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News Release

Final Results

 

FULL YEAR RESULTS ANNOUNCEMENT

 

International Consolidated Airlines Group (IAG) today (February 26, 2016) presented Group consolidated results for the year to December 31, 2015.

 

IAG period highlights on results:

 

·      Fourth quarter operating profit €540 million excluding Aer Lingus and before exceptional items (2014: operating profit of €260 million), including Aer Lingus €530 million

·      Passenger unit revenue for the quarter up 3.1 per cent. Excluding Aer Lingus and at constant currency down 3.7 per cent including approximately 1 point adverse impact from Paris attacks

·      Non-fuel unit costs before exceptional items for the quarter up 2.4 per cent. Excluding Aer Lingus and at constant currency down 3.9 per cent

·      Fuel unit costs before exceptional items for the quarter down 13.4 per cent, down 23.9 per cent at constant currency

·      Operating profit for the year to December 31, 2015 of €2,300 million excluding Aer Lingus and before exceptional items (2014: operating profit of €1,390 million), up 65 per cent, including Aer Lingus €2,335 million

·      Revenue for the year up 13.3 per cent to €22,858 million and passenger unit revenue for the year down 3.5 per cent at constant currency

·      Fuel unit costs for the year before exceptional items down 6.3 per cent, down 17.2 per cent at constant currency

·      Non-fuel unit costs for the year before exceptional items up 4.3 per cent, down 3.9 per cent at constant currency

·      Cash of €5,856 million at December 31, 2015 was up €912 million on 2014 year end, including €772 million from Aer Lingus

·      Adjusted gearing up 3 points to 54 per cent and adjusted net debt to EBITDAR remained constant at 1.9 times including Aer Lingus

 

Performance summary:

 

   




   

Year to December 31


 Financial data € million  

2015 

2014 

Higher / (lower)

 Passenger revenue

20,350 

17,825 

14.2 %

 Total revenue

22,858 

20,170 

13.3 %

 Operating profit before exceptional items

2,335 

1,390 

68.0 %

 Exceptional items

(17)

(361)

(95.3)%

 Operating profit after exceptional items

2,318 

1,029 

125.3 %

 Profit after tax

1,516 

1,003 

51.1 %

 Basic earnings per share (€ cents)

73.5 

48.2 

25.3 pts

 Operating figures  

2015 

2014 

Higher / (lower)

 Available seat kilometres (ASK million)

272,702 

251,931 

8.2 %

 Seat factor (per cent)

81.4 

80.4 

1pt

 Passenger unit revenue per ASK (€ cents)

7.46 

7.08 

5.4 %

 Non-fuel unit costs per ASK (€ cents)

5.30 

5.08 

4.3 %

 € million

December 31,

December 31,

Higher / (lower)

2015

2014

 Cash and interest-bearing deposits

5,856 

4,944 

18.4 %

 Adjusted net debt(1)

8,510 

6,081 

39.9 %

 Adjusted net debt to EBITDAR

1.9 

1.9 

0pts

 Adjusted gearing(2)

54%

51%

3pts

   




(1)Adjusted net debt is net debt plus capitalised rolling four quarter aircraft operating lease costs.

(2)Adjusted gearing is adjusted net debt, divided by adjusted net debt and adjusted equity.

 

Willie Walsh, IAG Chief Executive Officer, said:

 

"We're reporting very strong full year results with an operating profit before exceptional items of €2,335 million including Aer Lingus. At constant currency, passenger unit revenue was down 3.5 per cent with non-fuel unit costs down 3.9 per cent and fuel unit costs down 17.2 per cent.

 

"Aer Lingus has made a positive contribution of €35 million operating profit since it joined the Group on 18 August last year.

"These results are in line with our recent target and have exceeded our original 2015 operating profit target of €1.5 billion that we set in 2011. It's undoubtedly been a good year but it's also been challenging with extreme volatility in the currency and fuel markets. The benefits gained from lower fuel prices have been partially offset by the stronger US dollar.

 

"In the quarter, we made an operating profit before exceptional items of €530 million including Aer Lingus.

 

"We're pleased to confirm that the Board is proposing a final dividend to shareholders of 10 euro cents per share, which brings the full year dividend to 20 euro cents, subject to shareholder approval at our AGM in June."

 

Trading outlook

 

In 2016, IAG expects to generate an absolute operating profit increase similar to 2015. Revenue trends in quarter 1 appear broadly in line with those experienced in quarter 4 2015.

 

 

 

 

 

Forward-looking statements:

Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

 

Forward-looking statements can typically be identified by the use of forward-looking terminology, such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" and include, without limitation, any projections relating to results of operations and financial conditions of International Consolidated Airlines Group S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditures and divestments relating to the Group and discussions of the Group's Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2014; these documents are available on www.iagshares.com.

 

IAG Investor Relations

2 World Business Centre Heathrow

Newall Road, London Heathrow Airport

HOUNSLOW TW6 2SF

 

Tel: +44 (0)208 564 2900

Investor.relations@iairgroup.com



 

 CONSOLIDATED INCOME STATEMENT


  




  

  



  




  

Year to December 31


 € million

Before

exceptional

items

Exceptional

items

Total

2015

Before

exceptional

items

Exceptional

items

Total

2014

Higher/

(lower)

2015

2014

  

  



  




 Passenger revenue

20,350 


20,350 

17,825 

 

17,825 

14.2 %

 Cargo revenue

1,024 

 

1,024 

992 

 

992 

3.2 %

 Other revenue

1,484 

 

1,484 

1,353 

 

1,353 

9.7 %

 Total revenue

22,858 

 

22,858 

20,170 

 

20,170 

13.3 %

  

  



  




 Employee costs

4,905 

 

4,905 

4,325 

260 

4,585 

13.4 %

 Fuel, oil costs and emissions charges

6,082 

(51)

6,031 

5,987 

 

5,987 

1.6 %

 Handling, catering and other operating costs

2,371 

 

2,371 

2,063 

 

2,063 

14.9 %

 Landing fees and en-route charges

1,882 

 

1,882 

1,555 

 

1,555 

21.0 %

 Engineering and other aircraft costs

1,395 

 

1,395 

1,276 

 

1,276 

9.3 %

 Property, IT and other costs

965 

68 

1,033 

927 

 

927 

4.1 %

 Selling costs

912 

 

912 

859 

 

859 

6.2 %

 Depreciation, amortisation and impairment

1,307 

 

1,307 

1,196 

(79)

1,117 

9.3 %

 Aircraft operating lease costs

659 

 

659 

551 

 

551 

19.6 %

 Currency differences

45 

 

45 

41 

180 

221 

9.8 %

 Total expenditure on operations

20,523 

17 

20,540 

18,780 

361 

19,141 

9.3 %

 Operating profit

2,335 

(17)

2,318 

1,390 

(361)

1,029 

68.0 %

 Net non-operating costs

(517)

 

(517)

(284)

83 

(201)

82.0 %

 Profit before tax

1,818 

(17)

1,801 

1,106 

(278)

828 

64.4 %

 Tax

(279)

(6)

(285)

(238)

413 

175 

17.2 %

 Profit after tax for the year

1,539 

(23)

1,516 

868 

135 

1,003 

77.3 %

  

  



  




 Operating figures

2015 (1)



2014 (1)



Higher/ (lower)

 Available seat kilometres (ASK million)

272,702 



251,931 



8.2 %

 Revenue passenger kilometres (RPK million)

221,996 



202,562 



9.6 %

 Seat factor (per cent)

81.4 



80.4 



1pt

 Cargo tonne kilometres (CTK million)

5,293 



5,453 



(2.9)%

 Passenger numbers (thousands)

88,333 



77,334 



14.2 %

 Tonnes of cargo carried (thousands)

874 



897 



(2.6)%

 Sectors

660,438 



599,624 



10.1 %

 Block hours (hours)

1,867,905 



1,712,506 



9.1 %

 Average manpower equivalent

60,862 



59,484 



2.4 %

 Aircraft in service

529 



459 



15.3 %

 Passenger revenue per RPK (€ cents)

9.17 



8.80 



4.2 %

 Passenger unit revenue per ASK (€ cents)

7.46 



7.08 



5.4 %

 Cargo revenue per CTK (€ cents)

19.35 



18.19 



6.4 %

 Fuel cost per ASK (€ cents)

2.23 



2.38 



(6.3)%

 Non-fuel unit costs per ASK (€ cents)

5.30 



5.08 



4.3 %

 Total cost per ASK (€ cents)

7.53 



7.45 



1.1 %

  

  



  




(1)Financial ratios are before exceptional items.



 

 CONSOLIDATED INCOME STATEMENT


  


  


  

Three months to December 31


 € million

Before

exceptional

items

Exceptional

items

Total

2015

Before

exceptional

items

Exceptional

items

Total

2014

Higher/

(lower)

2015 

2014 

  

  



  


  


 Passenger revenue

5,090 

 

5,090 

4,390 

 

4,390 

15.9 %

 Cargo revenue

281 

 

281 

268 

 

268 

4.9 %

 Other revenue

368 

 

368 

357 

 

357 

3.1 %

 Total revenue

5,739 

 

5,739 

5,015 

 

5,015 

14.4 %

  

  



  


  


 Employee costs

1,306 

 

1,306 

1,143 

260 

1,403 

14.3 %

 Fuel, oil costs and emissions charges

1,429 

(27)

1,402 

1,470 

 

1,470 

(2.8)%

 Handling, catering and other operating costs

656 

 

656 

521 

 

521 

25.9 %

 Landing fees and en-route charges

495 

 

495 

370 

 

370 

33.8 %

 Engineering and other aircraft costs

306 

 

306 

338 

 

338 

(9.5)%

 Property, IT and other costs

254 

260 

229 

 

229 

10.9 %

 Selling costs

216 

 

216 

189 

 

189 

14.3 %

 Depreciation, amortisation and impairment

370 

 

370 

326 

(79)

247 

13.5 %

 Aircraft operating lease costs

178 

 

178 

146 

 

146 

21.9 %

 Currency differences

(1)

 

(1)

23 

98 

121 

(104.3)%

 Total expenditure on operations

5,209 

(21)

5,188 

4,755 

279 

5,034 

9.5 %

 Operating profit

530 

21 

551 

260 

(279)

(19)

103.8 %

 Net non-operating costs

(268)

 

(268)

(106)

53 

(53)

152.8 %

 Profit before tax

262 

21 

283 

154 

(226)

(72)

70.1 %

 Tax

62 

(9)

53 

(16)

397 

381 

(487.5)%

 Profit after tax for the period

324 

12 

336 

138 

171 

309 

134.8 %

  

  



  


  


  

  



  


  


 Operating figures

2015 (1)



2014 (1)


  

Higher/ (lower)

 Available seat kilometres (ASK million)

69,321  



61,697  


  

12.4 %

 Revenue passenger kilometres (RPK million)

55,849  



49,025  


  

13.9 %

 Seat factor (per cent)

80.6  



79.5  


  

1.1pts

 Cargo tonne kilometres (CTK million)

1,417  



1,430  


  

(0.9)%

 Passenger numbers (thousands)

22,131  



18,427  


  

20.1 %

 Tonnes of cargo carried (thousands)

236  



236  


  

0.0 %

 Sectors

166,701  



143,987  


  

15.8 %

 Block hours (hours)

472,624  



413,669  


  

14.3 %

 Average manpower equivalent

63,496  



58,814  


  

8.0 %

 Passenger revenue per RPK (€ cents)

9.11  



8.95  


  

1.8 %

 Passenger unit revenue per ASK (€ cents)

7.34  



7.12  


  

3.1 %

 Cargo revenue per CTK (€ cents)

19.83  



18.74  


  

5.8 %

 Fuel cost per ASK (€ cents)

2.06  



2.38  


  

(13.4)%

 Non-fuel unit costs per ASK (€ cents)

5.45  



5.32  


  

2.4 %

 Total cost per ASK (€ cents)

7.51  



7.71  


  

(2.6)%

  

(1)Financial ratios are before exceptional items.



 

Financial review:

 

IATA market growths

The air traffic industry performed well benefiting from lower fuel unit costs and reasonable demand growth, despite some softening in the global economic environment. Overall, North America and Europe were the strongest markets, while Africa was impacted by lower fuel prices and Latin America was impacted by weaker currencies in areas such as Brazil and Argentina.

The market growth trend for the industry in 2015 was strong, with a passenger load factor improvement of 0.5 points on a capacity increase of 5.9 per cent. Volumes increased on additional capacity in all regions with passenger load factor improvements except the Middle East which saw a significant increase in market capacity.

 

Year to December 31, 2015

Capacity ASKs

Passenger load factor

Higher/ (lower)

Europe

3.8%

 82.6

1.0 pts

North America

3.1%

 81.8

0.1 pts

Latin America

9.2%

 80.1

0.1 pts

Africa

1.5%

 68.5

1.0 pts

Middle East

13.2%

 76.4

(1.7) pts

Asia Pacific

6.4%

 78.2

1.3 pts

Total market

5.9%

79.7

0.5 pts

Source: IATA Air Passenger Market analysis

IAG capacity

In 2015, IAG increased capacity, measured in available seat kilometres (ASKs) by 8.2 per cent or 5.0 per cent excluding Aer Lingus. With the exception of Africa, Middle East and South Asia, IAG capacity was increased across all regions, reflecting:

·      Acquisition of Aer Lingus on August 18;

·      Continued expansion at Vueling;

·      Restoration of routes as part of Iberia's Plan de Futuro; and

·      New destinations, shorthaul seat densification and larger aircraft at British Airways.

IAG Passenger load factor was 81.4 per cent which was higher than the IATA average of 79.7 per cent and one point higher than last year.

 

Year to December 31, 2015

ASKs higher/(lower)

Passenger load factor

Higher/ (lower)

Domestic

7.7%

78.2

0.9 pts

Europe

20.5%

79.1

1.0 pts

North America

5.3%

84.0

0.9 pts

Latin America and Caribbean

7.6%

83.1

1.7 pts

Africa, Middle East
and South Asia

(3.0%)

78.6

0.7 pts

Asia Pacific

9.0%

83.2

1.1 pts

Total network

8.2%

81.4

1.0 pts

 

Market segments

While the Domestic and European markets were very competitive our passenger load factors improved in both regions, but remain still lower than the European average reported by IATA, influenced by the higher dependency of our shorthaul fleet on connectivity and stronger seasonality of our networks.

North America continues to represent the largest part of the IAG network and with the highest passenger load factor. Excluding Aer Lingus, capacity was flat year over year, with a slight decrease at British Airways impacted by the introduction of new fleet such as the Boeing 787 and Airbus A380, offsetting an increase at Iberia from additional capacity to Miami, New York and Los Angeles. IAG passenger load factor for North America improved 0.9 points, ahead of the year over year increase reported by IATA.

Latin America and Caribbean capacity increase reflects additional frequencies to Mexico by both British Airways and Iberia. Iberia has three additional destinations: Cali, Medellin and Havana. Passenger load factor in this region increased and was three points ahead of the industry average.

Africa, Middle East and South Asia decrease is driven by reductions in North and West Africa due to weaker demand resulting from falling fuel prices, political unrest and Ebola. Flying was ceased to Entebbe by British Airways, and reduced in Senegal and Gambia by Vueling. Additional capacity was deployed to South Africa and new services launched to Ghana and Cape Verde. Passenger load factor improved 0.7 points.

In Asia Pacific, the capacity increase is driven by the full year impact of up gauging last year to Hong Kong with the Airbus A380, Hyderabad and Chennai. In 2015, a direct flight to Kuala Lumpur was added and the Singapore and Haneda routes were expanded. Passenger load factors increased to 83.2, the second highest region on the IAG network.

Acquisitions

The 2015 performance includes Aer Lingus from August 18, 2015. Since the acquisition date, Aer Lingus contributed 3.2 points of the Group's 8.2 point capacity increase, €622 million (3 per cent) in revenues and €35 million (1.5 per cent) before exceptional items in operating profit. The following review includes these results, the comparative period excludes Aer Lingus.

Revenue

Passenger revenue

Passenger revenue for the Group rose 14.2 per cent for the year on a capacity increase of 8.2 per cent, benefiting from the stronger pound sterling and US dollar.

At constant currency ('ccy') and excluding Aer Lingus, passenger unit revenue decreased 3.7 per cent. This decrease in passenger unit revenues was from lower yields (passenger revenue/revenue passenger kilometre) partially offset by a 1.0 point improvement in load factors.

The passenger unit revenue reduction follows a pattern of industry growth in a falling fuel cost environment, allowing the airlines to increase margins despite lowering fares.

At ccy, passenger yields were down at British Airways and Iberia with pressure on fares from lower fuel prices particularly on oil related routes. Lower yields were also noted from economic uncertainty and weakening of currencies throughout Latin America, Africa and the Middle East. At the same time revenue performance still remained strongest in our main key market, North Atlantic. At Vueling yield pressure was less prominent, down 1.5 per cent, reflecting its relative strength in its domestic market. Aer Lingus yield improved since acquisition with a strong performance across the North Atlantic. Together, the Group carried 88 million passengers, an increase of 11 million from 2014, with passenger load factor improvement across all four carriers.

Cargo revenue

The airfreight industry experienced another challenging year with capacity exceeding demand. IAG Cargo continued its focus on strategic partnerships, with an increase in its capacity share agreement with Qatar Airways and a new agreement with Finnair cargo. Cargo volume measured in tonne kilometres (CTK) decreased 2.9 per cent with a reduction in yield of 3.9 per cent at ccy. Despite a decrease in CTKs, IAG Cargo grew its volumes in Constant Climate and Prioritise premium products improving its net contribution to the Group.

Other revenue

Other revenue includes the BA Holidays programme, third party maintenance and third party handling. Excluding currency, other revenue improved 2.5 per cent, primarily from an increase in activity at BA Holidays partially offset by a decrease in third party activity.

Revenue

 


Higher/(lower)

€ million

2015

Year over year

 Per ASK at ccy

Passenger revenue

20,350

14.2%

(3.5%)

Cargo revenue

1,024

3.2%


Other revenue

1,484

9.7%


Total revenue

22,858

13.3%

(4.1%)

 

Expenditure before exceptional items

Employee costs

Following sterling and dollar strength, employee costs rose 13.4 per cent. At ccy, and on a unit basis employee costs are down 3.5 per cent. The Group employed an average of 60,862 people (measured in average manpower equivalent 'MPE'), an increase of 2.3 per cent versus last year. Excluding Aer Lingus, average MPEs are down 0.6 per cent on 5 per cent ASK growth. Increases were primarily from Vueling growth offset by headcount reductions flowing through from Iberia's Mediation Agreement. Employee unit costs improved at Iberia from the reduction in employees in addition to growth. British Airways employee unit costs increase slightly from salary awards and pension costs. Vueling also sees higher unit costs with the crew collective agreement and the impacts associated with opening international bases, increasing allowances and overnight costs. Productivity increased 5.8 per cent for the Group, with improvements at each airline.

Employee costs

 


Higher/(lower)

€ million

2015

Year over year

Per ASK at ccy

Employee costs

4,905

13.4%

3.5%

 

 

 

 

 

 

Productivity

 


Higher/(lower)

 

€ million

2015

Year over year

Productivity

4,481

5.8%

Average manpower equivalent

60,862

2.3%

 

Fuel, oil and emissions costs

Total fuel costs for the year increased by 1.6 per cent. At ccy, and on a unit basis fuel costs are down 17.2 per cent from lower fuel prices net of hedging, and from improved unit consumption. The foreign exchange impact on fuel costs, net of hedging was adverse c. 12 percentage points for the Group, against the pound sterling and the euro. Fuel unit costs were reduced 6.3 per cent in euro terms. Consumption improved c. 2 percentage points with new generation aircraft and improved operational procedures.

Fuel costs

 

 


Higher/(lower)

€ million

2015

Year over year

Per ASK at ccy

Fuel, oil and emissions costs

6,082

1.6%

17.2%

 

Supplier costs

Total supplier costs for the year rose by 12.6 per cent. At ccy and on a unit basis, supplier costs were reduced by 4.5 per cent. The supplier unit cost improvement reflects the strong airline cost performance and continued benefits from the Group initiatives, including GBS procurement, synergies and maintenance.

 

Supplier costs

 


Higher/(lower)

€ million

2015

Year over year

Per ASK at ccy

Supplier costs:



4.5%

Handling, catering and other operating costs

2,371

14.9%


Landing fees and en-route charges

1,882

21.0%


Engineering and other aircraft costs

1,395

9.3%


Property, IT and other costs

965

4.1%


Selling costs

912

6.2%


Currency differences

45



 

By supplier cost category

Handling, catering and other operating costs rose 5.6 per cent at ccy reflecting additional BA Holiday activity (c. 3 points), higher number of passengers carried and inflationary price increases. These factors were partially offset by an improvement in operations year over year, which reduced costs related to disruption.

Landing fees and en-route charges were higher by 15.2 per cent at ccy. Excluding Aer Lingus1, the increase was 7.3 per cent, due to additional flying hours, with sectors flown up and a marginal average inflationary price rise.

Engineering and other aircraft costs were down 3.7 per cent excluding currency impacts. During the year a €35 million credit was recognised with the renegotiation of engine manufacturer contracts; by contrast, in the prior year, a €28 million provision for the obsolescence of spare parts was recorded (c. 5 point year over year improvement). The underlying movement reflects more aircraft and higher flying hours, partially offset by less third party maintenance.

Property, IT and other costs are down 4.4 per cent excluding currency due to cost improvements including IT initiatives and one-time benefits.

Selling costs decreased 2.3 per cent excluding currency. Additional costs were incurred related to higher passenger numbers and from initiatives in new markets, offset by lower commissions paid and improvements in supplier contract terms.

 

 

1 The impact of Aer Lingus was significant on Landing fees and en-route charges from its shorter stage length, with proportionally higher block hours and sectors than the Group's.     

 

Ownership costs

The Group's ownership costs were up 12.5 per cent, with 9 points of adverse currency. During the year the Group reviewed the useful lives and residual values of its fleet, realigning by aircraft type and to each airline's retirement plan. The principal impact was accelerated depreciation of Iberia's owned Airbus A340-300 fleet, extending the useful lives of British Airways Boeing 777 fleet and adjustments to the Airbus A320 fleet, with a total net credit of €36 million. The underlying rise in ownership costs reflects new replacement aircraft and an increase in total fleet.

 

Ownership costs

 


Higher/(lower)

€ million

2015

Year over year

Per ASK at ccy

Ownership costs

1,966

12.5%

4.3%

 

Number of fleet

 


Higher/(lower)

 


2015

Year over year

Shorthaul

351

20.6%

Longhaul

178

6.0%


529

15.3%

 

Operating profit

 

The Group's operating profit, before exceptional items, for the year was €2,335 million, a €945 million improvement from last year. This increase reflects the Group's drive towards achieving a competitive cost base with improved productivity and non-fuel cost savings. The macro economic environment was challenging, impacting passenger unit revenues but improving total unit costs and generating a net currency benefit. Our adjusted operating margin improved by 3.4 points to 11.2 per cent.

 

 

 

British Airways

 

British Airways operating profit was £1,375 million, a £400 million improvement over prior year on capacity increase of 2.0 per cent. Progress in the year was based on non-fuel unit cost improvements and from fuel benefits partially offset by weaker yields including on oil related routes.

In pound sterling terms, approximately half of the passenger revenue weakness was offset through non-fuel unit cost savings. Non-fuel unit cost savings were achieved in supplier contract terms, including maintenance and through IT initiatives. British Airways' adjusted operating margin improved 3.7 points to 12.2 per cent.

Aer Lingus

 

For the full year, Aer Lingus operating profit was €124 million. Excluding exceptional items*, an improvement of €72 million over last year. Capacity was increased 5.4 per cent, primarily in the longhaul.

In euro terms and influenced by a strong US dollar, Aer Lingus increased its unit revenues by 4.8 per cent with both yield and seat factor improvements. The strong dollar was also partially responsible for a lower fuel unit cost saving and for the 3.1 per cent increase in non-fuel unit costs. Efficiencies were achieved, particularly in employee unit costs.

Overall Aer Lingus improved its adjusted operating margin by 2.9 points to 8.9 per cent.

 

 


British Airways
£ million


Aer Lingus
€ million


2015

Higher/(lower)


2015

Higher/(lower)

ASKs

174,274

2.0%


21,476

5.4%

Seat factor (per cent)

81.5

0.5pts


81.6

2.6pts







Passenger revenue

10,279

(1.7%)


1,628

11.3%

Cargo revenue

547

(8.5%)


53

12.8%

Other revenue

772

15.4%


37

(19.6%)

Total revenue

11,598

(1.0%)


1,718

10.4%

Fuel, oil costs and emissions charges

3,030

(13.8%)


388

4.0%

Employee costs

2,516

2.2%


331

2.8%

Supplier costs

3,800

(1.5%)


715

11.4%

EBITDAR

2,252

19.4%


284

29.7%

Ownership costs

877

(3.7%)


160

8.8%

Operating profit before exceptional items

1,375

41.0%


124

72.2%

Adjusted operating margin

12.2%

3.7pts


8.9%

2.9pts







Passenger yield (£ pence or € cents/RPK)

7.24

(4.1%)


9.29

2.2%

Unit passenger revenue (£ pence or € cents/ASK)

5.90

(3.6%)


7.58

5.6%

Total unit revenue (£ pence or € cents/ASK)

6.66

(2.9%)


8.00

4.8%

Fuel unit cost (£ pence or € cents/ASK)

1.74

(15.5%)


1.81

(1.1%)

Non-fuel unit costs (£ pence or € cents/ASK)

4.13

(2.4%)


5.62

3.1%

Total unit cost (£ pence or € cents/ASK)

5.87

(6.7%)


7.42

1.9%

      

 

 

*  Aer Lingus 2014 comparative results exclude the cost of pension settlement which is considered exceptional in nature.

Iberia

 

Iberia's operating profit was €247 million, up €197 million versus last year, achieving an adjusted operating margin of 7.0 per cent. Iberia made significant progress on its Plan de Futuro, improving its cost base and recovering routes previously withdrawn. Capacity for the year was up 10.2 per cent, with a flat unit revenue performance in euro terms, driven by currency benefits from a weak euro and improvements in seat factor. On the cost side, non-fuel unit costs improve with substantial employee cost savings from lower MPEs and through supplier initiatives, including finance and IT.

 

The turnaround of Iberia is leading to a profitable and efficient new airline capable of growing in its strategic markets and starting to achieve positive returns for the Group with a positive profit after tax of €155 million*.

 

Vueling

 

Vueling's operating profit was €160 million with an adjusted operating margin of 11.7 per cent, up 0.2 points versus last year. Vueling continued to expand its network increasing capacity by 14.2 per cent while maintaining unit revenues broadly flat, a strong revenue performance. Non-fuel unit costs were adverse, impacted by the crew collective agreement signed in 2014, allowances attributed to the opening of new bases and additional aircraft. Supplier unit costs improved and 2015 also saw further progress on fleet flexibility and harmonisation.

 

Vueling continues to be the low cost carrier growth tool for the Group, expanding its network at a higher rate and increasing its presence in the intra-European point to point traffic in areas such as Rome and Paris. Even with this ambitious growth Vueling achieved one of the highest RoICs of the Group.

 


Iberia
€ million


Vueling
€ million


2015

Higher/(lower)


2015

Higher/(lower)

ASKs

59,872

10.2%


30,476

14.2%

Seat factor (per cent)

81.1

2.5pts


81.3

0.9pts







Passenger revenue

3,561

12.1%


1,962

13.7%

Cargo revenue

253

0.0%


-

-

Other revenue

950

13.5%


-

-

Total revenue

4,764

11.6%


1,962

13.7%

Fuel, oil costs and emissions charges

1,249

8.0%


533

9.2%

Employee costs

1,021

(1.4%)


189

21.2%

Supplier costs

1,774

12.6%


854

13.1%

EBITDAR

720

43.4%


386

18.4%

Ownership costs

473

4.6%


226

22.2%

Operating profit before exceptional items

247

394.0%


160

13.5%

Adjusted operating margin

7.0%

3.5pts


11.7%

0.2pts







Passenger yield (€ cents/RPK)

7.33

(1.6%)


7.92

(1.5%)

Unit passenger revenue (€ cents/ASK)

5.95

1.7%


6.44

(0.3%)

Total unit revenue (€ cents/ASK)

7.96

1.3%


6.44

(0.3%)

Fuel unit cost (€ cents/ASK)

2.09

(1.9%)


1.75

(4.4%)

Non-fuel unit costs (€ cents/ASK)

5.46

(3.2%)


4.16

1.2%

Total unit cost (€ cents/ASK)

7.55

(2.7%)


5.91

(0.5%)

 

 

 

 

*  Excludes intragroup dividends received and profit on the sale of the Iberia plus (to Avios).

 

Exchange impact before exceptional items

Exchange rate movements are calculated by retranslating current year results as though they had been generated at prior year exchange rates. The reported results are impacted by translation currency from converting results from currencies other than euro to the Group's reporting currency of euro. From a transaction perspective, the Group performance is impacted by the fluctuation of exchange rates, primarily pound sterling, euro and US dollar. The Group exchange rates used and the estimated impact of translation and transaction exchange rates on operating profit before exceptional items are set out as follows. At constant currency, the Group's operating profit before exceptional items would have been €2,246 million, €89 million lower than the reported result.

The Group hedges its transaction exposures but not any potential impact from translation.

 

€ million

Higher/ (lower)

Reported revenue


Translation impact

1,652

Transaction impact

265

Total exchange impact on revenue

1,917



Reported operating expenditure


Translation impact

(1,441)

Transaction impact

(387)

Total exchange impact on operating expenditures

(1,828)



Reported operating profit


Translation impact

211

Transaction impact

(122)

Total exchange impact on operating profit

89

 


2015

Higher/ (lower)

Translation



£ to €

1.37

7.9%

Transaction



£ to €

1.37

10.5%

€ to $

1.12

(16.4%)

£ to $

1.54

(6.7%)

 

Exceptional items

For a full list of exceptional items, refer to note 5 of the Financial statements. Below is a summary of the significant exceptional items recorded.

In 2015, net exceptional charges at the operating profit level were €17 million (2014: €361 million). The exceptional charges included in Property, IT and other relate to the Aer Lingus acquisition costs of €33 million and a legal settlement at British Airways from the 2006 cargo cartel claim. The exceptional credit in Fuel, oil and emissions reflects the impact of recording Aer Lingus fuel cost at the hedged price in the pre-exceptional column, rather than at spot price as in the reported column.

In 2014, exceptional charges were recognised relating to the restructuring provision of €260 million, a currency charge of €180 million, impairment reversal of €79 million, gain on sale of €83 million and deferred tax credit of €413 million.

Non-operating costs

Net non-operating costs after exceptional items were €517 million, up from €201 million last year. The increase is due to:

·      €120 million additional losses partially unrealised on derivative instruments not qualifying for hedge accounting; and

·      €75 million incremental net financing costs, including the debt raised for the acquisition of Aer Lingus and from the translation of sterling financing costs.

Taxation

The great majority of the Group's activities are taxed in the countries of effective management of the main airline operations (UK, Spain or Ireland, with corporation tax rates during 2015 of 20.25 per cent, 28 per cent and 12.5 per cent respectively). The Group's effective tax rate for the year is 20 per cent (2014: 22 per cent).

Although the Group continues to offset prior year tax losses and other tax assets against its current year taxable profit, in 2015 the Group paid corporation taxes of €245 million (2014: €118 million). This represents 13.6 per cent (2014: 14.3 per cent) of the Group's accounting profit before tax.

 

 

Profit after tax and Earnings per share (EPS)

Profit after tax before exceptional items was €1,539 million, up 77.3 per cent. The increase reflects a strong operating profit performance. Diluted earnings per share before exceptional items is one of our key performance indicators and increased by 77.6 per cent.

Dividends

The Board is proposing a final dividend to shareholders of 10 euro cents per share, which brings the full year dividend to 20 euro cents per share. The final dividend will be paid, subject to shareholder approval, on July 4, 2016 to shareholders on the register on July 1, 2016.

Liquidity and capital resources

The Group's equity free cash flow improvement in 2015 was in part due to the increase in EBITDA from stronger operating results and secondly from lower capital expenditure ('CAPEX') spend.

In 2014, the Group's CAPEX reflected a significant level of investment, in excess of a typical year and the Group's target of less than €2.5 billion. This was due primarily to the timing of aircraft delivery payments. In 2015, the Group took delivery of nine new aircraft, two Airbus A380s, five Boeing 787-900s, one Airbus A320 and one Embraer E-190.

The use of cash in working capital reflects higher prepayments including fuel, a reduction in payables primarily from lower fuel prices, and a seasonality impact from the timing of the addition of Aer Lingus.

Pension and restructuring payments increased from the Iberia restructuring plan and from foreign exchange.

The acquisition of Aer Lingus net of its cash and deposits was a cash outflow of €438 million. In contrast, in 2014 funds were received from the sale of Amadeus.

Financing and refinancing are discussed in the following section.

Adequate cash levels are maintained by each operating company. The cash balance increased by €912 million versus last year.

€ million

2015

2014

EBITDAR before exceptional

4,301

3,137

Aircraft lease costs ('rentals')

(659)

(551)

EBITDA

3,642

2,586

Interest

(197)

(159)

Tax

(245)

(118)

Capex

(2,040)

(2,622)

Equity free cash flow

1,160

(313)

Movement in working capital and other non-cash

(658)

(150)

Pension and restructuring

(588)

(457)

Acquisition of subsidiary (net of cash and deposits) / divestment of investment

(438)

589

Dividend paid

(163)

-

Net financing and refinancing

1,067

1,000

Other investing movements

366

455

Other financing movements

(184)

(43)

Cash in flow

562

1,081

Opening cash, cash equivalents and interest bearing deposits

4,944

3,633

Net foreign exchange differences

350

230

Cash and cash equivalents and other interest-bearing deposits

5,856

4,944

 

€ million

2015

2014

British Airways

2,806

3,206

Iberia

832

870

Aer Lingus

772

-

Vueling

633

651

IAG and other Group companies

813

217

Cash and cash equivalents and interest-bearing deposits

5,856

4,944

 

Net debt and adjusted net debt

€ million

2015

2014

Higher / (lower)

Debt

(6,617)

(5,122)

(1,495)

Cash and cash equivalents and interest bearing deposits

4,944

3,633

1,311

Net debt at January 1

(1,673)

(1,489)

(184)

Increase in cash net of exchange

-

1,311

(1,311)

Net cash outflow from repayments of debt and lease financing

1,026

1,009

17

New borrowings and finance leases

(905)

(2,009)

1,104

Increase in net debt from regular financing

121

(1,000)

1,121

Debt acquired

(406)

-

(406)

Cash and cash equivalents and interest bearing deposits acquired

913

-

913

Net debt through Business combination

507

-

507

Financing raised for acquisition

(1,087)

-

(1,087)

Exchange and other non-cash movements

(642)

(495)

(147)

Net debt at December 31

(2,774)

(1,673)

(1,101)

Capitalised aircraft lease costs

(5,736)

(4,408)

(1,328)

Adjusted net debt at December 31

(8,510)

(6,081)

(2,429)

 

Capital risk management

 

IAG's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, to maintain an optimal capital structure in order to optimise the cost of capital and to provide future returns to shareholders. The Group monitors capital using adjusted gearing and adjusted net debt to EBITDAR.

 

Cash net of exchange was flat versus last year including the payment of an interim dividend and partial financing of the Group's acquisition of Aer Lingus. Regular net refinancing was broadly balanced with a slight decrease in debt of €121 million.

 

The Group's regular net debt reduced by €507 million from the addition of Aer Lingus, reflecting its strong cash position and its mix of operating versus financing leases.

 

IAG launched two tranches of convertible bonds totalling €1 billion to finance the Aer Lingus acquisition, of which €118 million is recognised as equity.

 

Capitalised aircraft lease costs rose from the addition of Aer Lingus and from an increase in leased aircraft at British Airways.

 

Adjusted net debt rose to €8,510 million, however financial headroom improved as adjusted net debt to EBITDAR remained flat at 1.9 times.

 

The Group generated sufficient equity free cash flow in 2015 to support the recommendation of an interim and final cash dividend of €407 million for its shareholders with equity free cash coverage of 2.8 times.

 

Capital commitments and off balance sheet arrangements

 

Capital expenditure authorised and contracted for amounted to €16,091 million (2014: €11,604 million) for the Group. The majority of this is in US dollars and includes commitments until 2022 for 118 aircraft from the Airbus A320 family, 29 Boeing 787s, 43 Airbus A350s, 14 Airbus A330s and 2 Airbus A380s.

 

IAG does not have any other off-balance sheet financing arrangements.

 

 

  

 

 

Strategic framework

Our mission is to be the leading international airline Group. This means we will:

 

·      win the customer through service and value across our global network;

·      deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;

·      attract and develop the best people in the industry;

·      provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;

·      retain the distinct cultures and brands of individual airlines.

 

By accomplishing our mission, IAG will help to shape the future of the industry, set new standards of excellence and provide sustainability, security and growth.

 

IAG's six core strategic objectives are:

·      Leadership in IAG's main cities;

·      Leadership across the Atlantic;

·      Stronger Europe-to-Asia position in critical markets;

·      Grow share of Europe-to-Africa routes;

·      Stronger intra-Europe profitability; and

·      Competitive cost positions across our businesses.

 

Principal risks and uncertainties

During the year we have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 87 to 93 of the Annual Report and Accounts 2014, remain relevant. The economic conditions in our main markets remained robust in 2015 but there is more uncertainty as we move into 2016 with the combination of low commodity prices and reduced China growth impacting African and South American economies. We have also seen an increase in the risk of financial loss, disruption or damage to our reputation as the frequency and sophistication of cyber attacks on corporates increases; as a result we have increased the resources we devote to cyber defence.

   


 

 

 

 

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

 

Unaudited Full year Condensed Consolidated Financial Statements

January 1, 2015 - December 31, 2015

 

 

 

 

 

 

 

 

 


CONSOLIDATED INCOME STATEMENT









Year to December 31

€ million

Before

exceptional

items

2015

Exceptional

items

Total

2015


Before

exceptional

items

2014

Exceptional

items

Total

2014

Passenger revenue

20,350 


20,350 


17,825 


17,825 

Cargo revenue

1,024 


1,024 


992 


992 

Other revenue

1,484 


1,484 


1,353 


1,353 

Total revenue

22,858 


22,858 


20,170 


20,170 

Employee costs

4,905 


4,905 


4,325 

260 

4,585 

Fuel, oil costs and emissions charges

6,082 

(51)

6,031 


5,987 


5,987 

Handling, catering and other operating costs

2,371 


2,371 


2,063 


2,063 

Landing fees and en-route charges

1,882 


1,882 


1,555 


1,555 

Engineering and other aircraft costs

1,395 


1,395 


1,276 


1,276 

Property, IT and other costs

965 

68 

1,033 


927 


927 

Selling costs

912 


912 


859 


859 

Depreciation, amortisation and impairment

1,307 


1,307 


1,196 

(79)

1,117 

Aircraft operating lease costs

659 


659 


551 


551 

Currency differences

45 


45 


41 

180 

221 

Total expenditure on operations

20,523 

17 

20,540 


18,780 

361 

19,141 

Operating profit

2,335 

(17)

2,318 


1,390 

(361)

1,029 









Finance costs

(294)


(294)


(237)


(237)

Finance income

42 


42 


32 


32 

Net currency retranslation charges

(56)


(56)


(27)


(27)

Losses on derivatives not qualifying for hedge accounting

(170)


(170)


(49)


(49)

Net gain related to available-for-sale financial assets



10 

83 

93 

Share of profits in investments accounted for using the equity method




Loss on sale of property, plant and equipment and investments

(38)


(38)


(11)


(11)

Net financing charge relating to pensions

(12)


(12)


(4)


(4)

Profit before tax

1,818 

(17)

1,801 


1,106 

(278)

828 

Tax

(279)

(6)

(285)


(238)

413 

175 

Profit after tax for the year

1,539 

(23)

1,516 


868 

135 

1,003 









Attributable to:








Equity holders of the parent

1,518 


1,495 


847 


982 

Non-controlling interest

21 


21 


21 


21 


1,539 


1,516 


868 


1,003 

















Basic earnings per share (€ cents)

74.6 


73.5 


41.6 


48.2 

Diluted earnings per share (€ cents)

71.4 


70.4 


40.2 


46.4 


CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME










Year to December 31

€ million

2015 

2014 

Items that may be reclassified subsequently to net profit



Cash flow hedges:



   Fair value movements in equity

(1,104)

(1,235)

   Reclassified and reported in net profit

1,290 

357 

Available-for-sale financial assets:



   Fair value movements in equity

(9)

29 

   Reclassified and reported in net profit

(5)

(359)

Currency translation differences

181 

168 




Items that will not be reclassified to net profit



Remeasurements of post-employment benefit obligations

156 

(394)

Total other comprehensive income for the year, net of tax

509 

(1,434)

Profit after tax for the year

1,516 

1,003 

Total comprehensive income for the year

2,025 

(431)




Total comprehensive income is attributable to:



Equity holders of the parent

2,004 

(452)

Non-controlling interest

21 

21 


2,025 

(431)


Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.


CONSOLIDATED BALANCE SHEET



€ million

December 31, 2015

December 31, 2014

Non-current assets



Property, plant and equipment

13,672 

11,784 

Intangible assets

3,246 

2,438 

Investments accounted for using the equity method

41 

27 

Available-for-sale financial assets

74 

84 

Employee benefit assets

957 

855 

Derivative financial instruments

62 

80 

Deferred tax assets

723 

769 

Other non-current assets

365 

188 


19,140 

16,225 

Current assets



Non-current assets held for sale

18 

Inventories

520 

424 

Trade receivables

1,196 

1,252 

Other current assets

1,235 

602 

Current tax receivable

79 

Derivative financial instruments

198 

178 

Other current interest-bearing deposits

2,947 

3,416 

Cash and cash equivalents

2,909 

1,528 


9,089 

7,427 

Total assets

28,229 

23,652 




Shareholders' equity



Issued share capital

1,020 

1,020 

Share premium

5,867 

5,867 

Treasury shares

(113)

(6)

Other reserves

(1,548)

(3,396)

Total shareholders' equity

5,226 

3,485 

Non-controlling interest

308 

308 

Total equity

5,534 

3,793 

Non-current liabilities



Interest-bearing long-term borrowings

7,498 

5,904 

Employee benefit obligations

858 

1,324 

Deferred tax liability

419 

278 

Provisions for liabilities and charges

2,049 

1,967 

Derivative financial instruments

282 

359 

Other long-term liabilities

223 

226 


11,329 

10,058 

Current liabilities



Current portion of long-term borrowings

1,132 

713 

Trade and other payables

3,803 

3,281 

Deferred revenue on ticket sales

4,374 

3,933 

Derivative financial instruments

1,328 

1,313 

Current tax payable

124 

57 

Provisions for liabilities and charges

605 

504 


11,366 

9,801 

Total liabilities

22,695 

19,859 

Total equity and liabilities

28,229 

23,652 


CONSOLIDATED CASH FLOW STATEMENT



Year to December 31

€ million

2015 


2014 

Cash flows from operating activities




Operating profit

2,318 


1,029 

Depreciation, amortisation and impairment

1,307 


1,117 

Movement in working capital and other non-cash movements

(627)


205 

Payments related to restructuring (net of provision)

(154)


                    212

Employer contributions to pension schemes

(699)


(612)

Pension scheme service costs

265 


203 

Interest paid

(197)


(159)

Taxation

(245)


(118)

Net cash flows from operating activities from continuing operations

1,968 


1,877 

Net cash flows used in operating activities from discontinued operations


(15)

Net cash flows from operating activities

1,968 


1,862 





Cash flows from investing activities




Acquisition of property, plant and equipment and intangible assets

(2,040)


(2,622)

Sale of property, plant and equipment and intangible assets

273 


404 

Net proceeds from sale of investments


589 

Acquisition of subsidiary (net of cash acquired)

(1,146)


Interest received

48 


37 

Decrease/(increase) in other current interest-bearing deposits

1,436 


(1,352)

Dividends received


Other investing movements

30 


12 

Net cash flows from investing activities

(1,384)


(2,930)





Cash flows from financing activities




Net proceeds from long-term borrowings

2,757 


2,009 

Net proceeds from equity portion of convertible bond issued

101 


Repayment of borrowings

(954)


(223)

Repayment of finance leases

(837)


(786)

Acquisition of treasury shares

(163)


(23)

Distributions made to holders of perpetual securities and other

(21)


(20)

Dividend paid

(163)


Net cash flows from financing activities

720 


957 





Net increase/(decrease) in cash and cash equivalents

1,304 


(111)

Net foreign exchange differences

77 


98 

Cash and cash equivalents at 1 January

1,528 


1,541 

Cash and cash equivalents at year end

2,909 


1,528 





Interest-bearing deposits maturing after more than three months

2,947 


3,416 





Cash, cash equivalents and other interest-bearing deposits

5,856 


4,944 





At December 31, 2015 Aer Lingus held €49 million of restricted cash within interest-bearing deposits maturing after more than three months relating to the pension escrow.

 

At December 31, 2015 British Airways held €72 million equivalent of restricted cash in Nigeria.


 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY




   




  




 For the year to December 31, 2015


  




   




  




   

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

   

 € million  

 January 1, 2015

1,020 

5,867 

(6)

(3,396)

3,485 

308 

3,793 

   




  




 Total comprehensive income for the year (net of tax)

2,004 

2,004 

21 

2,025 

   




  




 Cost of share-based payments

45 

45 

45 

 Vesting of share-based payment schemes

56 

(99)

(43)

(43)

 Equity portion of convertible bond issued

101 

101 

101 

 Acquisition of treasury shares

(163)

(163)

(163)

 Dividend

(203)

(203)

(203)

 Dividend of a subsidiary

(1)

(1)

 Distributions made to holders of perpetual securities

(20)

(20)

 December 31, 2015

1,020 

5,867 

(113)

(1,548)

5,226 

308 

5,534 

   




  




(1)Closing balance includes retained earnings of €1,160 million (excluding pensions restatement: retained earnings of €3,209 million).

   




  




 For the year to December 31, 2014


  




   

Issued share capital

Share premium

Treasury shares

Other reserves(1)

Total shareholders' equity

Non-controlling interest

Total equity

   

 € million

 January 1, 2014

1,020 

5,867 

(42)

(2,936)

3,909 

307 

4,216 

   




  




 Total comprehensive income for the year (net of tax)

(452)

(452)

21 

(431)

   




  




 Cost of share-based payments

38 

38 

38 

 Vesting of share-based payment schemes

59 

(46)

13 

13 

 Acquisition of treasury shares

(23)

(23)

(23)

 Distributions made to holders of perpetual securities

(20)

(20)

 December 31, 2014

1,020 

5,867 

(6)

(3,396)

3,485 

308 

3,793 

   




  




(1)Closing balance includes a retained deficit of €234 million (excluding pensions restatement: retained earnings of €1,815 million).


 

1.             Corporate Information AND BASIS OF PREPARATION

 

International Consolidated Airlines Group S.A. (hereinafter 'International Airlines Group', 'IAG' or the 'Group') is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia 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 Group's full year condensed consolidated financial statements for the year to December 31, 2015 were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on February 25, 2016. The condensed financial statements herein are not the Company's statutory accounts and are unaudited. The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the condensed financial statements.

 

The basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2014 have been applied in the preparation of these condensed consolidated financial statements, except as disclosed in note 2. IAG's financial statements for the year to December 31, 2014 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 International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.

 

On August 18, 2015 the Group acquired 100 per cent of the issued ordinary share capital of Aer Lingus, for a total of €1,351 million.


 

2.             Accounting Policies

 

The Group has adopted the following standards, interpretations and amendments for the first time in the year to December 31, 2015:

 

IFRIC 21 'Levies'; effective for periods beginning on or after June 17, 2014. IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required for IFRIC 21. The application of this amendment had no impact on the Group's net profit or net assets.

Other amendments resulting from improvements to IFRSs did not have any impact on the accounting policies, financial position or performance of the Group. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.


 

3.             Business combination  

 

On August 18, 2015, the Group acquired 540,310,400 shares, representing 100 per cent of the issued ordinary share capital of Aer Lingus Group for €2.55 per share, comprising a cash payment of €2.50 per share and payment of a cash dividend by Aer Lingus of €0.05 per share (payable on May 29, 2015 to Aer Lingus shareholders on the register of members on May 1, 2015).

 

The acquisition will provide substantial benefits through an enhanced network, particularly to North America, using Dublin as a natural gateway hub for transatlantic routes.

 

Transaction costs related to the acquisition of Aer Lingus totalling €33 million were recognised within Property, IT and other costs in the Income statement for the year to December 31, 2015.

 

From August 18, 2015 Aer Lingus' contribution to the consolidated Group results was revenue of €622 million, and an operating profit of €32 million. Had Aer Lingus been consolidated from January 1, 2015, the Group would have reported total revenue of €23,955 million and an operating profit after exceptional items of €2,410 million for the year to December 31, 2015. At December 31, 2015 the fair value of the assets and liabilities acquired were provisional, pending the finalisation of the property, plant and equipment and landing rights valuation exercise.

 

The provisional fair values of the assets and liabilities arising from the acquisition are as follows:

 


€ million

Fair value


Property, plant and equipment

721 


Intangible assets



     Brand

110 


     Landing rights(1)

172 


     Other

40 


Other non-current assets

164 


  



Cash and cash equivalents

205 


Other current interest-bearing deposits

708 


Trade receivables(2)

54 


Other current assets

66 


  



Interest-bearing borrowings

(406)


Trade and other payables

(604)


Provision for liabilities and charges

(158)


Employee benefit obligations

(9)


Deferred tax liability

(35)


Net identifiable assets acquired

1,028 

 

(1)             For indefinite lived landing rights, see note 12.

(2)             The gross contractual amount for trade receivables is €55 million, 98 per cent of which is expected to be collected.

 


The goodwill is recognised as follows:



  

  


€ million

  


Cash consideration(1)

1,351 


Provisional fair value of identifiable net assets

1,028 


Provisional goodwill

323 

 

(1)             There is no deferred or contingent consideration.

 

None of the goodwill recognised is expected to be deductible for tax purposes.


 

 

 

4.             Exceptional items


  


Year to December 31


€ million


2015 

2014 


Business combination costs(1)


33 


Pre-acquisition cash flow hedge impact(2)


(51)


Litigation provision(3)


35 


Foreign currency loss(4)


180 


Restructuring costs - employee(5)


260 


Reversal of Iberia brand impairment(6)


(79)


Recognised in expenditure on operations


17 

361 


Gain on sale of investment(7)


(83)


Total exceptional charge before tax


17 

278 


Tax on exceptional items


(144)


Net deferred tax credit(8)


(269)


Total exceptional charge/(credit) after tax


23 

(135)

 

(1)        Business combination costs

Transaction expenses of €33 million were recognised in relation to the Aer Lingus Business combination in the year to December 31, 2015 (note 3).

 

(2)        Derivatives and financial instruments

On August 18, 2015, Aer Lingus had a portfolio of cash flow hedges related to fuel with a net mark-to-market charge of €99 million recorded within Other reserves on the Balance sheet. As these cash flow hedge positions unwind, Aer Lingus will recycle the impact from Other reserves.

The Group does not recognise the pre-acquisition cash flow hedge net position within Other reserves on the Balance sheet, resulting in fuel costs being gross of the pre-acquisition cash flow hedge positions. For the year to December 31, 2015 this has resulted in a decrease in reported fuel expense of €51 million and a related €6 million tax charge.

 

(3)        Litigation provision

The litigation provision represents the continuation of the civil claims brought against British Airways in 2006. This provision represents a settled case against British Airways in the cargo claim, for a total of €35 million. The final amount required to pay the remaining claims detailed in note 19 is subject to significant uncertainty.

 

In the year to December 31, 2014:

 

(4)        Foreign currency loss

Since December 2012 repatriation of funds from Venezuela has been limited. Throughout 2013, Iberia recognised net sales at 6.3 bolívares (CADIVI) to the US dollar. The unrepatriated cash at the end of 2013 was €184 million.

From February to October 2014, Iberia recognised net sales at 11 bolívares to the US dollar (SICAD I) since this was the official rate at which Iberia was authorised by the Venezuelan government to repatriate cash. In the third quarter of 2014, Iberia received funds for February to June 2014 at SICAD I and given the ongoing negotiations, the €184 million of unrepatriated funds from 2013 and January 2014 were also revalued to SICAD I. An exceptional charge of €82 million was recognised.

Iberia was unable to repatriate any further funds earned prior to February 2014 or subsequent to June 2014. Given this and combined with the lack of liquidity in Venezuela, the decrease in the Brent barrel price and a government recognised inflation rate of 65 per cent, Iberia determined that SICAD I could no longer be considered available in practice, for the repatriation of the funds. The next alternative rate available at December 31, 2014 was the SICAD II rate of 50 bolívares (Bs.) to the US dollar which Iberia considered to better reflect the economic reality. This rate was applied since November 2014. All remaining funds, which approximately amount to Bs 1.7 billion were revalued to SICAD II resulting in an additional exceptional charge of €98 million. The cash balance at December 31, 2014 was €18 million. A related tax credit of €54 million was recognised.

 

(5)        Restructuring costs

In the year to December 31, 2014, a restructuring expense of €260 million was recognised in relation to the Iberia Transformation Plan and the agreement on collective redundancies for pilots and ground staff. A related tax credit of €78 million was recognised.

 

 

 

 

 

 

 

4.             Exceptional items continued

(6)        Reversal of Iberia Brand impairment

In 2014, the partial impairment made in 2012 of the Iberia Brand of €79 million was reversed. This followed the approval of the five year Business plan including capacity growth and Iberia's return to profitability, which supported the reversal of the Brand impairment (note 12). A related tax charge of €24 million was recognised.

 

(7)        Gain on sale of investment

During the third quarter of 2014, Iberia entered into an agreement to settle its hedging transaction over its ownership interest in Amadeus IT Holding S.A. The derivative transaction comprised a collar arrangement on Iberia's Amadeus shareholding of 33,562,331 ordinary shares.

 

The settlement commenced in August 2014 and occurred in equal instalments over a 100 trading day period. At December 31, 2014 Iberia had settled 99 per cent of the transaction and the resulting €83 million gain was recognised in the Net credit related to available-for-sale financial assets line. A related €36 million tax credit was recognised.

 

(8)        Net deferred tax credit

In 2014, the Group recognised a €306 million deferred tax asset relating to losses incurred by Iberia from 2013 and 2012. Recognition is based on Management's expectation of the recoverability of these losses against future profits. Recoverability was based on the improved operating performance in the prior year and from the projections included within the Business plan.

During 2014, the Spanish government enacted a number of changes as part of the Spanish Tax Reform, including the phased reduction of corporation tax rate from 30 per cent to 25 per cent and a change in loss utilisation rules. This was the first tax rate change since 2008. A related tax charge of €37 million was also recognised.


 

5.             SEASONALITY

 

The Group's business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months.


 

6.             SEGMENT INFORMATION

 

a.             Business segments

 

British Airways, Iberia, Vueling and Aer Lingus are managed as individual operating companies. Each airline operates its network operations as a single business unit. 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. The IAG Management Committee makes resource allocation decisions 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. Therefore, based on the way the Group treats its businesses, and the manner in which resource allocation decisions are made, the Group has four (2014: three) reportable operating segments for financial reporting purposes, reported as British Airways, Iberia, Vueling and Aer Lingus. Other Group companies include head office companies.

 


For the year to December 31, 2015

2015 


€ million

British Airways

Iberia

Vueling

Aer Lingus

Other Group companies

Total


Revenue








External revenue

15,862 

4,412 

1,962 

622 

22,858 


Inter-segment revenue

53 

352 

145 

550 


Segment revenue

15,915 

4,764 

1,962 

622 

145 

23,408 










Depreciation, amortisation and impairment

(1,053)

(206)

(13)

(27)

(8)

(1,307)


Operating profit/(loss) before exceptional items

1,914 

247 

160 

35 

(21)

2,335 










Exceptional items (note 4)

(35)

(3)

21 

(17)


Operating profit after exceptional items

1,879 

247 

160 

32 

2,318 










Net non-operating costs






(517)


Profit before tax






1,801 












 

6.             SEGMENT INFORMATION continued

 

a.             Business segments

 


For the year to December 31, 2014


2014 


€ million


British Airways

Iberia

Vueling

Other Group companies

Total


Revenue







External revenue

14,456 

3,989 

1,725 

20,170 


Inter-segment revenue

37 

279 

107 

423 


Segment revenue

14,493 

4,268 

1,725 

107 

20,593 









Depreciation, amortisation and impairment

(1,027)

(76)

(11)

(3)

(1,117)


Operating profit/(loss) before exceptional items

1,215 

50 

141 

(16)

1,390 









Exceptional items (note 4)

(361)

(361)


Operating profit/(loss) after exceptional items

1,215 

(311)

141 

(16)

1,029 









Net non-operating costs





(201)


Profit before tax





828 



b.             Geographical analysis

 


Revenue by area of original sale






Year to December 31


€ million

2015 

2014 


UK

8,256 

6,931 


Spain

3,462 

3,203 


USA

3,447 

2,893 


Rest of world

7,693 

7,143 



22,858 

20,170 

 


Assets by area







December 31, 2015




€ million

Property, plant and equipment

Intangible assets


UK

11,112 

1,346 


Spain

1,798 

1,852 


USA

26 

14 


Rest of world

736 

34 


Total

13,672 

3,246 






December 31, 2014








€ million




UK

10,131 

1,184 


Spain

1,624 

1,218 


USA

24 

12 


Rest of world

24 


Total

11,784 

2,438 


 

7.             FINANCE COSTS AND INCOME

 



Year to December 31


€ million

2015 

2014 


Finance costs




Interest payable on bank and other loans, finance charges payable under finance leases

(276)

(211)


Unwinding of discount on provisions

(21)

(39)


Capitalised interest on progress payments


Change in fair value of cross currency swaps

(5)


Currency credits on financial fixed assets

16 


Total finance costs

(294)

(237)


Finance income




Interest on other interest-bearing deposits

42 

32 


Total finance income

42 

32 


Net charge relating to pensions




Net financing charge relating to pensions

(12)

(4)


Net financing charge relating to pensions

(12)

(4)


 

8.             Tax

 

The tax charge for the year to December 31, 2015 is €285 million (2014: €175 million credit), and the effective tax rate is 20 per cent.

 

Following announcements in the recent UK budget, legislation was enacted in the last quarter of the year reducing the UK rate of corporation tax to 19 per cent effective from April 1, 2017 and 18 per cent effective from April 1, 2020. The effect of the corporation tax rate reduction is a deferred tax credit of €83 million through the income statement.


 

9.             EARNINGS PER SHARE

 

The number of shares in issue at December 31, 2015 and 2014 was 2,040,078,523 ordinary shares with a par value of €0.50 each.

 



Year to December 31


Millions

2015 

2014 


Weighted average number of ordinary shares in issue

2,034 

2,036 


Weighted average number for diluted earnings per share

2,160 

2,162 







Year to December 31


€ cents

2015 

2014 


Basic earnings per share

73.5 

48.2 


Diluted earnings per share

70.4 

46.4 


 

10.           DIVIDENDS

 


€ million

2015 

2014 


Cash dividend declared




Interim dividend of 10 € cents per share

(203)






Proposed cash dividend




Final dividend of 10 € cents per share

(204)

 

The proposed dividend would consist of 5 € cents per share from net profit for the year to December 31, 2015 and 5 € cents per share from share premium.

Proposed dividends on ordinary shares are subject to approval at the annual general meeting and are not recognised as a liability at December 31, 2015.

 

 

11.           PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

 


€ million

Property, plant and equipment

Intangible assets


Net book value at January 1, 2015

11,784 

2,438 


Additions

1,937 

168 


Acquired through Business combination

721 

645 


Disposals

(248)

(36)


Reclassifications

(96)

12 


Depreciation, amortisation and impairment

(1,227)

(75)


Exchange movements

801 

94 


Net book value at December 31, 2015

13,672 

3,246 






€ million

Property, plant and equipment

Intangible assets


Net book value at January 1, 2014

10,228 

2,196 


Additions

2,499 

138 


Disposals

(404)


Depreciation, amortisation and impairment

(1,152)

(44)


Impairment reversal

79 


Exchange movements

613 

69 


Net book value at December 31, 2014

11,784 

2,438 

 

Capital expenditure authorised and contracted but not provided for in the accounts amounts to €16,091 million (December 31, 2014: €11,604 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates.


 

12.           IMPAIRMENT REVIEW

 

The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group are:


€ million

Goodwill

Landing rights

Brand

Customer loyalty programmes

Total


2015 







Iberia







January 1, 2015

423 

306 

253 

982 


Transfer to Avios

(253)

(253)


December 31, 2015

423 

306 

729 









British Airways







January 1, 2015

51 

840 

891


Exchange movements

61 

66 


December 31, 2015

56 

901 

957 









Vueling







January 1 and December 31, 2015

28 

89 

35 

152 









Aer Lingus







January 1, 2015


Additions due to Business combination

323 

62 

110 

495 


December 31, 2015

323 

62 

110 

495 









Avios







January 1, 2015


Transfer from Iberia

253 

253 


December 31, 2015

253 

253 









December 31, 2015

407 

1,475 

451 

253 

2,586 

 

 

 

12.           IMPAIRMENT REVIEW continued


€ million

Goodwill

Landing rights

Brand

Customer loyalty programmes

Total


2014 







Iberia







At January 1, 2014

-

423 

227 

253 

903 


Impairment reversal

-

-

79 

-

79 


December 31, 2014

-

423 

306 

253 

982 









British Airways







At January 1, 2014

48 

789 

-

-

837 


Additions

-

-

-


Exchange movements

50 

-

-

53 


December 31, 2014

51 

840 

-

-

891 









Vueling







At January 1 and December 31, 2014

28 

89 

35 

-

152 









December 31, 2014

79 

1,352 

341 

253 

2,025 

 

During the year to December 31, 2015 the Group acquired Aer Lingus, which has been identified as a CGU consistent with the other airlines in the Group. For the year to December 31, 2015 the Group did not conduct an impairment review for the Aer Lingus CGU as the fair value allocations were completed on a provisional basis (note 3). In the absence of any indicators of impairment, it is not considered necessary to carry out an impairment review at December 31, 2015 as goodwill and other intangible assets with indefinite life have been allocated on a provisional basis.

                          

Basis for calculating recoverable amount

The recoverable amounts of CGUs have been measured based on their value-in-use.

 

Value-in-use is calculated using a discounted cash flow model, with the royalty methodology used for brands. Cash flow projections are based on the Business plan approved by the Board covering a five year period. Cash flows extrapolated beyond the five year period are projected to increase based on long-term growth rates. Cash flow projections are discounted using the CGU's pre-tax discount rate.

 

Annually the Group prepares and approves five year business plans. Business plans were approved in the fourth quarter of the year. The business plan cash flows used in the value-in-use calculations reflect all restructuring of the business that has been approved by the Board and which can be executed by Management under existing agreements.

 

Key assumptions

For each of the airline CGUs the key assumptions used in the value-in-use calculations are as follows:

 


  

2015 


Per cent

British Airways

Iberia

Vueling


Lease adjusted operating margin

12-15

8-14

12-15


Average ASK growth per annum

2-3

7

10


Long-term growth rate

2.5

2.0

2.0


Pre-tax discount rate

8.6

9.7

10.3


  





  

2014 


Per cent

British Airways

Iberia

Vueling


Long-term growth rate

2.5

2.2

2.2


Pre-tax discount rate

10.0

10.2

12.5

 

Lease adjusted operating margin is the average annual operating result, adjusted for aircraft operating lease costs, as a percentage of revenue over the five year Business plan to 2020. It is presented within a percentage point range and is based on past performance, Management's expectation of the market development and incorporating risks into the cash flow estimates.

 

ASK growth is the average annual increase over the Business plan, based on past performance and Management's expectation of the market.

 

 

12.           IMPAIRMENT REVIEW continued

 

The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market using gross domestic product (GDP) (source: Oxford Economics/Haver Analytics). This is amended from time-to-time to reflect specific market risk.

 

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 its CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by airline investors and the cost of debt is broadly based on the Group's interest-bearing borrowings. CGU specific risk is incorporated by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows. The change in discount rate for 2015 reflects a reduction in risk free rates and lower financing costs.

 

The impairment test of the Avios CGU was based on a value-in-use calculation with a long-term growth rate assumption of 2.4 per cent and a pre-tax discount rate of 9.1 per cent.

 

Summary of results

In 2015, Management reviewed the recoverable amount of each of its CGUs with the exception of Aer Lingus and concluded the recoverable amounts exceeded the carrying values. As a result, no further tests of brands, customer loyalty programmes or landing rights were performed.

 

The impairment test of the Iberia brand was reassessed in 2014, given the excess of the Iberia CGU recoverable amount over its carrying value. The reassessment included determining the Iberia brand recoverable amount using the royalty methodology, with a royalty rate of 0.60 per cent. Using this methodology, the recoverable amount of the Iberia CGU was €6,400 million. Individually and in combination, the value-in-use tests of the Iberia CGU and of the Iberia Brand supported the reversal of the original €79 million impairment. In 2014, this was recorded as an exceptional credit within Depreciation, amortisation and impairment in the Income Statement.

 

Sensitivities

Additional sensitivities have been considered at the overall CGU level.

 

No reasonable possible change in the key assumptions for any of the Group's CGUs would cause the carrying amounts to exceed the recoverable amounts.


 

13.           NON-CURRENT ASSETS HELD FOR SALE

 

The non-current assets held for sale of €5 million represent three Boeing 737-400 airframes and nine Boeing 737-400 engines that have been stood down from use and are being marketed for sale. These are held at cost less accumulated depreciation and impairment. Total impairment charges recognised in the Income statement relating to these assets during the year was €5 million (2014: nil). These are presented within the British Airways operating segment and will exit the business within 12 months of December 31, 2015.

 

Assets held for sale with a net book value of €17 million were disposed of during the year to December 31, 2015, of which €11 million related to the sale of the remaining 0.075 per cent investment in Amadeus (which represented one settlement day outstanding) and resulted in a gain of €1 million, and €6 million related to the sale of five Boeing 737 engines, resulting in a loss of €4 million.

 

At December 31, 2014 the non-current assets held for sale of €18 million represented one settlement day outstanding for the remaining investment of 0.075 per cent in Amadeus (€11 million) and six Boeing 737 engines (€7 million). These were presented within the Iberia and British Airways segments respectively.


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.           FINANCIAL INSTRUMENTS

 

a.             Financial assets and liabilities by category

 

The detail of the Group's financial instruments at December 31, 2015 and December 31, 2014 by nature and classification for measurement purposes is as follows:

 

 


 December 31, 2015

Financial assets




 € million

Loans and receivables

Derivatives used for hedging

Available-for-sale

Non-financial assets

Total carrying amount by balance sheet item


 Non-current assets







 Available-for-sale financial assets

 -  

 -  

74  

 -  

74 


 Derivative financial instruments

 -  

62  

 -  

 -  

62 


 Other non-current assets

345  

 -  

 -  

20  

365 


   







 Current assets







 Trade receivables

1,196  

 -  

 -  

 -  

1,196 


 Other current assets

545  

 -  

 -  

690  

1,235 


 Non-current assets held for sale

 -  

 -  

 -  

5  


 Derivative financial instruments

 -  

198  

 -  

 -  

198 


 Other current interest-bearing deposits

2,947  

 -  

 -  

 -  

2,947 


 Cash and cash equivalents

2,909  

 -  

 -  

 -  

2,909 


   







   







   


Financial liabilities




 € million


Loans and payables

Derivatives used for hedging

Non-financial liabilities

Total carrying amount by balance sheet item


 Non-current liabilities







 Interest-bearing long-term borrowings

7,498  

 -  

 -  

7,498 


 Derivative financial instruments


 -  

282  

 -  

282 


 Other long-term liabilities


10  

 -  

213  

223 


   







 Current liabilities







 Current portion of long-term borrowings

1,132  

 -  

 -  

1,132 


 Trade and other payables


3,442  

 -  

361  

3,803 


 Derivative financial instruments


 -  

1,328  

 -  

1,328 

 


   







 December 31, 2014

Financial assets




 € million

Loans and receivables

Derivatives used for hedging

Available-for-sale

Non-financial assets

Total carrying amount by balance sheet item


 Non-current assets







 Available-for-sale financial assets

 -  

 -  

84  

 -  

84 


 Derivative financial instruments

 -  

80  

 -  

 -  

80 


 Other non-current assets

167  

 -  

 -  

21  

188 


   







 Current assets







 Trade receivables

1,252  

 -  

 -  

 -  

1,252 


 Other current assets

244  

 -  

 -  

358  

602 


 Non-current assets held for sale

 -  

 -  

11  

7  

18 


 Derivative financial instruments

 -  

178  

 -  

 -  

178 


 Other current interest-bearing deposits

3,416  

 -  

 -  

 -  

3,416 


 Cash and cash equivalents

1,528  

 -  

 -  

 -  

1,528 

 

14.           FINANCIAL INSTRUMENTS continued

 

a.             Financial assets and liabilities by category

 


   


Financial liabilities



 € million


Loans and payables

Derivatives used for hedging

Non-financial liabilities

Total carrying amount by balance sheet item


 Non-current liabilities







 Interest-bearing long-term borrowings


5,904  

 -  

 -  

5,904 


 Derivative financial instruments


 -  

359  

 -  

359 


 Other long-term liabilities


7  

 -  

219  

226 


   







 Current liabilities







 Current portion of long-term borrowings


713  

 -  

 -  

713 


 Trade and other payables


3,017  

 -  

264  

3,281 


 Derivative financial instruments


 -  

1,313  

 -  

1,313 


   






b.             Fair value of financial assets and financial liabilities

 

The fair values of the Group's financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in determining the fair values as follows:

 

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices present actual and regularly occurring market transactions on an arm's length basis;

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates; and

 

Level 3: Inputs for the asset or liability that are not based on observable market data.

 

The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade and other payables approximate their carrying value largely due to the short-term maturities of these instruments.

 

The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

 

Instruments included in Level 1 comprise listed asset investments classified as available-for-sale and interest-bearing borrowings which are stated at market value at the balance sheet date.

 

Instruments included in Level 2 include derivatives and interest-bearing borrowings.

 

Forward currency transactions and over-the-counter fuel derivatives are entered into with various counterparties, principally financial institutions with investment grade ratings. These are measured at the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant.

 

At December 31, 2014 Level 2 also included a hedge of the available-for-sale asset which took the form of an equity collar. The valuation of this collar was based on a Black Scholes valuation model using share price spot rate, strike price, stock volatility and the euro interest rate curve.

 

The fair value of the Group's interest-bearing borrowings including leases is determined by discounting the remaining contractual cash flows at the relevant market interest rates at the balance sheet date.

 

All resulting fair value estimates are included in Level 2 except for certain investments which are classified as Level 3.

 

 

 

 

 

 

14.           FINANCIAL INSTRUMENTS continued

 

b.             Fair value of financial assets and financial liabilities

 

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2015 are set as follows:


   








   

Fair value


Carrying value


 € million

Level 1

Level 2

Level 3

Total


Total


 Financial assets








 Available-for-sale financial assets

65 

74 


74 


 Derivatives(1)

260 

260 


260 


   








 Financial liabilities








 Interest-bearing borrowings

2,102 

7,248 

9,350 


8,630 


 Derivatives(2)

1,610 

1,610 


1,610 


   








(1)Current portion of derivative financial assets is €198 million.


(2)Current portion of derivative financial liabilities is €1,328 million.

 


 December 31, 2014:


   

Fair value


Carrying value


 € million

Level 1

Level 2

Level 3

Total


Total


 Financial assets








 Available-for-sale financial assets

19 

65 

84 


84 


 Derivatives(1)

258 

258 


258 


   








 Financial liabilities








 Interest-bearing borrowings

892 

6,256 

7,148 


6,617 


 Derivatives(2)

1,672 

1,672 


1,672 


   








(1)Current portion of derivative financial assets is €178 million.


(2)Current portion of derivative financial liabilities is €1,313 million.

 

There have been no transfers between levels of fair value hierarchy during the year.

 

Out of the financial instruments listed in the previous table, only the interest-bearing borrowings are not measured at fair value on a recurring basis.

 

c.

 Level 3 financial assets reconciliation




   




 The following table summarises key movements in Level 3 financial assets:




 € million

December 31, 2015

December 31, 2014


 Opening balance for the year

65 

22 


 Gains recognised in the Income statement(1)


 Gains recognised in Other comprehensive income(2)

48 


 Settlements

(5)

(7)


 Exchange movements


 Closing balance for the year

65 

65 


   




(1)Included in Net credit relating to available-for-sale financial assets in the consolidated Income statement.


(2)Included in Available-for-sale financial assets - Fair value movements in equity in the consolidated Statement of other comprehensive income.


   




 The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less accumulated impairment losses with the exception of the Group's investment in The Airline Group Limited. This unlisted investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from which to determine a fair value. The investment remains classified as a Level 3 financial asset due to the valuation criteria applied not being observable, with the resultant fair value uplift in the prior year being non-recurring in nature.


 

15.           Borrowings

 



December 31,

December 31,



2015 

2014 


Current




Bank and other loans

576 

164 


Finance leases

556 

549 



1,132 

713 


Non-current




Bank and other loans

2,176 

1,069 


Finance leases

5,322 

4,835 



7,498 

5,904 

 

In May 2015, the Group issued bonds totalling €155 million; €70 million 3.5 per cent coupon repayable in 2022, €55 million 3.75 per cent coupon repayable in 2025, €15 million 2.5 per cent coupon repayable in 2018 and €10 million 3.5 per cent coupon repayable in 2022.

On November 12, 2015, the Group launched two tranches of senior unsecured bonds convertible into ordinary shares of IAG. The first tranche is for a principal amount of €500 million, raising net proceeds of €494 million, due in 2020 and holds a coupon rate of 0.25 percent. The second tranche is for a principal amount of €500 million, raising net proceeds of €494 million, due in 2022 and holds a coupon rate of 0.625 per cent. The conversion price for both tranches was set at a premium of 62.5 per cent on the Group's share price on the date of issuance. The Group holds an option to redeem each tranche of the convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to the final maturity date. The bonds contain dividend protection, and a total of 36,208,923 options related to this bond were outstanding from settlement and at December 31, 2015.


 

16.           SHARE BASED PAYMENTS

 

During the year 5,050,853 conditional shares were awarded, under the Group's Performance Share Plan (PSP) to key senior executives and selected members of the wider management team. No payment is due upon the vesting of the shares.  The fair value of equity-settled share options granted is estimated as at the date of the award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded, or based on the share price at the date of grant, dependent on the performance criteria attached.  The following are the inputs to the model for the PSP options granted in the year:

 

Expected share price volatility: 30 per cent

Expected life of options: 2.4 years

Weighted average share price: £5.50

 

The Group also made awards under the Group's Incentive Award Deferral Plan during the year, under which 1,918,323 conditional shares were awarded.


 

17.           EMPLOYEE BENEFIT OBLIGATIONS

 

The Group operates two principal funded defined benefit pension schemes in the UK, the Airways Pension Scheme (APS) and the New Airways pension scheme (NAPS), both of which are closed to new members.


 

               

At December 31, 2015

€ million

APS

NAPS

Other

Total






Scheme assets at fair value

9,916 

17,997 

429 

28,342 

Present value of scheme liabilities

(8,405)

(18,460)

(805)

(27,670)

Net pension asset/(liability)

1,511 

(463)

(376)

672 

Effect of the asset ceiling

(561)

 - 

 - 

(561)

Other employee benefit obligations

 - 

 - 

(12)

(12)

December 31, 2015

950

(463)

(388)

99






Represented by:





Employee benefit asset




957 

Employee benefit obligation




(858)





99




 

17.           EMPLOYEE BENEFIT OBLIGATIONS continued

 


At December 31, 2014

€ million

APS

NAPS

Other

Total






Scheme assets at fair value

9,542 

16,201

424

26,167 

Present value of scheme liabilities

(8,191)

(17,134)

(795)

(26,120)

Net pension asset/(liability)

1,351 

(933)

(371)

(47)

Effect of the asset ceiling

(502)

- 

- 

(502)

Other employee benefit obligations

 - 

 - 

(14)

(14)

December 31, 2014

849 

(933)

(385)

(469)






Represented by:





Employee benefit asset




855 

Employee benefit obligation




(1,324)





(469)

 

The accounting valuation was performed after updating key assumptions at December 31, 2015 as follows:







APS

NAPS

Per cent per annum

December 31, 2015

December 31, 2014

December 31, 2015

December 31, 2014






Inflation (CPI)

1.85

1.85

2.00

1.95

Inflation (RPI)

2.85

2.85

3.00

2.95

Salary increases (as RPI)

2.85

2.85

3.00

2.95

Discount rate

3.60

3.45

3.85

3.80






Pension contributions for APS and NAPS were determined by actuarial valuation made as at March 31, 2012 using assumptions and methodologies agreed with the Trustees of each scheme.

 

18.           PROVISIONS FOR LIABILITIES AND CHARGES

 


€ million


Restoration and handback provisions

Restructuring

Employee leaving indemnities and other employee related provisions

Legal claims provisions

Other provisions

Total


Net book value at January 1, 2015

771 

895 

552 

135 

118 

2,471 


Provisions recorded during the year

286 

93 

25 

147 

56 

607 


Acquired through Business combination


73 

67 

158 


Utilised during the year

(182)

(237)

(24)

(36)

(77)

(556)


Release of unused amounts and other movements

(30)

(22)

(51)

(19)

(23)

(145)


Unwinding of discount

10 

21 


Exchange differences

91 

(1)

98 


Net book value December 31, 2015

1,013 

744 

579 

235 

83 

2,654 


Analysis:








Current

174 

198 

69 

118 

46 

605 


Non-current

839 

546 

510 

117 

37 

2,049 


 

 

 

19.           CONTINGENT LIABILITIES

 

The Group has certain contingent liabilities and guarantees, which at December 31, 2015 amounted to €172 million (December 31, 2014: €138 million). No material losses are likely to arise from such contingent liabilities and guarantees. The Group also had the following claims:

 

Cargo

The Group is party to a number of legal proceedings in the English courts relating to a decision by the European Commission in 2010 which fined British Airways and ten other airline groups for participating in a cartel in respect of air cargo prices. The decision was partially annulled as against British Airways following an appeal to the general court of the European Union and British Airways was advised that the fine would be refunded in full. It is not yet clear what the European Commission's next steps will be. The original decision has led to a large number of claimants seeking, in proceedings brought in the English courts, to recover damages from British Airways which they claim arise from the alleged cartel activity. It is not possible at this stage to predict the outcome of the proceedings, which British Airways will vigorously defend. British Airways has joined the other airlines alleged to have participated in cartel activity to these proceedings to contribute to such damages, if any awarded.

 

The Group is also party to similar litigation in a number of other jurisdictions including Germany, the Netherlands and Canada together with a number of other airlines. At present, the outcome of the proceedings is unknown. In each case, the precise effect, if any, of the alleged cartelising activity on the claimants will need to be assessed.

 

We are currently unable to determine whether the Group has an existing obligation as a result of the past event.

 

Other

A number of other lawsuits and regulatory proceedings are pending, the outcome of which in the aggregate is not expected to have a material effect on the Group's financial position or results of operations.


 

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:





Year to December 31.


€ million

2015 

2014 


Sales of goods and services




Sales to associates

16 


Sales to significant shareholders

29 






Purchases of goods and services




Purchases from associates

57 

59 


Purchases from significant shareholders

61 






Year end balances arising from sales and purchases of goods and services:






€ million

December 31, 2015

December 31, 2014


Receivables from related parties




Amounts owed by associates


Amounts owed by significant shareholders






Payables to related parties




Amounts owed to associates


Amounts owed to significant shareholders






For the year to December 31, 2015 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2014: nil).

 

 

 

 

 

 

 

20.           RELATED PARTY TRANSACTIONS continued

 

Board of Directors and Management Committee remuneration

 

Compensation received by the Group's key management personnel is as follows:

 



Year to December 31


€ million

2015 

2014 


Base salary, fees and benefits




Board of Directors' remuneration

15

13 


Management Committee remuneration

22

18 

 

At December 31, 2015 the Board of Directors includes remuneration for two Executive Directors (December 31, 2014: two Executive Directors). The Management Committee includes remuneration for nine members (December 31, 2014: eight members).

 

The Company provides life insurance for all Executive Directors and the Management Committee. For the year to December 31, 2015 the Company's obligation was €72,000 (2014: €48,000).

 

At December 31, 2015 the transfer value of accrued pensions covered under defined benefit pension obligation schemes, relating to the Management Committee totalled €9 million (2014: €7 million).

 

No loans or credit transactions were outstanding with Directors or officers of the Group at December 31, 2015 (2014: nil).


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 February 25, 2016, the Directors of International Consolidated Airlines Group, S.A. confirmed that to the best of their knowledge the Condensed Consolidated Financial Statements for the year to December 31, 2015 were prepared in accordance with IAS 34 as adopted by the European Union, offer a true and fair view of the assets, liabilities, financial situation, cash flows and the results of International Consolidated Airlines Group, S.A. and of the companies that fall within the consolidated group taken as a whole, and the Condensed Consolidated Management Report includes an accurate analysis of the required information also in accordance with the Financial Conduct Authority's DTR 4.2.7R and DTR 4.2.8R (English regulation) including an indication of important events in the year, a description of the principal risks and uncertainties and a list of material related party transactions.

 

February 25, 2016

 






Antonio Vázquez Romero

Chairman

 


Martin Faulkner Broughton

Deputy Chairman

 






William Matthew Walsh

Chief Executive Officer

 


César Alierta Izuel






Patrick Jean Pierre Cescau


Enrique Dupuy de Lôme Chávarri






Denise Patricia Kingsmill


James Arthur Lawrence






María Fernanda Mejía Campuzano


Kieran Charles Poynter






Marjorie Morris Scardino


Alberto Terol Esteban


AIRCRAFT FLEET

 

 

  










  

Number in service with Group companies




  










  

On balance sheet fixed assets

Off balance sheet operating leases

Total

December 31,

Total

December 31.


Changes since December 31,


Future deliveries

Options

  

2015 

2014 


2014 


  










 Airbus A318



 Airbus A319

34 

34 

68 

61 



 Airbus A320

66 

156 

222 

172 


50 


101 

128 

 Airbus A321

26 

17 

43 

36 



18 

 Airbus A330-200



12 

 Airbus A330-300

12 



 Airbus A340-300



 Airbus A340-600

13 

17 

17 



 Airbus A350



43 

57 

 Airbus A380

10 

10 



 Boeing 737-400


(5)


 Boeing 747-400

40 

40 

43 


(3)


 Boeing 757-200



 Boeing 767-300

12 

12 

14 


(2)


 Boeing 777-200

41 

46 

46 



 Boeing 777-300

12 

12 



 Boeing 787-800



 Boeing 787-900



16 

18 

 Boeing 787-1000



12 

 Embraer E170



 Embraer E190

12 

11 



15 

 Group total

287 

242 

529 

459 


70 


211 

232 

  










 As well as those aircraft in service the Group also holds 11 aircraft (2014: 20) not in service.