.08 (42.5)%
Total cost per ASK (€ cents) 8.34 12.89 (35.3)% 8.20 11.89 (31.0)%
(1)The 2021 results include a reclassification to conform with the
presentation adopted in the 2021 Annual Report and Accounts regarding the fair
value movements of the convertible bond. Further information is given in note
1.
(2)Financial ratios are before exceptional items. Refer to Alternative
performance measures section for detail.
(3)Included in the average manpower equivalent are staff on furlough, wage
support and equivalent schemes, including the Temporary Redundancy Plan
arrangements in Spain. Further information is given in note 19.
FINANCIAL REVIEW
Developments since last report (May 6, 2022)
In line with the Group's strategy to return fleet capacity to 2019 levels and
replace end of life aircraft, a number of new aircraft orders have been
announced in the period. These orders for modern, more fuel-efficient aircraft
can be used for any airline in the Group and will bring both cost efficiencies
and environmental benefits to IAG's airlines.
On May 19, the Group announced it had reached agreement with Boeing to order
25 737-8200 and 25 737-10 aircraft, plus 100 options. The aircraft will be
delivered between 2023 and 2027 and will be used for shorthaul fleet renewal.
The fleet order is subject to approval by IAG shareholders.
On June 30, the Group announced that it had converted 22 Airbus A320 Neo
family options into firm orders for 17 A320 Neos and 5 A321 Neos for delivery
in 2024 and 2025. The aircraft will be used to replace A320 Ceo family
aircraft in the Group's shorthaul fleet.
On July 28, the Group announced that it is converting 12 A320 Neo family
options into firm orders and is ordering a further 25 A320 Neo family
aircraft, with the option to purchase 50 additional aircraft. The firm orders
will replace existing Airbus A320 Ceo family aircraft and are for delivery
between 2025 and 2028; the split between A320 Neos and A321 Neos will be
determined nearer to delivery. The order is subject to approval by IAG
shareholders.
Basis of preparation
At June 30, 2022, the Group had total liquidity of €13,489 million,
comprising cash and interest-bearing deposits of €9,190 million, €3,171
million of committed and undrawn general facilities and a further €1,128
million of committed and undrawn aircraft specific facilities. The Group has
been successful in raising financing since the outbreak of COVID-19, having
financed all aircraft deliveries in 2020 and 2021 and all those it has sought
to finance in the six months to June 30, 2022; the Group continues to secure
aircraft financing on long-term arrangements.
In its assessment of going concern over the period to December 31, 2023 (the
'going concern period'), the Group has prepared extensive modelling, including
considering a plausible but severe downside scenario and further sensitivities
to the downside scenario. Having reviewed these scenarios and sensitivities,
the Directors have a reasonable expectation that the Group has sufficient
liquidity to continue in operational existence over the going concern period
and hence continue to adopt the going concern basis in preparing the condensed
consolidated interim financial statements for the six months to June 30, 2022.
In adopting the going concern basis of accounting, the condensed consolidated
interim financial statements have been prepared without the inclusion of a
material uncertainty, which has been removed since the 2021 Annual Report and
Accounts. The removal of the material uncertainty arises from the reduction in
uncertainty over the going concern period due to both the continued recovery
subsequent to the COVID-19 pandemic and the strength of the Group's liquidity
at June 30, 2022.
Principal risks and uncertainties
The Group has continued to maintain its framework and processes to identify,
assess and manage risks. The principal risks and uncertainties affecting the
Group, detailed on pages 100 to 121 of the 2021 Annual Report and Accounts,
remain relevant. The Board has continued to monitor and assess risks across
the Group in the light of changes that influence the Group and the aviation
industry.
As the sector and markets more widely come out of pandemic restrictions, the
Group continues to carefully assess how its principal risks have evolved and
how the severity or likelihood of occurrence of certain risks has changed, as
well as identifying emerging risks related to competitive and market risk
changes, particularly those that could impact operational resilience. Where
further action has been required, the Board has assessed potential mitigations
and, where appropriate or feasible, the Group has implemented or confirmed
plans that would address those risks.
From the risks identified in the 2021 Annual Report and Accounts, the main
risks that continue to be a key area of focus are outlined below. Business
responses implemented by management that effectively mitigate or reduce the
risk are reflected in the Group's latest business plan and scenarios. No new
principal risks were identified through the risk management assessment
discussions across the business in the six months to June 30, 2022.
· Brand and customer trust. The challenging operational environment
for the Group's airlines and its reliance on the resilience of third parties
has significantly impacted on our customers and their journeys. The Group is
pro-actively addressing its customer service processes and systems to help
build customer trust in our brands and to help ensure that our customers
choose to fly with the Group's airlines.
· Critical third parties in the supply chain. Operational staffing
shortages at hubs and airports have required capacity adjustments, including
managing the impact on British Airways' customers and operations of the
decision by Heathrow airport to cap passenger numbers from mid-July until the
end of October. The Group has pro-actively assessed its schedules to ensure
that our customers have sufficient notice of any changes to their flight plans
wherever possible and within our control. Operational bottlenecks such as
immigration and security resource at airports remain outside of the Group's
control although management continues to liaise with the relevant providers to
identify potential solutions. The Group continues to work with all critical
suppliers to understand any potential disruption within their supply chains
from either a shortage of available resource or production delays which could
delay the availability of new fleet, engines or critical goods or services.
· Cyber attack and data security. The threat of ransomware attacks
on critical infrastructure and services has increased as a result of the war
in Ukraine and the potential for state sponsored cyber attacks. The Group
continues to focus its efforts on appropriate monitoring to mitigate the risk.
· Debt funding. Access to the unsecured debt markets is currently
very limited for sub investment grade organisations which reduces the options
or increases the cost for the Group to re-finance upcoming maturities due in
the next year. The Group continues to successfully secure aircraft financing.
· Economic, political and regulatory environment. The economic
impact of the cost of pandemic combined with energy shortages and increases in
commodity and wage costs has driven significant inflation and uncertainty over
the economic outlook. This uncertainty in the economic outlook could have an
impact on the Group's cost base and the demand for travel. The Group will
continue to adjust its future capacity plans accordingly, retaining
flexibility to adapt as required and where possible.
· Event causing significant network disruption. Ongoing labour
shortages, threat of strike action and staff sickness from COVID infections
have impacted the operational environment of the Group's airlines as well as
the operations of the businesses on which the Group relies. Many of these
events can occur within a close timeframe and challenge operational
resilience. In addition, the Group has significant IT infrastructure changes
to complete which could impact operations. The Group is focussed on minimising
any unplanned outages or disruption to customers with additional resilience
built into the airline's networks.
· Financial and treasury related risk. A significant increase in
fuel costs has been partly mitigated by the Group's fuel hedging policy.
Access to fuel hedging instruments or the ability to pass increased fuel costs
on to consumers could impact the Group's profits. The Group continues to
assess the strengthening of the US dollar against the euro and pound sterling
and the potential impacts on the Group's operating results.
· IT systems and IT infrastructure. The Group is reliant upon the
resilience of its systems for key customer and business processes and is
exposed to risks that relate to poor performance, obsolescence or failure of
these systems. The Group is currently engaged in a number of major programmes
to modernise its IT systems and upgrade its digital capability, customer
propositions and core IT infrastructure and network where required. Mitigating
actions that prioritise operational stability and resilience have been built
into all cutover plans.
· People, culture and employee relations. The Group recognises the
efforts of our staff and their resilience and commitment supporting the ramp
up of operations and continues to prioritise engagement, morale and staff
wellbeing initiatives. Additional resource has been allocated to address the
recruitment need for flight crew and operations staff. Across the Group,
collective bargaining is in place with various unions. The Group is exposed to
the risk of the industrial relations action and the operating companies
continue to engage in discussions with unions to address and resolve disputes
arising within the negotiations.
The Board and its sub committees have been apprised of regulatory, competitor
and governmental developments on an ongoing basis.
Impact of commodity prices and foreign exchange movements
Average commodity fuel prices for the six months were significantly higher
than in the previous year, with the spot fuel price rising significantly
within the period, from $700 per metric tonne at the start of January to
$1,236 at the end of June, compared with an average of approximately $510 per
metric tonne in the first half of 2021.
The US dollar was 9 per cent stronger against the euro and 5 per cent stronger
against the pound sterling, compared with the first six months of 2021.
The net impact of transaction and translation exchange for the Group for the
six months was €196 million adverse (€90 million adverse in quarter 1 and
€106 million adverse in quarter 2).
From a transactional perspective, the Group's financial performance is
impacted by fluctuations in exchange rates, primarily from the US dollar, euro
and pound sterling. The Group generates a surplus in most currencies in which
it does business, except for the US dollar, as capital expenditure, debt
repayments and fuel purchases typically create a deficit. The Group hedges a
portion of its transaction exposures. The net transaction impact on the
operating result was adverse by €172 million for the period, increasing
revenues by €141 million and costs by €313 million.
IAG's results are impacted by exchange rates used for the translation of
British Airways' and IAG Loyalty's financial results from sterling to the
Group's reporting currency of euro. For the six months, the net impact of
translation was €24 million adverse.
Capacity
In the first six months of 2022, IAG capacity, measured in available seat
kilometres (ASKs) reached 72.0 per cent of that operated in the first half of
2019, a significant increase on the 20.8 per cent of 2019 operated in the
first half of 2021. Capacity was steadily increased through the period, with
quarter 1 at 65.1 per cent of 2019 and quarter 2 at 78.0 per cent of 2019.
The impact of COVID-19 and related travel restrictions was significantly less
than in the first half of 2021, when many countries were in lockdown or had
severe travel restrictions in place. The passenger load factor reached 77.8
per cent in the first half of 2022, again increasing across the period, with
the passenger load factor in quarter 1 72.2 per cent and in quarter 2 81.8 per
cent, which was just 3.2 points lower than in quarter 2 of 2019. There was
some impact from the Omicron variant of COVID-19 early in the year, mainly in
January and February. Capacity operated out of London Heathrow airport was
lower than originally planned at the start of the year and British Airways'
capacity was limited to 69.1 per cent of 2019 in quarter 2, up from 57.4 per
cent in quarter 1.
Unless stated otherwise, all variances quoted below compare the first six
months of 2022 with the first six months of 2021.
Revenue
Passenger revenue rose €6,463 million to €7,604 million, reflecting the
significant increase in capacity operated, together with the positive impact
of a 28.6 percentage point increase in the passenger load factor and passenger
yields per revenue passenger kilometre (RPK) up 22.5 per cent. The resulting
passenger unit revenue (passenger revenue per ASK) was 93.6 per cent higher
than the previous year and was up to 99.7 per cent of that seen in the first
half of 2019, with passenger unit revenue 11.7 per cent lower than 2019 in the
first quarter and 6.4 per cent higher than 2019 in the second quarter.
Cargo revenue was up €74 million to €843 million, 9.6 per cent higher than
in the first six months of 2021, despite only 395 cargo flights operated in
the period, down from 2,677 from the first six months of 2021, due to the
significant increase in the passenger capacity operated. Yields increased 4.8
per cent on 2021, supported by continued global supply chain disruption. Cargo
carried, measured in cargo tonne kilometres (CTKs), rose by 4.6 per cent.
Compared with 2019, Cargo revenue increased by €287 million, or 51.6 per
cent.
Other revenue increased by €602 million to €904 million, reflecting the
recovery in the Group's non-airline businesses, including BA Holidays,
Iberia's maintenance and third party handling businesses and IAG Loyalty.
Other revenue was 2.3 per cent higher than in the first half of 2019.
Costs
Costs were impacted by the significant increase in capacity versus 2021,
together with the need to complete training and maintenance activities ahead
of the Group airlines' Summer flying programmes.
Employee costs increased by €879 million to €2,167 million, with only
minimal use of government wage support and related schemes in the period, as
staff were required to resource the significantly increased flying programme,
as well as for training and preparation ahead of the Summer flying season.
Fuel costs increased by €2,069 million to €2,566 million. The impact of
the increase in commodity fuel price was mainly seen from March and the impact
was reduced by the Group's hedging programme. Fuel costs also benefitted from
the reduced volume of cargo flights versus the previous year.
Supplier costs increased by €2,499 million to €4,041 million, mainly
linked to the significant increase in capacity operated, together with
inflationary increases, which were partly offset by the Group's procurement
initiatives.
Depreciation, amortisation and impairment costs increased to €1,015 million,
partly driven by aircraft deliveries during 2021 and the first half of 2022.
Operating result
The Group's operating loss for the period was €438 million, an improvement
of €1,597 million versus 2021. Excluding exceptional items, the operating
loss improved by €1,713 million versus the previous year, to €467 million.
Exceptional items
In the six-month period, the Group recorded an exceptional credit of €23
million relating to the partial reversal of the fine previously issued by the
European Commission, in 2010, to British Airways. There was also an
exceptional credit of €6 million, reflecting the partial reversal of an
aircraft impairment made in 2020, as four shorthaul aircraft previously
assumed permanently stood down have now been added back to the Group's fleet
plans. In the first six months of 2021, exceptional items included gains on
those fuel and foreign exchange hedges de-recognised in 2020, totalling €145
million. See Reconciliation of Alternative performance measures for further
information.
Net non-operating costs, taxation and loss after tax
The Group's net non-operating costs for the six months were €405 million in
2022, compared with €301 million in 2021. The net change in the fair value
of financial instruments of €130 million reflects fair value adjustments as
at June 30, 2022 of IAG's convertible bond maturing in 2028 and its
convertible loan to Globalia, which was made during quarter 2 and matures in
2029. Net currency retranslation charges of €197 million reflected the
weakening of the euro and pound sterling against the US dollar since the start
of the year.
The tax credit for the period was €189 million, with an effective tax rate
for the Group of 22 per cent (2021: 12 per cent). The substantial majority of
the Group's activities are taxed where the main operations are based, in the
UK, Spain and Ireland, with corporation tax rates during 2022 of 19 per cent,
25 per cent and 12.5 per cent respectively; these result in an expected
effective tax rate of 19 per cent. The difference between the actual effective
tax rate of 22 per cent and the expected effective tax rate of 19 per cent is
primarily due to the partial recognition of losses in Iberia and Vueling and
the net impact of the increase in the UK rate from 19 to 25 per cent from
April 2023.
The loss after tax for the six months was €654 million (2021: €2,048
million).
Cash, liquidity and leverage
The Group's cash balance of €9,190 million at June 30, 2022 was up €1,247
million on December 31, 2021, with positive net cash flow from operating
activities of €3,212 million mainly reflecting the strength of new bookings
for future travel. Thirteen Airbus aircraft were delivered in the six months
(four A350-1000s, three A350-900s, five A320 Neos and one A321 Neo) and
capital expenditure was €2,100 million. Of the aircraft delivered in the
period, nine were financed by the end of June, raising approximately €800
million, with three A350-1000s and one A320 Neo to be financed during the
remainder of 2022.
Total liquidity at June 30, 2022 was €13,489 million, up from €11,986
million at December 31, 2021. Committed and undrawn general facilities were
€3,171 million (December 31, 2021: €2,917 million) and committed and
undrawn aircraft facilities €1,128 million (December 31, 2021: €1,126
million).
Net debt at the end of the six months was €10,979 million, down €688
million from December 31, 2021. The Group has seen a return to the normal
seasonality experience before the COVID-19 pandemic; this seasonality
typically results in deferred revenues rising strongly in the first half of
the year in advance of peak summer travel, with deferred revenues then falling
in the second half of the year and reaching a natural trough in December. This
pattern of seasonality would normally result in lower cash and cash
equivalents at December and an increase in Net debt.
INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.
Unaudited Condensed Consolidated Interim Financial Statements
January 1, 2022 - June 30, 2022
CONSOLIDATED INCOME STATEMENT
( ) Six months to June 30
€ million Total Total
2022 2021(1)
( )
Passenger revenue 7,604 1,141
Cargo revenue 843 769
Other revenue 904 302
Total revenue 9,351 2,212
( )
Employee costs 2,167 1,288
Fuel, oil costs and emissions charges 2,566 497
Handling, catering and other operating costs 1,322 367
Landing fees and en-route charges 847 287
Engineering and other aircraft costs 928 419
Property, IT and other costs 435 353
Selling costs 442 159
Depreciation, amortisation and impairment 1,015 920
Currency differences 67 (43)
Total expenditure on operations 9,789 4,247
Operating loss (438) (2,035)
Finance costs (480) (401)
Finance income 3 4
Net change in fair value of financial instruments 130 38
Net financing credit relating to pensions 13 1
Net currency retranslation charges (197) (13)
Other non-operating credits 126 70
Total net non-operating costs (405) (301)
Loss before tax (843) (2,336)
Tax 189 288
Loss after tax for the period (654) (2,048)
Attributable to:
Equity holders of the parent (654) (2,048)
Non-controlling interest - -
(654) (2,048)
Basic loss per share (€ cents) (13.2) (41.2)
Diluted loss per share (€ cents) (13.2) (41.2)
(1)The 2021 results include a reclassification to conform with the
presentation adopted in the 2021 Annual Report and Accounts regarding the fair
value movements of the convertible bond. Further information is given in note
1.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June 30
€ million 2022 2021
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity 1,352 571
Reclassified and reported in net profit (373) 18
Fair value movements on cost of hedging (48) 34
Cost of hedging reclassified and reported in net profit 4 14
Currency translation differences (15) (8)
Items that will not be reclassified to net profit
Fair value movements on liabilities attributable to credit risk changes 19 (5)
Fair value movements on cash flow hedges 150 11
Fair value movements on cost of hedging (15) 1
Remeasurements of post-employment benefit obligations 547 729
Total other comprehensive income for the period, net of tax 1,621 1,365
Loss after tax for the period (654) (2,048)
Total comprehensive income/(loss) for the period 967 (683)
Total comprehensive income/(loss) is attributable to:
Equity holders of the parent 967 (683)
Non-controlling interest - -
967 (683)
Items in the consolidated Statement of other comprehensive income above are
disclosed net of tax.
CONSOLIDATED BALANCE SHEET
€ million June 30, December 31,
2022 2021
Non-current assets
Property, plant and equipment 18,164 17,161
Intangible assets 3,288 3,239
Investment accounted for using the equity method 41 40
Other equity investments 33 31
Non-current financial assets 59 -
Employee benefit assets 2,298 1,775
Derivative financial instruments 313 77
Deferred tax assets 1,185 1,282
Other non-current assets 313 250
25,694 23,855
Current Assets
Non-current assets held for sale - 20
Inventories 329 334
Trade receivables 1,526 735
Other current assets 1,094 960
Current tax receivable 15 16
Derivative financial instruments 1,983 543
Other current interest-bearing deposits 186 51
Cash and cash equivalents 9,004 7,892
14,137 10,551
Total assets 39,831 34,406
Shareholders' equity
Issued share capital 497 497
Share premium 7,770 7,770
Treasury shares (30) (24)
Other reserves (6,448) (7,403)
Total shareholders' equity 1,789 840
Non-controlling interest 6 6
Total equity 1,795 846
Non-current liabilities
Borrowings 17,671 17,084
Employee benefit obligations 277 285
Provisions 2,475 2,267
Deferred revenue on ticket sales 353 391
Derivative financial instruments 14 47
Other long-term liabilities 229 208
21,019 20,282
Current liabilities
Borrowings 2,498 2,526
Trade and other payables 4,957 3,712
Deferred revenue on ticket sales 8,533 6,161
Derivative financial instruments 53 126
Current tax payable 44 21
Provisions 932 732
17,017 13,278
Total liabilities 38,036 33,560
Total equity and liabilities 39,831 34,406
CONSOLIDATED CASH FLOW STATEMENT
Six months to June 30
€ million 2022 2021
Cash flows from operating activities
Operating loss (438) (2,035)
Depreciation, amortisation and impairment 1,015 920
Movement in working capital 2,738 520
Increase in trade receivables, inventories and other current assets (996) (254)
Increase in trade and other payables and deferred revenue on ticket sales 3,734 774
Payments related to restructuring (41) (77)
Employer contributions to pension schemes (10) (32)
Pension scheme service costs 1 1
Provision and other non-cash movements 349 147
Settlement of derivatives where hedge accounting has been discontinued - (342)
Interest paid (403) (298)
Interest received 3 4
Tax (paid)/received (2) 62
Net cash flows from operating activities 3,212 (1,130)
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (2,100) (300)
Sale of property, plant and equipment and intangible assets 173 188
Proceeds from sale of investments 20 -
(Increase)/decrease in other current interest-bearing deposits (134) 90
Other investing movements 41 (10)
Net cash flows from investing activities (2,000) (32)
Cash flows from financing activities
Proceeds from borrowings 641 4,455
Repayment of borrowings (275) (517)
Repayment of lease liabilities (726) (685)
Provision of loan to Globalia (100) -
Acquisition of treasury shares (23) (24)
Settlement of derivative financial instruments 364 (382)
Net cash flows from financing activities (119) 2,847
Net increase in cash and cash equivalents 1,093 1,685
Net foreign exchange differences 19 152
Cash and cash equivalents at 1 January 7,892 5,774
Cash and cash equivalents at period end 9,004 7,611
Interest-bearing deposits maturing after more than three months 186 53
Cash, cash equivalents and other interest-bearing deposits 9,190 7,664
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months to June 30, 2022
€ million Issued share capital Share premium Treasury shares Other reserves Total shareholders' equity Non-controlling interest Total equity
January 1, 2022 497 7,770 (24) (7,403) 840 6 846
Total comprehensive income for the period (net of tax) - - - 967 967 - 967
Hedges reclassified and reported in the Balance sheet - - - (10) (10) - (10)
Cost of share-based payments - - - 18 18 - 18
Vesting of share-based payment schemes - - 17 (20) (3) - (3)
Acquisition of treasury shares - - (23) - (23) - (23)
June 30, 2022 497 7,770 (30) (6,448) 1,789 6 1,795
For the six months to June 30, 2021
€ million Issued share capital Share premium Treasury shares Other reserves Total shareholders' equity Non-controlling interest Total equity
January 1, 2021 497 7,770 (40) (6,623) 1,604 6 1,610
Total comprehensive loss for the period (net of tax) - - - (683) (683) - (683)
Hedges reclassified and reported in the Balance sheet - - - 9 9 - 9
Cost of share-based payments - - - 5 5 - 5
Vesting of share-based payment schemes - - 38 (41) (3) - (3)
Acquisition of treasury shares - - (24) - (24) - (24)
June 30, 2021 497 7,770 (26) (7,333) 908 6 914
NOTES TO THE ACCOUNTS
For the six months to June 30, 2022
1. CORPORATE INFORMATION AND BASIS OF PREPARATION
International Consolidated Airlines Group S.A. (hereinafter 'International
Airlines Group', 'IAG' or the 'Group') is a leading European airline group,
formed to hold the interests of airline and ancillary operations. IAG is a
Spanish company registered in Madrid and was incorporated on December 17,
2009. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de
España S.A. Operadora (hereinafter 'British Airways' and 'Iberia'
respectively) completed a merger transaction becoming the first two airlines
of the Group. Vueling Airlines S.A. ('Vueling') was acquired on April 26,
2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18, 2015.
IAG shares are traded on the London Stock Exchange's main market for listed
securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and
Valencia (the 'Spanish Stock Exchanges'), through the Spanish Stock Exchanges
Interconnection System (Mercado Continuo Español).
The condensed consolidated interim financial statements were prepared in
accordance with IAS 34 (as adopted by the EU) and authorised for issue by the
Board of Directors on July 28, 2022. The condensed consolidated interim
financial statements herein are not the Company's statutory accounts and are
unaudited.
The same basis of preparation and accounting policies set out in the IAG
Annual Report and Accounts for the year to December 31, 2021 have been applied
in the preparation of these condensed consolidated interim financial
statements, other than for those matters described in note 2. IAG's financial
statements for the year to December 31, 2021 have been filed with the Registro
Mercantil de Madrid, and are in accordance with the International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the
EU) and with those of the Standing Interpretations issued by the IFRS
Interpretations Committee of the International Accounting Standards Board
(IASB). The report of the auditors on those financial statements was
unqualified.
Presentation of results
The prior period Income statement includes reclassifications that were made to
conform to the current period presentation regarding the Net change in the
fair value of the convertible bond presented in Net changes in fair value of
financial instruments in the Income statement, which had previously been
incorporated within Finance costs. Accordingly, the Group reclassified the
results for the six month period ended June 30, 2021 to recognise €38
million within Net changes in fair value of financial instruments with a
corresponding increase in Finance costs. There is no impact on loss after tax.
Going concern
At June 30, 2022, the Group had total liquidity of €13,489 million (December
31, 2021: total liquidity of €11,986 million), comprising cash and
interest-bearing deposits of €9,190 million, €3,171 million of committed
and undrawn general facilities and a further €1,128 million of committed and
undrawn aircraft specific facilities. At June 30, 2022, the Group has no
financial covenants associated with its loans and borrowings.
In its assessment of going concern over the period to December 31, 2023 (the
'going concern period'), the Group has modelled two scenarios referred to
below as the Base Case and the Downside Case. The Group's three-year business
plan, prepared and approved by the Board in December 2021, was subsequently
refreshed with the latest available internal and external information in
mid-July 2022. This refreshed business plan supports the Base Case, which
takes into account the Board's and management's views on the anticipated
recovery from the COVID-19 pandemic and the wider economic and geopolitical
environments on the Group's businesses across the going concern period. The
key inputs and assumptions underlying the Base Case include:
· Capacity recovery modelled by geographical region (and in certain
regions, by key destinations) with capacity gradually increasing from 82 per
cent in quarter 3 2022 (compared to the equivalent period in 2019) to
pre-pandemic levels by the end of the going concern period with the average
over the going concern period being 95 per cent of 2019 levels;
· Passenger unit revenue per ASK is forecast to continue to recover
back to the levels of 2019 by the end of the going concern period, which is
based on, amongst other assumptions, a greater weighting of leisure versus
business compared to 2019;
· The Group has assumed that the committed and undrawn general
facilities of €3.2 billion will not be drawn over the going concern period.
The availability of certain of these facilities reduces over time, with €3.1
billion being available to the Group at the end of the going concern period;
· The Group has assumed that all of the committed and undrawn
aircraft specific facilities of €1.1 billion would be available to be drawn
over the going concern period if required, of which €0.5 billion is not
expected to be utilised;
· Of the capital commitments detailed in note 9, €4.2 billion is
due to be paid over the going concern period of which the Group has committed
aircraft financing of €0.6 billion, under the EETC financing structures, and
the Group has further forecast securing approximately 100 per cent, or €3.5
billion, of the aircraft financing required that is currently uncommitted, to
align with the timing and payments for these aircraft deliveries. This loan to
value assumption is consistent with the level of financing the Group has been
able to achieve recently; and
· The Group has assumed that the €0.5 billion convertible bond
that matures in November 2022 and the €0.5 billion bond that matures in July
2023 will be refinanced, based the Group's ability to access capital markets
to raise finance historically.
The Downside Case applies stress to the Base Case to model adverse commercial
and operational impacts as the Group's capacity recovers over the going
concern period, represented by: reduced levels of capacity operated in each
month, including reductions of at least 25 per cent for three months during
the going concern period to reflect the risk of more severe operational
disruption; reduced passenger unit revenue per ASK reflective of general
pricing pressure due to current economic backdrop; increased operational costs
reflective of inflationary pressures and reduced loan to value of 80 per cent
of the uncommitted aircraft financing. In the Downside Case, over the going
concern period capacity would be 9 per cent down when compared to the Base
Case. The Downside Case assumes that all available general credit facilities
are drawn and that the €1.0 billion of bonds maturing over the going concern
period will be refinanced. The Directors consider the Downside Case to be a
severe but plausible scenario.
The Group has modelled the impact of further deteriorations in capacity
operated and yield, as well as increases in the price of jet fuel and the
inability to refinance the bonds maturing over the going concern period, but
also considered further mitigating actions, such as reducing operating and
capital expenditure and deferring currently forecast early repayments of loans
and borrowings. The Group expects to be able to continue to secure financing
for future aircraft deliveries and in addition has further potential
mitigating actions, including asset disposals, it would pursue in the event of
adverse liquidity experience.
Having reviewed the Base Case, the Downside Case and additional sensitivities,
the Directors have a reasonable expectation that the Group has sufficient
liquidity to continue in operational existence over the going concern period
and hence continue to adopt the going concern basis in preparing the condensed
consolidated interim financial statements for the six months to June 30, 2022.
In adopting the going concern basis of accounting, the condensed consolidated
interim financial statements have been prepared without the inclusion of a
material uncertainty, which has been removed since the 2021 Annual Report and
Accounts. The removal of the material uncertainty arises from the reduction in
uncertainty over the going concern period due to both the continued recovery
subsequent to the COVID-19 pandemic and the strength of the Group's liquidity
at June 30, 2022.
2. ACCOUNTING POLICIES
Critical judgement and estimates
Except as described below, the accounting policies adopted in the presentation
of the condensed consolidated interim financial statements for the six months
to June 30, 2022 are consistent with those followed in the preparation of the
Group's annual consolidated financial statements for the year to December 31,
2021.
In preparing the condensed consolidated interim financial statements for the
six months to June 30, 2022, management has made judgements and estimates that
affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. The significant judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty are summarised below, including consideration of the
impact on COVID-19 on financial reporting.
New accounting policies
Financial assets
Financial assets are classified, upon initial recognition, measured either at
amortised cost, fair value through other comprehensive income (OCI), or fair
value through profit or loss.
The classification of financial assets at initial recognition depends on the
financial asset's contractual cash flow characteristics and the Group's
business model for managing them. In order for a financial asset to be
classified and measured at amortised cost or fair value through OCI, it needs
to give rise to cash flows that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. Those financial assets that are
not SPPI are classified and measured at fair value through profit or loss.
This assessment is performed on an instrument by instrument basis.
New standards, interpretations and amendments adopted by the Group
The following amendments and interpretations apply for the first time in the
six months to June 30, 2022, but do not have a material impact on the
condensed consolidated interim financial statements of the Group:
• Property, plant and equipment: proceeds before intended
use - amendments to IAS 16 effective for periods beginning on or after January
1, 2022;
• Reference to the Conceptual Framework - amendments to IFRS
3 effective for periods beginning on or after January 1, 2022;
• Onerous contracts - cost of fulfilling a contract -
amendments to IAS 37 effective for periods beginning on or after January 1,
2022; and
• Annual improvements to IFRS standards 2018-2020 -
effective for periods beginning on or after January 1, 2022.
The IASB and IFRIC have issued the following standards, amendments and
interpretations with an effective date after the period end of these financial
statements which management believe could impact the Group in future periods.
Unless otherwise stated, the Group plans to adopt the following standards,
interpretations and amendments on the date they become mandatory:
• Classification of liabilities as current or non-current -
amendments to IAS 1 effective for periods beginning on or after January 1,
2023;
• Definition of accounting estimate - amendments to IAS 8
effective for periods beginning on or after January 1, 2023;
• Disclosure of accounting policies - amendments to IAS 1
and IFRS Practice statement 2 effective for periods beginning on or after
January 1, 2023; and
• Deferred tax related to assets and liabilities arising
from a single transaction - amendments to IAS 12 effective for periods
beginning on or after January 1, 2023.
Significant changes and transactions in the current reporting period
The financial performance and position of the Group was affected by the
following significant events and transactions in the six month period to June
30, 2022 and subsequently to the date of this report:
• On March 4, 2022 Aer Lingus entered into a financing
arrangement with the Ireland Strategic Investment Fund (ISIF) for €200
million and is repayable in March 2025. This facility is in addition to the
existing €150 million financing arrangement already in place with the ISIF,
which also matures in 2025;
• In April 2022, the Group entered into an asset-financing
structure, under which five aircraft were financed. These transactions mature
between 2032 and 2036. This arrangement was transacted through an
unconsolidated structured entity, which in turn issued the Iberia Pass Through
Certificates, Series 2022-1, commonly referred to as Enhanced Equipment Trust
Certificates (EETCs). In doing so, the asset financing structure provides
committed aircraft financing of €680 million;
• On May 19, 2022, the Group entered into an agreement with
Boeing to purchase 25 737-8200 and 25 737-10 aircraft, plus 100 options. The
aircraft will be delivered between 2023 and 2027 and will be used for
shorthaul fleet renewal. The fleet order is subject to approval by IAG
shareholders in the remainder of 2022. The capital commitments detailed in
note 9 exclude the addition of these aircraft until such shareholder approval
is obtained;
• On June 15, 2022, following approval from Sociedad Estatal
de Participaciones Industriales or (SEPI) (the Spanish state holding company
that has a direct participation in Air Europa Holdings, S.L.U. ('Air Europa'))
and the Instituto de Crédito Oficial (ICO) in Spain, the Group entered into a
financing arrangement with Globalia Corporación Empresarial, S,A,
('Globalia'), whereby, the Group has provided a €100 million seven-year
unsecured loan. The loan is convertible for a period of two years from
inception into a fixed number of the shares of Air Europa. See note 11 for
further details;
• During the six months to June 30, 2022, the Group
converted 22 Airbus A320 Neo options into firm orders for 17 Airbus A320 Neos
and five Airbus A321 Neos; and
• On July 28, IAG announced a further order for more
fuel-efficient A320 Neo family aircraft, as part of its plan to meet climate
commitments. The Group is converting 12 A320 Neo family options into firm
orders and is ordering a further 25 A320 Neo family aircraft, with the option
to purchase 50 additional aircraft. The firm orders will replace existing
Airbus A320 Ceo family aircraft and are for delivery between 2025 and 2028;
the split between A320 Neos and A321 Neos will be determined nearer to
delivery. The order is subject to approval by IAG shareholders.
3. Seasonality
Except for the impact of COVID-19, the Group's business is highly seasonal
with demand strongest during the summer months. Accordingly higher revenues
and operating profits are usually expected in the latter six months of the
financial year than in the first six months.
4. SEGMENT INFORMATION
a Business segments
The chief operating decision-maker is responsible for allocating resources and
assessing performance of the operating segments, and has been identified as
the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as individual operating
companies including airline and platform functions. Each airline operates its
network operations as a single business unit and the IAG MC assesses
performance based on measures including operating profit, and makes resource
allocation decisions for the airlines based on network profitability,
primarily by reference to the passenger markets in which the companies
operate. The objective in making resource allocation decisions is to optimise
consolidated financial results.
The Group has determined its operating segments based on the way that it
treats its businesses and the manner in which resource allocation decisions
are made. British Airways, Iberia, Vueling and Aer Lingus have been identified
for financial reporting purposes as reportable operating segments. IAG Loyalty
and LEVEL are also operating segments but do not exceed the quantitative
thresholds to be reportable and management has concluded that there are
currently no other reasons why they should be separately disclosed.
The platform functions of the business primarily support the airline
operations. These activities are not considered to be reportable operating
segments as they either earn revenues incidental to the activities of the
Group and resource allocation decisions are made based on the passenger
business, or are not reviewed regularly by the IAG MC and are included within
Other Group companies.
For the six months to June 30, 2022
2022
€ million British Airways Iberia Vueling Aer Other Group companies(1) Total
Lingus
Revenue
Passenger revenue 4,137 1,601 973 610 283 7,604
Cargo revenue 654 144 - 40 5 843
Other revenue 378 364 4 7 151 904
External revenue 5,169 2,109 977 657 439 9,351
Inter-segment revenue 128 188 - 9 287 612
Segment revenue 5,297 2,297 977 666 726 9,963
Depreciation and amortisation charge (644) (178) (97) (70) (32) (1,021)
Impairment reversal - - 6 - - 6
Operating (loss)/profit (424) 4 (52) (95) 129 (438)
Exceptional items 23 - 6 - - 29
Operating (loss)/profit before exceptional items (447) 4 (58) (95) 129 (467)
Net non-operating costs (405)
Loss before tax (843)
Total assets 23,956 8,698 3,290 2,161 1,726 39,831
Total liabilities (21,114) (8,778) (3,944) (2,150) (2,050) (38,036)
(1)Includes eliminations on total assets of €16,189 million and total
liabilities of €5,902 million.
For the six months to June 30, 2021
2021(1)
€ million British Airways Iberia Vueling Aer Lingus Other Group companies Total
Revenue
Passenger revenue 424 470 193 33 21 1,141
Cargo revenue 581 155 - 31 2 769
Other revenue 38 182 3 1 78 302
External revenue 1,043 807 196 65 101 2,212
Inter-segment revenue 17 122 - - 156 295
Segment revenue 1,060 929 196 65 257 2,507
Depreciation and amortisation charge (514) (177) (124) (68) (37) (920)
Operating (loss)/profit (1,325) (330) (195) (192) 7 (2,035)
Exceptional items 120 7 9 7 2 145
Operating (loss)/profit before exceptional items (1,445) (337) (204) (199) 5 (2,180)
Net non-operating costs (301)
Loss before tax (2,336)
Total assets 20,001 6,529 2,685 1,818 2,429 33,462
Total liabilities (17,945) (6,858) (3,299) (1,649) (2,797) (32,548)
(1)Includes eliminations on total assets of €15,745 million and total
liabilities of €5,645 million.
b Geographical analysis
Revenue by area of original sale
Six months to June 30
€ million 2022 2021
UK 3,390 480
Spain 1,779 657
USA 1,383 175
Rest of world 2,799 900
9,351 2,212
Assets by area
June 30, 2022
€ million Property, plant Intangible
and equipment assets
UK 11,894 1,317
Spain 5,076 1,384
USA 52 11
Rest of world 1,142 576
18,164 3,288
December 31, 2021
€ million Property, plant Intangible
and equipment assets
UK 11,544 1,317
Spain 4,404 1,333
USA 76 13
Rest of world 1,137 576
17,161 3,239
5. FINANCE COSTS, INCOME, CHANGES IN FAIR VALUES AND OTHER
NON-OPERATING CREDITS
Six months to June 30
€ million 2022 2021(1,2)
Finance costs
Interest expense on:
Bank borrowings (94) (57)
Asset financed liabilities (46) (40)
Lease liabilities (217) (195)
Provisions unwinding of discount (5) (5)
Bonds(2) (45) (26)
Other borrowings(2) (46) (20)
Capitalised interest on progress payments 2 1
Other finance costs(1) (29) (59)
Total finance costs (480) (401)
Finance income
Interest on other interest-bearing deposits 2 -
Other finance income 1 4
Total finance income 3 4
Net change in fair value of financial instruments
Net change in the fair value of convertible bond(1) 171 38
Net fair value losses on financial assets at fair value through profit or loss (41) -
130 38
Net credit relating to pensions
Net financing credit relating to pensions 13 1
Other non-operating credits
Gains on sale of property, plant and equipment and investments 21 41
Credit related to equity investments - 1
Share of profits/(losses) in investments accounted for using the equity method 1 (1)
Realised gains/(losses) on derivatives not qualifying for hedge accounting 83 (1)
Unrealised gains on derivatives not qualifying for hedge accounting 21 30
126 70
(1)The 2021 results include a reclassification to conform with the
presentation adopted in the 2021 Annual Report and Accounts regarding the fair
value movements of the convertible bond. Further information is given in note
1.
(2)The 2021 total finance costs include a re-presentation of results to
conform with the current basis of presentation. There is no change to total
finance costs.
6. TAX
The tax credit in the Income statement was as follows:
Six months to June 30
€ million 2022 2021
Current tax (21) (22)
Deferred tax 210 310
Total tax 189 288
The effective tax rate for the six months to June 30, 2022 was 22 per cent
(2021: 12 per cent). The substantial majority of the Group's activities are
taxed where the main operations are based, in the UK, Spain and Ireland, with
corporation tax rates during 2022 and 2021 of 19 per cent, 25 per cent and
12.5 per cent respectively. These result in an expected effective tax rate of
19 per cent.
The difference between the actual effective tax rate of 22 per cent and the
expected effective tax rate of 19 per cent was primarily due to partial
recognition of losses in Iberia and Vueling, and the net impact of the
increase in the UK rate from 19 to 25 per cent.
The details of the unrecognised temporary differences and losses are given in
the table below:
€ million June 30, December 31,
2022 2021
Income tax losses
Spanish corporate income tax losses 2,206 1,993
Openskies SASU trading losses 405 390
UK trading losses 74 72
Other tax losses 4 3
2,689 2,458
Other losses and temporary differences
Spanish deductible temporary differences 619 648
UK capital losses 357 361
Irish capital losses 17 17
993 1,026
None of the unrecognised temporary differences or losses have an expiry date.
At June 30, 2022, the Group had unrecognised deferred tax assets of €2,689
million relating to tax losses the Group does not reasonably expect to
utilise. In applying the aforementioned judgement, had the Group extended the
period of future cash flow projections indefinitely, then the amount of
unrecognised deferred tax assets would have reduced by €2,284 million.
On March 3, 2021 the UK Chancellor announced that legislation would be
introduced in the Finance Bill 2021 to set the main rate of corporation tax at
25 per cent from April 2023. On May 24, 2021 the Finance Bill was
substantively enacted, which has led to the remeasurement of deferred tax
balances at June 30, 2022 and will increase the Group's future current tax
charge accordingly. As a result of the remeasurement of deferred tax balances
in UK entities, a credit of €66 million (June 30, 2021: €46 million
credit) is recorded in the Income statement and a charge of €17 million
(June 30, 2021: €32 million credit) is recorded in Other comprehensive
income.
On October 8, 2021 Ireland announced that it would increase the rate of
corporation tax for certain multinational businesses to 15 per cent with
effect from 2023. This expected tax rate change has not been reflected in
these results because it has not yet been substantively enacted. The effect of
this proposed rate change is not expected to be material over the period of
the management approved business plan.
Tax related contingent liabilities
The Group has certain contingent liabilities that it can reliably estimate,
across all taxes, which at June 30, 2022 amounted to €106 million (December
31, 2021: €106 million). No material losses are likely to arise from such
contingent liabilities. As such the Group does not consider it appropriate to
make a provision for these amounts. Included in the tax related contingent
liabilities are the following:
Merger gain
Following tax audits covering the period 2011 to 2014, the Spanish Tax
Authorities issued a corporate income tax assessment to the Company regarding
the merger in 2011 between British Airways and Iberia. The maximum exposure in
this case is €96 million (December 31, 2021: €95 million), being the
amount in the tax assessment with an estimate of the interest accrued on that
assessment through to June 30, 2022.
The Company appealed the assessment to the Tribunal Económico-Administrativo
Central or 'TEAC' (Central Administrative Tax Tribunal). On October 23, 2019
the TEAC ruled in favour of the Spanish Tax Authorities. The Company
subsequently appealed this ruling to the Audiencia Nacional (National High
Court) on December 20, 2019, and on July 24, 2020 filed submissions in support
of its case. The Group does not expect a hearing at the National High Court
until 2023 at the earliest.
The Group disputes the technical merits of the assessment and ruling of the
TEAC, both in terms of whether a gain arose and in terms of the quantum of any
gain. The Group believes that it has strong arguments to support its appeals.
The Group does not consider it appropriate to make a provision for these
amounts and accordingly has classified this matter as a contingent liability.
IAG Loyalty VAT
In the six month period ended June 30, 2022 HMRC issued notices of VAT
assessments for the seven months ended September 2018 to Avios Group (AGL)
Limited, a controlled undertaking of the Group trading as IAG Loyalty. At June
30, 2022 and through to the date of these interim financial statements HMRC's
enquiries into IAG Loyalty's VAT position remain at an early stage. The Group
has reviewed the position with its advisors and considers it has strong
arguments to support its VAT accounting position, including having received
rulings previously from HMRC on the matter, and therefore does not consider it
probable that an adverse ruling will eventuate. Given the above the Group does
not consider it appropriate to record any provision. It is further not
possible to reliably estimate any exposure that may arise from this matter
until HMRC's enquiries are further progressed.
7. EARNINGS PER SHARE AND SHARE CAPITAL
Six months to June 30
Millions 2022 2021
Weighted average number of ordinary shares in issue 4,963 4,967
Weighted average number for diluted earnings per share 4,963 4,967
Six months to June 30
€ cents 2022 2021
Basic loss per share (13.2) (41.2)
Diluted loss per share (13.2) (41.2)
The effect of the assumed conversion of the IAG €500 million convertible
bond 2022, the IAG €825 million convertible bond 2028 and outstanding
employee share schemes is antidilutive for the six months to June 30, 2022 and
2021 due to the reported loss after tax for each period, and therefore has not
been included in the diluted earnings per share calculation.
The number of shares in issue at June 30, 2022 was 4,971,476,000 (December 31,
2021: 4,971,476,000) ordinary shares with a par value of €0.10 each.
8. Dividends
The Directors propose that no dividend be paid for the six months to June 30,
2022 (June 30, 2021: nil).
The future dividend capacity of the Group is dependent on the liquidity
requirements and the distributable reserves of the Group's main operating
companies and their capacity to pay dividends to the Company, together with
the Company's distributable reserves and liquidity.
Certain debt obligations place restrictions or conditions on the payment of
dividends from the Group's main operating companies to the Company, including
a loan to British Airways partially guaranteed by UKEF and loans to Iberia and
Vueling partially guaranteed by the Instituto de Crédito Oficial (ICO) in
Spain; these loans can be repaid early without penalty at the election of each
company. British Airways agreed with the Trustee of its main UK defined
benefit pension scheme (NAPS) as part of an agreement to defer £450 million
of contributions that no dividends will be paid to IAG before 2024 and that
any dividends paid to IAG from 2024 will trigger a pension contribution of 50
per cent of the amount of the dividend, until the deferred pension
contributions have been paid.
9. property, plant and equipment, right of use assets and
intaNgible assets
€ million Other Right of use assets Total Intangible assets
Property, plant Property, plant
and equipment and equipment
Net book value at January 1, 2022 7,858 9,303 17,161 3,239
Additions 1,962 109 2,071 171
Modifications - 225 225 -
Disposals (198) (1) (199) (10)
Reclassifications(1) 237 (237) - -
Depreciation and amortisation charge(2) (418) (538) (956) (94)
Impairment reversal - 6 6 -
Exchange movements (83) (61) (144) (18)
Net book value at June 30, 2022 9,358 8,806 18,164 3,288
(1)Amounts with a net book value of €237 million (six months to June 30,
2021: €126 million) were reclassified from ROU assets to Owned Property,
plant and equipment at the cessation of the respective leases. The assets
reclassified relate to leases with purchase options that were grandfathered as
ROU assets upon transition to IFRS 16, for which the Group had been
depreciating over the expected useful life of the aircraft, incorporating the
purchase option.
(2)Included in the Depreciation, amortisation and impairment charge in the
Income statement, not included within above reconciliation, is a credit of
€29 million relating to the de-designation of hedge accounting that had been
applied to mitigate the foreign currency exposure on aircraft purchases.
€ million Other Right of use assets Total Intangible assets
Property, plant Property, plant
and equipment and equipment
Net book value at January 1, 2021 7,656 9,875 17,531 3,208
Additions 213 192 405 64
Modifications - 119 119 -
Disposals (161) - (161) (49)
Reclassifications 126 (163) (37) -
Depreciation and amortisation charge (316) (518) (834) (86)
Exchange movements 323 354 677 75
Net book value at June 30, 2021 7,841 9,859 17,700 3,212
At June 30, 2022, long-term borrowings of the Group are secured on owned fleet
assets with a net book value of €2,812 million (December 31, 2021: €3,081
million).
Capital expenditure authorised and contracted for but not provided for in the
accounts amounts to €10,843 million (December 31, 2021: €10,911 million).
The majority of capital expenditure commitments are for fleet and are
denominated in US dollars, and as such are subject to changes in exchange
rates. Aircraft orders that remain subject to shareholder approval are
excluded from this figure.
10. IMPAIRMENT REVIEW
Basis for calculating recoverable amount
At each reporting date, the Group considers the existence of indicators of
potential impairment. At June 30, 2022, while the Group continues to recover
from the COVID-19 pandemic, there remains uncertainty regarding both the
economic and geopolitical environments over the short and medium term. As a
result, a full impairment test at June 30, 2022 has been conducted for each
CGU.
The recoverable amounts of Group's CGUs have been measured based on their
value-in-use, which utilises a weighted average multi-scenario discounted cash
flow model. The details of these scenarios are given in the going concern
section of note 1, with a weighting of 70 per cent to the Base Case and 30 per
cent to the Downside Case. Cash flow projections are based on the business
plans approved by the relevant operating companies covering a three-year
period. Cash flows extrapolated beyond the three-year period are projected to
increase based on long-term growth rates. Cash flow projections are discounted
using each CGU's pre-tax discount rate.
Annually the relevant operating companies prepare and approve three-year
business plans, and the Board approves the Group three-year business plan in
the fourth quarter of the year. The Group adjusts the final year of the
three-year business plan to incorporate the impacts of climate change that the
Group can reliably estimate at the reporting date. However, given the
long-term nature of the Group's sustainability commitments, there are other
aspects of these commitments that cannot be reliably estimated at the
reporting date and have been excluded from these adjustments. These
adjustments incorporate the increased utilisation of sustainable aviation fuel
as well as price assumptions relating to sustainable aviation fuels and the
price of carbon (both ETS and CORSIA), which are derived from externally
sourced market data. Where the Group considers such costs will be recovered
through increased passenger ticket fares, then a corresponding adjustment is
made to increase passenger revenue.
Further, in preparing the impairment models, the Group cash flow projections
are prepared on the basis of using the current fleet in its current condition.
The Group excludes the estimated cash flows expected to arise from future
restructuring, assets not currently in use by the Group and expected
technological advancements in aircraft and other technologies not available at
the reporting date. The Group excludes potential future legislation/regulation
regarding carbon pricing and/or alternative schemes not currently enacted,
such as the implementation of kerosene taxes.
The business plan cash flows used in the value-in-use calculations reflect all
restructuring of the business, where relevant, that has been approved by the
Board and which can be executed by management under existing agreements.
Key assumptions
The value-in-use calculations for each CGU reflect the uncertainty from the
recovery from COVID-19 and the wider economic and geopolitical environments,
including updated projected cash flows for the decreased activity for the
remaining six months of 2022 through to the end of 2024. For each of the
Group's CGUs the key assumptions, derived from the weighting of the Base and
Downside Cases, utilised over the forecast period in the value-in-use
calculations are as follows:
June 30, 2022
Per cent British Airways Iberia Vueling Aer Lingus IAG Loyalty
Operating margin(1) 7-10 5-9 4-6 7-11 18-23
ASKs as a proportion of 2019(1,2) 69-101 80-108 97-122 86-118 n/a
Long-term growth rate 1.9 1.7 1.6 1.7 1.6
Pre-tax discount rate 9.7 10.9 10.7 10.0 10.3
December 31, 2021
Per cent British Airways Iberia Vueling Aer Lingus IAG Loyalty
Operating margin(1) 3-13 2-12 2-11 0-14 22-24
ASK as a proportion of 2019(1,2) 75-103 77-100 97-119 84-115 n/a
Long-term growth rate 1.9 1.7 1.6 1.7 1.6
Pre-tax discount rate 11.8 11.4 11.1 10.1 12.0
(1)Operating margin and ASKs as a proportion of 2019 are the weighted average
of the Base Case and Downside Case scenarios.
(2)In prior periods the Group applied the average ASK growth per annum as a
key assumption. Given the impact of COVID-19, the Group has presented ASKs as
a proportion of the level of ASKs achieved in 2019, prior to the application
of the terminal value calculation.
Jet fuel price ($ per MT) To December 31, 2022 To December 31, 2023 To December 31, 2024 2025 and thereafter
June 30, 2022 1,229 1,014 917 917
December 31, 2021 690 673 659 659
Forecast ASKs reflect the range of ASKs as a percentage of the 2019 actual
ASKs over the forecast period, based on planned network growth and taking into
account Management's expectation of the market.
The long-term growth rate is calculated for each CGU based on the forecast
weighted average exposure in each primary market using gross domestic product
(GDP) (source: Oxford Economics). The terminal value cash flows and long-term
growth rate incorporate the impacts of climate change, insofar as they can be
determined, by including a specific adjustment to reduce the rate to reflect
the Group's assumptions regarding the reduced demand impact arising from
climate change. This demand impact is derived with reference to external
market data. The airlines' network plans are reviewed annually as part of the
Business plan and reflect management's plans in response to specific market
risk or opportunity.
Pre-tax discount rates represent the current market assessment of the risks
specific to each CGU, taking into consideration the time value of money and
underlying risks of its primary market. The discount rate calculation is based
on the circumstances of the airline industry, the Group and the CGU. It is
derived from the weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost of equity
is derived from the expected return on investment by airline investors and the
cost of debt is derived from both market data and the Group's existing debt
structure. CGU-specific risk is incorporated by applying individual beta
factors which are evaluated annually based on available market data. The
pre-tax discount rate reflects the timing of future tax flows.
Jet fuel price assumptions are derived from forward price curves at the
balance sheet date and sourced externally. The cash flow forecasts reflect
these price increases after taking into consideration of level of fuel
derivatives and their associated prices that the Group has in place.
Summary of results
At June 30, 2022, management reviewed the recoverable amount of each of the
CGUs and concluded the recoverable amounts exceeded the carrying values.
Reasonable possible changes in key assumptions, both individually and in
combination, have been considered for each CGU, where applicable, which
include reducing the operating margin by 2 percentage points in each year,
ASKs by 5 per cent in each year, long-term growth rates in the terminal value
calculation to zero, increasing pre-tax discount rates by 2.5 percentage
points, changing the weighting of the Base Case and the Downside Case to be
100 per cent weighted towards the Downside Case, and increasing the fuel price
by 40 per cent with no assumed cost recovery. Given the inherent uncertainty
associated with the impact of climate change, these sensitivities represent a
reasonably possible greater impact of climate change on the CGUs than that
included in the impairment models.
For the British Airways, Iberia, Vueling and Aer Lingus CGUs, while the
recoverable amounts are estimated to exceed the carrying amounts by €5,617
million, €1,489 million, €676 million and €1,181 million, respectively,
the recoverable amounts would be below the carrying amounts when applying the
following reasonable possible changes in assumptions:
· British Airways: (i) if operating margin had been two percentage
points lower combined with a reduction of the long-term growth rate of 0.8
percentage points; (ii) if ASKs had been five per cent lower combined with a
reduction of the long-term growth rate of 1.8 percentage points; (iii) if ASKs
had been five per cent lower combined with a fuel price increase without cost
recovery of 5 per cent; and (iv) if the fuel price had been 10 per cent higher
without cost recovery;
· Iberia: (i) if operating margin had been two percentage points
lower combined with a reduction of the long-term growth rate of 0.2 percentage
points; (ii) if ASKs had been five per cent lower combined with a fuel price
increase without cost recovery of 5 per cent; and (iii) if the fuel price had
been 9 per cent higher without cost recovery;
· Vueling: (i) if operating margin had been 1.8 percentage points
lower; (ii) if ASKs had been five per cent lower combined with a fuel price
increase without cost recovery of 2 per cent; and (ii) if the fuel price had
been 8 per cent higher without cost recovery; and
· Aer Lingus: (i) if ASKs had been five per cent lower combined
with a fuel price increase without cost recovery of 9 per cent; and (ii) if
the fuel price had been 14 per cent higher without cost recovery.
For the remainder of the reasonable possible changes in key assumptions
applied to the British Airways, Iberia, Vueling and Aer Lingus CGUs and for
all the reasonable possible changes in key assumptions applied to the IAG
Loyalty CGU, no impairment arises.
In addition, at June 30, 2022, the directors have considered the existence of
indicators of impairment for individual assets, including but not limited to,
landing rights and fleet assets, and concluded no impairment charge is deemed
necessary.
11. NON-CURRENT FINANCIAL ASSETS
Other investments include the following:
€ million June 30, 2022 December 31, 2021
Debt instrument held at fair value through profit or loss 59 -
59 -
On June 15, 2022, the Group entered into a financing arrangement with Globalia
Corporación Empresarial, S,A, ('Globalia'), whereby, the Group provided a
€100 million seven-year unsecured loan, which is convertible for a period of
two years from inception into a fixed number of the shares of Air Europa. The
loan is accounted for at fair value through profit or loss.
The valuation of the financing arrangement utilises the income approach,
whereby, the financing arrangement is valued using observable market inputs by
which to determine an interest rate that a market participant would require to
provide a loan with the same tenor and amount. This interest rate is then used
to discount back the existing contractual cash flows to derive the fair value
at the reporting date.
At June 30, 2022, the fair value of the financing arrangement was €59
million, representing a decrease of €41 million since inception. A
corresponding charge has been recorded within Net change in fair value of
financial instruments in the Income statement.
12. FINANCIAL INSTRUMENTS
a Financial assets and liabilities by category
The detail of the Group's financial instruments at June 30, 2022 and December
31, 2021 by nature and classification for measurement purposes is as follows:
June 30, 2022
Financial assets
€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non-financial Total carrying
assets amount by
balance sheet
item
Non-current assets
Other equity investments - 33 - - 33
Non-current financial assets - - 59 - 59
Derivative financial instruments - - 313 - 313
Other non-current assets 145 - - 168 313
( )
Current assets
Trade receivables 1,526 - - - 1,526
Other current assets 362 - - 732 1,094
Derivative financial instruments - - 1,983 - 1,983
Other current interest-bearing deposits 186 - - - 186
Cash and cash equivalents 9,004 - - - 9,004
( ) Financial liabilities
€ million Amortised cost Fair value through Other comprehensive income Fair value through income statement Non- Total carrying
financial amount by
liabilities balance sheet
item
Non-current liabilities
Lease liabilities 8,225 - - - 8,225
Interest-bearing long-term borrowings 8,896 - 550 - 9,446
Derivative financial instruments - - 14 - 14
Other long-term liabilities 159 - - 70 229
( )
Current liabilities
Lease liabilities 1,600 - - - 1,600
Current portion of long-term borrowings 889 - 9 - 898
Trade and other payables 4,672 - - 285 4,957
Derivative financial instruments - - 53 - 53
December 31, 2021
( )
Financial assets
€ million Amortised cost Fair value through Other comprehensive income Fair value through income statement Non-financial assets Total carrying amount by balance sheet item
Non-current assets
Other equity investments - 31 - - 31
Derivative financial instruments - - 77 - 77
Other non-current assets 126 10 - 114 250
( )
Current assets
Trade receivables 735 - - - 735
Other current assets 363 - - 597 960
Derivative financial instruments - - 543 - 543
Other current interest-bearing deposits 51 - - - 51
Cash and cash equivalents 7,892 - - - 7,892
( ) Financial liabilities
€ million Amortised cost Fair value through Other comprehensive income Fair value through Income statement Non- Total carrying
financial amount by
liabilities balance sheet
item
Non-current liabilities
Lease liabilities 8,116 - - - 8,116
Interest-bearing long-term borrowings 8,220 - 748 - 8,968
Derivative financial instruments - - 47 - 47
Other long-term liabilities 132 - - 76 208
( )
Current liabilities
Lease liabilities 1,521 - - - 1,521
Current portion of long-term borrowings 996 - 9 - 1,005
Trade and other payables 3,506 - - 206 3,712
Derivative financial instruments - - 126 - 126
b Fair value of financial assets and financial liabilities
The fair values of the Group's financial instruments are disclosed in
hierarchy levels depending on the nature of the inputs used in determining the
fair values and using the following methods and assumptions:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and
liabilities. A market is regarded as active if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing
service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm's length basis. Level 1 methodologies
(market values at the balance sheet date) were used to determine the fair
value of listed asset investments classified as equity investments and listed
interest-bearing borrowings. The fair value of financial liabilities and
financial assets incorporates own credit risk and counterparty credit risk,
respectively.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly. The fair
value of financial instruments that are not traded in an active market is
determined by valuation techniques. These valuation techniques maximise the
use of observable market data where it is available and rely as little as
possible on entity-specific estimates.
Derivative instruments are measured based on the market value of instruments
with similar terms and conditions at the balance sheet date using forward
pricing models, which include forward exchange rates, forward interest rates
and forward fuel curves at the reporting date. The fair value of derivative
financial liabilities and derivative financial assets are adjusted for own
credit risk and counterparty credit risk, respectively.
The fair value of the Group's interest-bearing borrowings, excluding leases,
is determined by discounting the remaining contractual cash flows at the
relevant market interest rates at the balance sheet date. The fair value of
the Group's interest-bearing borrowings are adjusted for own credit risk.
Level 3: Inputs for the asset or liability that are not based on observable
market data. The principal methods of such valuations are performed using
option pricing models and valuation models that consider the present value of
the dividend cash flows expected to be generated by the associated assets. The
fair value of financial liabilities and financial assets incorporates own
credit risk and counterparty credit risk, respectively.
The fair value of cash and cash equivalents, other current interest-bearing
deposits, trade receivables, other current assets and trade and other payables
approximate their carrying value largely due to the short-term maturities of
these instruments.
The carrying amounts and fair values of the Group's financial assets and
liabilities at June 30, 2022 are as follows:
Fair value Carrying
value
€ million Level 1 Level 2 Level 3 Total Total
Financial assets
Other equity investments - - 33 33 33
Non-current financial assets - 59 - 59 59
Derivative financial assets(1) - 2,296 - 2,296 2,296
Financial liabilities
Interest-bearing loans and borrowings 2,842 7,171 - 10,013 10,344
Derivative financial liabilities(2) - 67 - 67 67
(1)Current portion of derivative financial assets is €1,983 million.
(2)Current portion of derivative financial liabilities is €53 million.
The carrying amounts and fair values of the Group's financial assets and
liabilities at December 31, 2021 are set out below:
Fair value Carrying value
€ million Level 1 Level 2 Level 3 Total
Total
Financial assets
Other equity investments - - 31 31 31
Derivative financial assets(1) - 620 - 620 620
Financial liabilities
Interest-bearing loans and borrowings 3,492 6,543 - 10,035 9,973
Derivative financial liabilities(2) - 173 - 173 173
(1)Current portion of derivative financial assets is €543 million.
(2)Current portion of derivative financial liabilities is €126 million.
There have been no transfers between levels of fair value hierarchy during the
period.
Financial assets, other equity instruments, financial liabilities and
derivative financial assets and liabilities are all measured at fair value in
the consolidated financial statements. Interest-bearing borrowings, with the
exception of the IAG €825 million convertible bond due 2028 which is
measured at fair value, are measured at amortised cost.
c Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:
€ million June 30, 2022 December 31, 2021
Opening balance for the period 31 29
Additions 2 2
33 31
13. borrowings
June 30, 2022 December 31, 2021
€ million Current Non-current Total Current Non-current Total
Bank and other loans 687 6,473 7,160 761 6,724 7,485
Asset financed liabilities 211 2,973 3,184 171 2,244 2,415
Other financing liabilities - - - 73 - 73
Lease liabilities 1,600 8,225 9,825 1,521 8,116 9,637
Interest-bearing long-term borrowings 2,498 17,671 20,169 2,526 17,084 19,610
Banks and other loans are repayable up to the year 2029. Long-term borrowings
of the Group amounting to €2,450 million (December 31, 2021: €2,434
million) are secured on owned fleet assets with a net book value of €2,722
million (December 31, 2021: €2,938 million). Asset financed liabilities are
all secured on the associated aircraft or other property, plant and equipment.
On March 4, 2022 Aer Lingus entered into a financing arrangement with the
Ireland Strategic Investment Fund (ISIF) for €200 million, repayable in
March 2025. This facility is in addition to the existing €150 million
financing arrangement already in place with the ISIF.
Details of the 2028 convertible bond
The convertible bond provides bondholders with dividend protection and
includes a total of 244,850,715 options at inception and at June 30, 2022 to
convert into ordinary shares of IAG. The Group holds an option to redeem the
convertible bond at its principal amount, together with accrued interest, no
earlier than two years prior to the final maturity date. The Group also holds
an option to redeem the convertible bond, in full or in part, in cash in the
event that bondholders exercise their right to convert the bond into ordinary
shares of IAG.
The convertible bond is recorded at its fair value, which at June 30, 2022 was
€560 million (December 31, 2021: €756 million), representing a decrease of
€196 million since January 1, 2022. Of this decrease, the amount recorded in
Other comprehensive income arising from credit risk of the convertible bonds
was €26 million and a credit recorded as Net change in fair value of
convertible bond in the Income statement attributable to changes in market
conditions of €171 million.
Transactions with unconsolidated entities
In April 2022, the Group entered into an asset-financing structure, under
which five aircraft were financed. These transactions mature between 2032 and
2036. This arrangement was transacted through an unconsolidated structured
entity, which in turn issued the Iberia Pass Through Certificates, Series
2022-1, commonly referred to as Enhanced Equipment Trust Certificates (EETCs).
In doing so, the asset financing structure provides committed aircraft
financing of €680 million, of which €490 million was drawn at June 30,
2022 with the associated liability recognised as an Asset financed liability.
14. SHARE BASED PAYMENTS
During the period 25,907,252 awards were made under the Group's Executive
Share Plan to key senior executives and selected members of the wider
management team. The fair value of equity-settled share awards granted is the
share price at the date of the grant. The Group settles the employees' tax
obligations arising from the issue of the shares directly with the relevant
tax authority in cash and an equivalent number of shares is withheld by the
Group upon vesting.
15. EMPLOYEE BENEFIT OBLIGATIONS
The principal funded defined benefit pension schemes within the Group are the
Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS), both
of which are British Airways schemes in the UK and are closed to new members.
APS has been closed to new members since 1984, but remains open to future
accrual. The benefits provided under APS are based on final average
pensionable pay and, for the majority of members, are subject to inflationary
increases in payment.
NAPS has been closed to new members since 2003 and closed to future accrual
since 2018, resulting in a reduction of the defined benefit obligation.
Following closure members' deferred pensions will now be increased annually by
inflation up to five per cent per annum (measured using the Government's
annual Pension Increase (Review) Orders, which since 2011 have been based on
CPI).
Triennially, the Trustees of APS and NAPS undertake actuarial valuations,
which are subsequently agreed with British Airways to determine the cash
contributions and any deficit payments plans through to the next valuation
date, as well as ensuring that the schemes have sufficient funds available to
meet future benefit payments to members. These actuarial valuations are
prepared using the principles set out in UK Pension legislation. This differs
from the IAS 19 'Employee benefits' valuation, which is used for deriving the
Income statement and Balance sheet positions, and uses a best-estimate
approach overall. The different purpose and principles lead to different
assumptions being used, and therefore a different estimate for the liabilities
and deficit.
In June 2022, the triennial valuation, as at March 31, 2021, was finalised for
APS which resulted in a surplus of €343 million. At June 30, 2022, the
triennial valuation as at March 31, 2021 for NAPS was not finalised and
accordingly the latest actuarial valuation of NAPS was performed as at March
31, 2018, which resulted in a deficit of €2,736 million. The actuarial
valuations performed for APS and NAPS are different to the valuation performed
as at June 30, 2022 under IAS 19 'Employee Benefits' mainly due to timing
differences of the measurement dates and to the specific scheme assumptions in
the actuarial valuation compared with IAS 19 guidance used in the accounting
valuation assumptions.
Cash payments and funding arrangements
Cash payments in respect to pension obligations comprise normal employer
contributions by the Group and deficit contributions based on the agreed
deficit payment plan with APS and NAPS. Total payments for the six months to
June 30, 2022 net of service costs made by the Group were €8 million (six
months to June 30, 2021: €31 million). The Group expects to pay €9 million
in employer contributions to APS and NAPS over the six month period to
December 31, 2022.
Deficit contributions and deferred deficit contributions
At the date of the actuarial valuation, being March 31, 2018, the actuarial
deficit of NAPS amounted to €2,736 million. In order to address the deficit
in the scheme, the Group has also committed to deficit contribution payments
through to the end of the first quarter of 2023 amounting to approximately
€130 million per quarter. The deficit contribution plan includes an
over-funding protection mechanism, based on the triennial valuation
methodology for measuring the deficit, whereby deficit contributions are paid
into an escrow account if the scheme funding position reaches 97 per cent, and
are suspended if the funding position reaches 100 per cent, with a mechanism
for contributions to resume if the contribution level subsequently falls below
100 per cent, which includes additional contributions equivalent to those
months where contributions had been suspended, or until such point as the
scheme funding level reaches 97 per cent.
During the six months to June 30, 2022, the NAPS funding position exceeded 100
per cent and accordingly deficit contributions were suspended. At June 30,
2022, the valuation of the funding level incorporates significant
forward-looking assumptions, such that the Group currently does not expect to
make further deficit contributions. Given the long-term nature of the NAPS
scheme, these assumptions are subject to uncertainty and there can be no
guarantee that deficit contributions will not resume in the future or that
additional deficit contributions will be incorporated into future triennial
actuarial valuations.
June 30, 2022
€ million APS NAPS Other Total
Scheme assets at fair value (3) 7,133 20,143 450 27,726
Present value of scheme liabilities (6,829) (16,636) (701) (24,166)
Net pension asset/(liability) 304 3,507 (251) 3,560
Effect of the asset ceiling(1) (105) (1,422) - (1,527)
Other employee benefit obligations - - (12) (12)
June 30, 2022 199 2,085 (263) 2,021
Represented by:
Employee benefit assets 2,298
Employee benefit obligations (277)
Net employee benefit asset(2) 2,021
December 31, 2021
€ million APS NAPS Other Total
Scheme assets at fair value 8,869 25,055 446 34,370
Present value of scheme liabilities (8,333) (22,583) (706) (31,622)
Net pension asset/(liability) 536 2,472 (260) 2,748
Effect of the asset ceiling(1) (186) (1,061) - (1,247)
Other employee benefit obligations - - (11) (11)
December 31, 2021 350 1,411 (271) 1,490
Represented by:
Employee benefit assets 1,775
Employee benefit obligations (285)
Net employee benefit asset(2) 1,490
(1) Both APS and NAPS are in an IAS 19 accounting surplus, which would be
available to the Group as a refund upon wind up of the scheme. This refund is
restricted due to the withholding taxes that would be payable by the Trustee
arising on both the net pension asset and the future contractual minimum
funding requirements.
(2) Includes Additional Voluntary Contributions (AVCs), which the Trustees
hold as assets to secure additional benefits on a defined contribution basis
for those members who elect to make such AVCs. At June 30, 2022, such assets
were €343 million (December 31, 2021: €391 million) with a corresponding
amount recorded in the scheme liabilities.
(3) Included within the fair value of scheme assets are €2.7 billion of
private equities and alternatives at June 30, 2022, where the fair value has
been determined based on the most recent third-party valuations. The dates of
these valuations typically precede the reporting date and have been adjusted
for any cash movements between the date of the valuation and the reporting
date. Typically, the valuation approach and inputs for these investments are
not through to the reporting date unless there are indications of significant
market movements.
Scheme liability assumptions
At June 30, 2022, the assumptions used to determine the obligations under the
APS and NAPS were reviewed and updated to reflect the market condition at that
date. Principal assumptions were as follows:
June 30, 2022 December 31, 2021
Per cent per annum APS NAPS APS NAPS
Discount rate 3.70 3.75 1.80 1.90
Rate of increase in pensionable pay 3.45 - 3.55 -
Rate of increase of pensions in payment 3.45 2.80 3.55 2.85
RPI rate of inflation 3.45 3.20 3.55 3.30
CPI rate of inflation 2.85 2.80 2.95 2.85
Further information on the basis of the assumptions is included in note 32 of
the Annual Report and Accounts for the year to December 31, 2021.
16. pROVISIONS
€ million Restoration and handback provisions Restructuring Employee leaving indemnities and other employee related provisions Legal claims and contractual disputes provisions Other provisions Total
provisions
Net book value January 1, 2022 1,832 274 720 90 83 2,999
Reclassifications (11) - - - - (11)
Provisions recorded during the period 320 10 31 6 86 453
Utilised during the period (45) (41) (16) (1) (24) (127)
Release of unused amounts (39) - (1) (5) - (45)
Unwinding of discount 3 - 2 - - 5
Exchange differences 131 - - 2 - 133
Net book value June 30, 2022 2,191 243 736 92 145 3,407
Analysis:
Current 558 131 82 70 91 932
Non-current 1,633 112 654 22 54 2,475
2,191 243 736 92 145 3,407
17. FINANCIAL RISK MANAGEMENT
The Group is exposed to a variety of financial risks: market risk (including
commodity risk, foreign currency risk and interest rate risk), credit risk and
liquidity risk. The principal impact of these on the interim financial
statements are discussed below:
Fuel price risk
The Group is exposed to fuel price risk. In order to mitigate such risk, under
the Group's fuel price risk management strategy a variety of over the counter
derivative instruments are entered into. The Group strategy is to hedge a
proportion of anticipated fuel consumption for the coming two years within the
approved hedging profile.
During the six months to June 30, 2022, following a substantial rise in the
global price of both crude oil and distillates, the fair value of such net
asset derivative instruments was €1,200 million at June 30, 2022,
representing an increase of €912 million since January 1, 2022.
Foreign currency risk
The Group is exposed to foreign currency risk on revenue, purchases and
borrowings that are denominated in a currency other than the functional
currency of the Group. The currencies in which these transactions are
denominated are primarily euro, US dollar and pound sterling. The Group has a
number of strategies to hedge foreign currency risk. The Group strategy is to
hedge a proportion of its foreign currency sales and purchases for the coming
three years.
At June 30, 2022, the fair value of foreign currency net asset derivatives
instruments was €999 million, representing an increase of €815 million
since January 1, 2022.
Interest rate risk
The Group is exposed to changes in interest rates on debt and on cash
deposits. Interest rate risk on floating rate debt is managed through interest
rate swaps, cross currency swaps and interest rate collars.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations
under a financial instrument or customer contract, leading to a financial
loss. The Group is exposed to credit risk from its financing activities,
including deposits with banks and financial institutions, foreign exchange
transactions and other financial instruments. The Group has policies and
procedures to monitor the risk by assigning limits to each counterparty by
underlying exposure and by operating company and by only entering into
transactions with counterparties with an acceptable level of credit risk.
At each period end, the Group assesses the effect of counterparties' and the
Group's own credit risk on the fair value of derivatives and any
ineffectiveness arising is immediately recycled from Other comprehensive
income to the Income statement with Other non-operating expenses.
18. CONTINGENT LIABILITIES
Details of contingent liabilities are set out below. The Group does not
consider it probable that there will be an outflow of economic resources with
regard to these proceedings and accordingly no provision for these proceedings
has been recognised.
For those contingencies relating to tax, refer to note 6.
Legal and regulatory proceedings
There are a number of legal and regulatory proceedings against the Group in a
number of jurisdictions which at June 30, 2022, where they could be reliably
estimated, amounted to €12 million (December 31, 2021: €22 million).
Guarantees and indemnities
The Group has guarantees and indemnities entered into as part of the normal
course of business, which at June 30, 2022 are not expected to result in
material losses for the Group.
19. GOVERNMENT GRANTS AND ASSISTANCE
The Group has availed itself of government grants and assistance as follows:
The Coronavirus Job Retention Scheme (CJRS) - recognised net within Employee
costs
The CJRS was implemented by the government of the United Kingdom from March 1,
2020 to August 30, 2020, where those employees designated as being 'furloughed
workers' were eligible to have 80 per cent of their wage costs paid up to a
maximum of £2,500 per month.
From September 1, 2020 to September 30, 2020, the level eligibility reduced to
70 per cent of wage costs and up to a maximum of £2,197.50 per month. From
October 1, 2020 to October 31, 2020, the level of eligibility reduced to 60
per cent of wage costs and up to a maximum of £1,875 per month. Following the
introduction of further lockdown restrictions in the United Kingdom in
November 2020, the CJRS was extended from November 1, 2020 to November 30,
2020 and then further to March 31, 2021 and then further again to September
30, 2021 with the level of eligibility increased to 80 per cent of wage costs
and a maximum of £2,500 per month through to the end of June 2021. From July
1, 2021 the eligibility decreased down each month to 60 per cent of wage costs
and a maximum of £1,875 per month by September 30, 2021, at which time the
CJRS ended.
Such costs are paid by the government to the Group in arrears. The Group is
obliged to continue to pay the associated social security costs and employer
pension contributions.
The Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage Subsidy
Scheme (EWSS) - recognised net within Employee costs
The TWSS was implemented by the government of Ireland from March 1, 2020 to
August 30, 2020, where those employees designated as being furloughed workers
are eligible to have 85 per cent of their wage costs paid up to a maximum of
€410 per week. This scheme was replaced with the EWSS from September 1, 2020
and ran through to April 30, 2022. For those qualifying employees (earning
less than €1,462 per week), the government will reimburse wage costs up to a
maximum of €203 per week. Such costs are paid by the government to the Group
in arrears.
The total amount of the relief received under the CJRS, the TWSS and the EWSS
by the Group for the six months to June 30, 2022 amounted to €11 million
(six months to June 30, 2021: €200 million).
Temporary Redundancy Plan (ERTE) - no recognition in the financial statements
of the Group
The ERTE was implemented by the government of Spain from March 1, 2020 and ran
through to February 28, 2022, at which time the ERTE ended. Under this plan,
employment was temporarily suspended and those designated employees are paid
directly by the government and there is no remittance made to the Group. The
Group has been obliged to continue to pay the associated social security
costs.
Had those designated employees not been temporarily suspended during the six
months to June 30, 2022, the Group would have incurred further employee costs
of €3 million (six months to June 30, 2021: €144 million).
The Ireland Strategic Investment Fund (ISIF) - recognised within Long-term
borrowings
On December 23, 2020, Aer Lingus entered into a financing arrangement for
€75 million. On March 27, 2021, Aer Lingus entered into a further financing
arrangement to extend the total amount to €150 million.
On March 4, 2022 Aer Lingus entered into a further financing arrangement with
the ISIF for €200 million and is repayable in March 2025. The facility is
unsecured. At June 30, 2022 the facility remained undrawn.
The UK Export Finance (UKEF) - recognised within Long-term borrowings
On February 22, 2021, British Airways entered into a 5-year term loan Export
Development Guarantee Facility of €2.3 billion (£2.0 billion) underwritten
by a syndicate of banks, with 80 per cent of the principal guaranteed by UKEF.
The loan is unsecured.
On November 1, 2021, British Airways entered into a further 5-year term loan
Export Development Guarantee Facility of €1.2 billion (£1.0 billion)
underwritten by a syndicate of banks, with 80 per cent of the principal
guaranteed by UKEF. The facility is unsecured. At June 30, 2022 the facility
remained undrawn.
20. RELATED PARTY TRANSACTIONS
The Group had the following transactions in the ordinary course of business
with related parties.
Sales and purchases of goods and services:
Six months to June 30
€ million 2022 2021
Sales of goods and services
Sales to associates 2 3
Sales to significant shareholders 41 13
Purchases of goods and services
Purchases from associates 31 18
Purchases from significant shareholders 72 30
Period end balances arising from sales and purchases of goods and services:
€ million June 30, December 31,
2022 2021
Receivables from related parties
Amounts owed by associates 1 1
Amounts owed by significant shareholders 8 5
Payables to related parties
Amounts owed to associates 5 3
Amounts owed to significant shareholders 2 2
For the six months to June 30, 2022 the Group has not made any allowance on
expected credit losses relating to amounts owed by related parties (2021:
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 2022 2021
Base salary, fees and benefits
Board of Directors' remuneration 2 1
Management Committee remuneration 4 4
For the six months to June 30, 2022 the remuneration for the Board of
Directors includes one Executive Director (June 30, 2021: one Executive
Director). The Management Committee includes remuneration for 12 members (June
30, 2021: 14 members).
The Company provides life insurance for all Executive Directors and the
Management Committee. For the six months to June 30, 2022 the Company's
obligation was €20,000 (2021: €18,000).
At June 30, 2022 the transfer value of accrued pensions covered under defined
benefit pension obligation schemes, relating to the current members of the
Management Committee totalled €6 million (2021: €8 million).
No loan or credit transactions were outstanding with Directors or officers of
the Group at June 30, 2022 (2021: nil).
21. POST BALANCE SHEET EVENTS
On July 28, IAG announced a further order for more fuel-efficient A320 Neo
family aircraft, as part of its plan to meet climate commitments. The Group is
converting 12 A320 Neo family options into firm orders and is ordering a
further 25 A320 Neo family aircraft, with the option to purchase 50 additional
aircraft. The firm orders will replace existing aircraft and are for delivery
between 2025 and 2028; the split between A320 Neos and A321 Neos will be
determined nearer to delivery. The order is subject to approval by IAG
shareholders.
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 28, 2022, 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, 2022, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and of the companies that
fall within the consolidated group taken as a whole, and that the interim
management report includes a fair review of the required information.
July 28, 2022
Javier Ferrán Larraz Luis Gallego Martín
Chairman Chief Executive Officer
Giles Agutter Peggy Bruzelius
Eva Castillo Sanz Margaret Ewing
Maurice Lam Heather Ann McSharry
Robin Phillips Emilio Saracho Rodríguez de Torres
Lucy Nicola Shaw
LIMITED REVIEW REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
To the Shareholders of International Consolidated Airlines Group, S.A.
commissioned by management:
REPORT ON THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Introduction
We have carried out a limited review of the accompanying condensed
consolidated interim financial statements (the "interim financial statements")
of International Consolidated Airlines Group, S.A. (the "Company") and
subsidiaries (together the "Group"), which comprise the balance sheet at 30
June 2022, the income statement, statement of other comprehensive income,
statement of changes in equity, cash flow statement and the explanatory notes
thereto for the six-month period then ended (all condensed and consolidated).
The Directors of the Company are responsible for the preparation of these
interim financial statements in accordance with International Accounting
Standard (IAS) 34 "Interim Financial Reporting" as adopted by the European
Union, pursuant to article 12 of Royal Decree 1362/2007 as regards the
preparation of condensed interim financial information. Our responsibility is
to express a conclusion on these interim financial statements based on our
limited review.
Scope of review
We conducted our limited review in accordance with International Standard on
Review Engagements 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity". A limited review of interim financial
statements consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A limited review is substantially less in scope than an audit
conducted in accordance with prevailing legislation regulating the audit of
accounts in Spain and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified
in an audit. Accordingly, we do not express an audit opinion on the
accompanying interim financial statements.
Conclusion
Based on our limited review, which can under no circumstances be considered an
audit, nothing has come to our attention that causes us to believe that the
accompanying interim financial statements for the six-month period ended 30
June 2022 have not been prepared, in all material respects, in accordance with
International Accounting Standard (IAS) 34 "Interim Financial Reporting", as
adopted by the European Union, pursuant to article 12 of Royal Decree
1362/2007 as regards the preparation of condensed interim financial
statements.
Emphasis of matter
We draw your attention to the accompanying note 1, which states that these
interim financial statements do not include all the information that would be
required in a complete set of consolidated financial statements prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union. The accompanying interim financial statements should therefore
be read in conjunction with the Group's consolidated annual accounts for the
year ended 31 December 2021. This matter does not modify our conclusion.
Report on other legal and regulatory requirements
The accompanying consolidated interim managements' report for the six-month
period ended 30 June 2022 contains such explanations as the Directors of the
Company consider relevant with respect to the significant events that have
taken place in this period and their effect on the interim financial
statements, as well as the disclosures required by article 15 of Royal Decree
1362/2007. The consolidated interim managements' report is not an integral
part of the interim financial statements. We have verified that the accounting
information contained therein is consistent with that disclosed in the interim
financial statements for the six-month period ended 30 June 2022. Our work is
limited to the verification of the consolidated interim managements' report
within the scope described in this paragraph and does not include a review of
information other than that obtained from the accounting records of
International Consolidated Airlines Group, S.A. and subsidiaries.
Other matter
This report has been prepared at the request of management in relation to the
publication of the six-monthly financial report required by article 119 of the
Revised Securities Market Law, approved by Royal Legislative Decree 4/2015 of
23 October 2015 and enacted by Royal Decree 1362/2007 of 19 October 2007.
KPMG Auditores, S.L.
Bernardo Rücker-Embden
28 July 2022
ALTERNATIVE PERFORMANCE MEASURES
The performance of the Group is assessed using a number of alternative
performance measures (APMs), some of which have been identified as key
performance indicators of the Group. These measures are not defined under
International Financial Reporting Standards (IFRS), should be considered in
addition to IFRS measurements and may differ to definitions given by
regulatory bodies applicable to the Group. They are used to measure the
outcome of the Group's strategy based on 'Unrivalled customer proposition',
'Value accretive and sustainable growth' and 'Efficiency and innovation'.
Further information on why these APMs are used is provided in the Strategic
priorities and key performance indicators section in IAG's 2021 Annual Report
and Accounts.
During the six months to June 30, 2022, the Group has made no changes to its
disclosures and treatment of APMs compared with those disclosed in the Annual
Report and Accounts for the year to December 31, 2021.
The definition of each APM, together with a reconciliation to the nearest
measure prepared in accordance with IFRS is presented below.
a Profit/(loss) after tax before exceptional items
Exceptional items are those that in management's view need to be separately
disclosed by virtue of their size or incidence to supplement the understanding
of the entity's financial performance. The Management Committee of the Group
uses financial performance on a pre-exceptional basis to evaluate operating
performance and to make strategic, financial and operational decisions, and
externally because it is widely used by security analysts and investors in
evaluating the performance of the Group between reporting periods and against
other companies.
The table below reconciles the statutory income statement to the income
statement before exceptional items of the Group:
Six months to June 30
€ million Reported 2022 Exceptional items Before exceptional items 2022 Reported 2021(1) Exceptional items Before exceptional items 2021
Passenger revenue(4) 7,604 - 7,604 1,141 5 1,136
Cargo revenue 843 - 843 769 - 769
Other revenue 904 - 904 302 - 302
Total revenue 9,351 - 9,351 2,212 5 2,207
Employee costs 2,167 - 2,167 1,288 - 1,288
Fuel, oil costs and emissions charges(4) 2,566 - 2,566 497 (140) 637
Handling, catering and other operating costs 1,322 - 1,322 367 - 367
Landing fees and en-route charges 847 - 847 287 - 287
Engineering and other aircraft costs 928 - 928 419 - 419
Property, IT and other costs(2) 435 (23) 458 353 - 353
Selling costs 442 - 442 159 - 159
Depreciation, amortisation and impairment(3) 1,015 (6) 1,021 920 - 920
Currency differences 67 - 67 (43) - (43)
Total expenditure on operations 9,789 (29) 9,818 4,247 (140) 4,387
Operating loss (438) 29 (467) (2,035) 145 (2,180)
Finance costs (480) - (480) (401) - (401)
Finance income 3 - 3 4 - 4
Net change in fair value of financial instruments 130 - 130 38 - 38
Net financing credit relating to pensions 13 - 13 1 - 1
Net currency retranslation charges (197) - (197) (13) - (13)
Other non-operating credits 126 - 126 70 - 70
Total net non-operating costs (405) - (405) (301) - (301)
Loss before tax (843) 29 (872) (2,336) 145 (2,481)
Tax 189 - 189 288 (24) 312
Loss after tax for the period (654) 29 (683) (2,048) 121 (2,169)
Three months to June 30
€ million Reported 2022 Exceptional items Before exceptional items 2022 Reported 2021 Exceptional items Before exceptional items 2021(1)
Passenger revenue(4) 4,949 - 4,949 682 - 682
Cargo revenue 411 - 411 419 - 419
Other revenue 556 - 556 143 - 143
Total revenue 5,916 - 5,916 1,244 - 1,244
Employee costs 1,122 - 1,122 666 - 666
Fuel, oil costs and emissions charges(4) 1,648 - 1,648 271 (78) 349
Handling, catering and other operating costs 780 - 780 194 - 194
Landing fees and en-route charges 489 - 489 160 - 160
Engineering and other aircraft costs 553 - 553 212 - 212
Property, IT and other costs(2) 231 - 231 169 - 169
Selling costs 241 - 241 89 - 89
Depreciation, amortisation and impairment(3) 484 (6) 490 450 - 450
Currency differences 75 - 75 - - -
Total expenditure on operations 5,623 (6) 5,629 2,211 (78) 2,289
Operating profit/(loss) 293 6 287 (967) 78 (1,045)
Finance costs (247) - (247) (224) - (224)
Finance income 2 - 2 1 - 1
Net change in fair value of financial instruments 70 - 70 38 - 38
Net financing credit relating to pensions 6 - 6 2 - 2
Net currency retranslation charges (136) - (136) - - -
Other non-operating credits 85 - 85 30 - 30
Total net non-operating costs (220) - (220) (153) - (153)
Profit/(loss) before tax 73 6 67 (1,120) 78 (1,198)
Tax 60 - 60 139 (14) 153
Profit/(loss) after tax for the period 133 6 127 (981) 64 (1,045)
The rationale for each exceptional item for the six months ended June 30, 2022
is given below:
(1) The 2021 results include a reclassification to conform with the
presentation adopted in the 2021 Annual Report and Accounts regarding the fair
value movements of the convertible bond. Further information is given in note
1.
(2) The exceptional credit of €23 million relates to the partial reversal of
the fine, plus accrued interest, initially issued by the European Commission,
in 2010, to British Airways regarding its involvement in cartel activity in
the air cargo sector and that had been recognised as an exceptional charge.
The exceptional credit has been recorded within Property, IT and other costs
in the Income statement with no resultant tax charge arising.
(3) The exceptional impairment reversal of €6 million relates to four Airbus
A320s in Vueling, previously stood down in the fourth quarter of 2020 and
subsequently stood up in the second quarter of 2022. The exceptional
impairment reversal was recorded within Right of use assets on the Balance
sheet and within Depreciation, amortisation and impairment in the Income
statement with no resultant tax charge arising.
(4) The exceptional credit to Fuel, oil costs and emissions charges of €140
million recorded in the six months to June 30, 2021 and the exceptional credit
to Passenger revenue of €5 million related to the derecognition of hedge
accounting of the associated fuel derivatives and the foreign currency
derivatives on forecast revenue and fuel consumption. These amounts arose from
the substantial deterioration in demand for air travel caused by the COVID-19
outbreak, which caused a significant level of hedged fuel purchases in US
dollars and hedged passenger revenue transactions in a variety of foreign
currencies to no longer be expected to occur based on the Group's operating
forecasts prevailing at the balance sheet date. The credit related to revenue
derivatives and fuel derivatives was recorded in the Income statement within
Passenger revenue and Fuel, oil and emission charges, respectively. The
related tax charge was €24 million.
b Basic loss per share before exceptional items and
adjusted loss per share (KPI)
Earnings are based on results before exceptional items after tax and adjusted
for earnings attributable to equity holders and interest on convertible bonds,
divided by the weighted average number of ordinary shares, adjusted for the
dilutive impact of the assumed conversion of the bonds and employee share
schemes outstanding.
€ million Six months to Six months to
June 30, 2022 June 30, 2021
Loss after tax attributable to equity holders of the parent (654) (2,048)
Exceptional items 29 121
Loss after tax attributable to equity holders of the parent before exceptional (683) (2,169)
items
Interest expense on convertible bonds - -
Adjusted loss (683) (2,169)
Weighted average number of shares used for basic earnings per share 4,963 4,967
Weighted average number of shares used for diluted earnings per share 4,963 4,967
Basic loss per share before exceptional items (€ cents) (13.8) (43.7)
Adjusted loss per share (€ cents) (13.8) (43.7)
c Airline non-fuel costs per ASK
The Group monitors airline unit costs (per ASK, a standard airline measure of
capacity) as a means of tracking operating efficiency of the core airline
business. As fuel costs can vary with commodity prices, the Group monitors
fuel and non-fuel costs individually. Within non-fuel costs are the costs
associated with generating Other revenue, which typically do not represent the
costs of transporting passengers or cargo and instead represent the costs of
handling and maintenance for other airlines, non-flight products in BA
Holidays and costs associated with other miscellaneous non-flight revenue
streams. Airline non-fuel costs per ASK is defined as total operating
expenditure before exceptional items, less fuel, oil costs and emission
charges and less non-flight specific costs divided by total available seat
kilometres (ASKs), and is shown on a constant currency basis.
€ million Six months to June 30, 2022 ccy Six months to June 30, 2022 Six months to June 30,
reported adjustment(1) ccy 2021
Total expenditure on operations 9,789 (549) 9,240 4,247
Less: exceptional items (29) - (29) (140)
Less: fuel, oil costs and emission charges before exceptional items 2,566 (188) 2,378 637
Non-fuel costs 7,252 (361) 6,891 3,750
Less: Non-flight specific costs 778 (43) 735 260
Airline non-fuel costs 6,474 (318) 6,156 3,490
ASKs 117,710 117,710 34,041
Airline non-fuel unit costs per ASK (€ cents) 5.50 5.23 10.25
(1)Refer to note g for the definition of the ccy adjustment.
d Levered free cash flow (KPI)
Levered free cash flow represents the cash generated, and the financing
raised, by the businesses before shareholder returns and is defined as the net
increase in cash and cash equivalents taken from the Cash flow statement,
adjusting for movements in Current interest-bearing deposits and adding back
the cash outflows associated with dividends paid and the acquisition of
treasury shares. The Group believes that this measure is useful to the users
of the financial statements in understanding the cash generating ability of
the Group that is available to return to shareholders, to improve leverage
and/or to undertake inorganic growth opportunities.
€ million Six months to June 30, 2022 Six months to June 30, 2021
Net Increase in cash and cash equivalents 1,093 1,685
Less: Increase/(decrease) in other current interest-bearing deposits 134 (90)
Add: Dividends paid - -
Levered free cash flow 1,227 1,595
e Net debt to EBITDA (KPI)
To supplement total borrowings as presented in accordance with IFRS, the Group
reviews net debt to EBITDA to assess its level of net debt in comparison to
the underlying earnings generated by the Group in order to evaluate the
underlying business performance of the Group. This measure is used to monitor
the Group's leverage and to assess financial headroom against internal and
external security analyst and investor benchmarks.
Net debt is defined as long-term borrowings (both current and non-current),
less cash, cash equivalents and current interest-bearing deposits. Net debt
excludes supply chain financing arrangements which are classified within trade
payables.
EBITDA is defined as the rolling four quarters operating result before
exceptional items, interest, taxation, depreciation, amortisation and
impairment.
The Group believes that this additional measure, which is used internally to
assess the Group's financial capacity, is useful to the users of the financial
statements in helping them to see how the Group's financial capacity has
changed over the year. It is a measure of the profitability of the Group and
of the core operating cash flows generated by the business model.
€ million June 30, December 31,
2022 2021
Interest-bearing long-term borrowings 20,169 19,610
Less: Cash and cash equivalents (9,004) (7,892)
Less: Other current interest-bearing deposits (186) (51)
Net debt 10,979 11,667
Operating loss (1,168) (2,765)
Add: Exceptional items (89) (205)
Add: Depreciation, amortisation and impairment 2,054 1,953
EBITDA 797 (1,017)
Net debt to EBITDA 13.8 (11.5)
f Return on invested capital (KPI)
The Group monitors return on invested capital (RoIC) as it gives an indication
of the Group's capital efficiency relative to the capital invested as well as
the ability to fund growth and to pay dividends. RoIC is defined as EBITDA,
less fleet depreciation adjusted for inflation, depreciation of other
property, plant and equipment, and amortisation of software intangibles,
divided by average invested capital and is expressed as a percentage.
Invested capital is defined as the average of property, plant and equipment
and software intangible assets over a 12-month period between the opening and
closing net book values. The fleet aspect of property, plant and equipment is
inflated over the average age of the fleet to approximate the replacement cost
of the associated assets.
€ million June 30, December 31,
2022 2021
EBITDA 797 (1,017)
Less: Fleet depreciation multiplied by inflation adjustment (1,914) (1,777)
Less: Other property, plant and equipment depreciation (266) (257)
Less: Software intangible amortisation (176) (167)
(1,559) (3,218)
Invested capital
Average fleet value(2) 15,816 15,241
Less: average progress payments(3) (909) (729)
Fleet book value less progress payments 14,907 14,512
Inflation adjustment(1) 1.17 1.16
17,425 16,893
Average net book value of other property, plant and equipment(4) 2,116 2,106
Average net book value of software intangible assets(5) 642 640
Total invested capital 20,183 19,639
Return on Invested Capital (7.7)% (16.4)%
(1)Presented to two decimal places and calculated using a 1.5 per cent
inflation (June 30, 2021: 1.5 per cent inflation) rate over the weighted
average age of the fleet at June 30, 2022: 10.8 years (June 30, 2021: 10.2
years).
(2)The average net book value of aircraft is calculated from an amount of
€15,545 million at June 30, 2021 and €16,087 million at June 30, 2022.
(3)The average net book value of progress payments is calculated from an
amount of €677 million at June 30, 2021 and €1,141 million at June 30,
2022.
(4)The average net book value of other property, plant and equipment is
calculated from an amount of €2,155 million at June 30, 2021 and €2,077
million at June 30, 2022.
(5)The average net book value of software intangible assets is calculated from
an amount of €645 million at June 30, 2021 and €640 million at June 30,
2022.
g Results on a constant currency
(ccy) basis
Movements in foreign exchange rates impact the Group's financial results. The
Group reviews the results, including revenue and operating costs at constant
rates of exchange (abbreviated to 'ccy'). The Group calculates these financial
measures at constant rates of exchange based on a retranslation, at prior year
exchange rates, of the current year's results of the Group. Although the Group
does not believe that these measures are a substitute for IFRS measures, the
Group does believe that such results excluding the impact of currency
fluctuations year-on-year provide additional useful information to investors
regarding the Group's operating performance on a constant currency basis.
Accordingly, the financial measures at constant currency within the discussion
of the Group Financial review should be read in conjunction with the
information provided in the Group financial statements.
The following table represents the main average and closing exchange rates for
the reporting periods. Where 2022 figures are stated at a constant currency
basis, they have applied the 2021 rates stated below:
Foreign exchange rates
Average six months to June 30 Closing at Closing at December 31
June 30
2022 2021 2022 2021
Pound sterling to euro 1.19 1.14 1.16 1.18
Euro to US dollar 1.11 1.21 1.05 1.13
Pound sterling to US dollar 1.32 1.38 1.22 1.33
h Liquidity
The Board and the Management Committee monitor liquidity in order to assess
the resilience of the Group to adverse events and uncertainty and develops
funding initiatives to maintain this resilience.
Liquidity is used by analysts, investors and other users of the financial
statements as a measure to the financial health and resilience of the Group.
Liquidity is defined as Cash and cash equivalents plus Current
interest-bearing deposits, plus Committed general undrawn facilities and
committed aircraft undrawn facilities.
€ million June 30, December 31,
2022 2021
Cash and cash equivalents 9,004 7,892
Current interest-bearing deposits 186 51
Committed general undrawn facilities 3,118 2,864
Committed aircraft undrawn facilities 1,128 1,126
Overdrafts and other facilities 53 53
Total liquidity 13,489 11,986
AIRCRAFT FLEET
( ) ( ) ( ) Number in service with Group companies(1)
( ) ( ) ( ) ( )
( ) Owned Finance lease Operating lease Total Total Changes since Future Options
June 30, December 31, 2021 December 31, deliveries
2022 2021
( ) ( )
Airbus A319 Ceo 8 3 30 41 39 2 - -
Airbus A320 Ceo 42 31 125 198 190 8 - -
Airbus A320 Neo 7 27 21 55 50 5 36 50
Airbus A321 Ceo 16 8 22 46 51 (5) - -
Airbus A321 Neo 1 - 14 15 14 1 24 -
Airbus A321 LR - - 8 8 8 - - -
Airbus A321 XLR - - - - - - 14 14
Airbus A330-200 - 2 15 17 18 (1) - -
Airbus A330-300 4 4 12 20 18 2 - -
Airbus A350-900 4 2 6 12 9 3 11 16
Airbus A350-1000 3 9 - 12 8 4 6 36
Airbus A380 2 10 - 12 12 - - -
Boeing 777-200 38 2 3 43 43 - - -
Boeing 777-300 5 4 7 16 16 - - -
Boeing 777-9 - - - - - - 18 24
Boeing 787-8 - 10 2 12 12 - - -
Boeing 787-9 1 8 9 18 18 - - -
Boeing 787-10 - 2 - 2 2 - 10 6
Embraer E190 9 - 13 22 23 (1) - -
Group total 140 122 287 549 531 18 119 146
(1)During the six-month period ended June 30, 2022, the Group has changed the
basis in which it presents the aircraft fleet table.
Aircraft are reported based on their contractual definitions as opposed to
their accounting determination.
Future deliveries and options do not include those orders that are still
subject to shareholder approval.
The categorisation of leases for accounting purposes differs to that presented
above. For accounting purposes, while all operating leases are presented as
lease liabilities, finance leases are presented as either lease liabilities or
asset financed liabilities, depending on the nature of the individual
arrangement. Refer to note 2 of the 2021 Annual Report and Accounts for
further information.
As well as those aircraft in service the Group also holds 18 aircraft
(December 31, 2021: 29) not in service.
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