INTERNATIONAL
AIRLINES
GROUP
CHIEVING
TOGETHER
ANNUAL REPORT & ACCOUNTS
2015
IN THIS
REPORT
OVERVIEW
Introduction
2
4
An exceptional journey
2015 Highlights
STRATEGIC REPORT
6
8
Chairman’s letter
Chief Executive Officer’s Q&A
10 Our network
12
14
17
IAG Platform for growth
Chief Executive Officer’s review
Business model and strategy
18 Our strategy
20 Key performance indicators
22 Aer Lingus
23 British Airways
24
Iberia
25 Vueling
26 Avios
27
28
IAG Cargo
Sustainability
Financial overview
35
Financial overview
36 Economic landscape
38 Financial review
47
Risk management
and principal risk factors
CORPORATE GOVERNANCE
FINANCIAL STATEMENTS
56
Chairman’s introduction
to Corporate governance
58
Board of Directors
99 Consolidated income statement
100
Consolidated statement of other
comprehensive income
60 Corporate governance
101 Consolidated balance sheet
69
Report of the Audit and
Compliance Committee
72 Report of the Nominations
Committee
75 Report of the Safety Committee
76
Report of the Remuneration
Committee
102 Consolidated cash flow statement
103
105
162
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Spanish Corporate
governance report
224
Group investments
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
INDEPENDENT
AUDITORS’ REPORT
ADDITIONAL INFORMATION
230 Operating and financial statistics
231 Glossary
IBC Shareholder information
MANAGEMENT REPORT
IAG is required to prepare a Management Report in accordance with Article 262 of the
Spanish Companies Act and Article 49 of the Spanish Commercial Code. Pursuant to
this legislation, this management report must contain a fair review of the progress of
the business and the performance of the company, together with a description of the
principal risks and uncertainties that it faces. In the preparation of this report, IAG has
taken into consideration the guide published in 2013 by the Spanish National Securities
Market Commission (CNMV) which establishes a number of recommendations for the
preparation of management reports of listed companies. The Management Report is
contained in the following sections:
12
17
IAG Platform for growth
36 Economic landscape
Business model and strategy
38 Financial review
18 Our strategy
20 Key performance indicators
28 Sustainability
35
Financial overview
47
Risk management
and principal risk factors
60 Corporate governance
162
Spanish Corporate
governance report
Annual Report and Accounts 2015
STRATEGIC REPORT
CORPORATE
GOVERNANCE
FINANCIAL
STATEMENTS
ADDITIONAL
INFORMATION
1
www.iairgroup.com2015 WAS THE YEAR FOR ACHIEVING OUR TARGETS SET IN 2011. IN FACT, WE HAVE EXCEEDED THEM.WHETHER IT’S IN OUR FIRST FIVE YEARS, OR IN THE FUTURE, OUR SUCCESS COMES DOWN TO THIS:WORKING TOGETHER, WE ACHIEVE. Our ambition is to try to be not just a major player but the world’s
leading airline group and in our first five years we’ve established
strong foundations for the future.
We’ve exceeded our initial targets and are absolutely convinced
that this is only the start. The best is yet to come and new
stretching targets have been set for 2016 – 2020.
INTERNATIONAL
AIRLINES
GROUP
SHARES BEGIN
TRADING
24 JANUARY
2011
7
2
.
0
€
/
S
P
E
TRANSFORMING
2012
bmi integrated into British Airways
Iberia Transformation Plan approved
Synergies target raised from
€500 million to €560 million
CREATING
2011
IAG is formed through the merger
of British Airways and Iberia
Strategy and targets for operating
profit and synergies announced
Launched Avios reward currency
)
3
2
.
0
(
€
/
S
P
E
Diluted earnings per share before exceptional items
2
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
AN EXCEPTIONAL JOURNEYACHIEVING STRONG RESULTS
DEC 2015
EPS
€0.71
STRENGTHENING
2013
Vueling acquisition completed
IAG Cargo created
Iberia’s new brand launched
Synergies target raised from
€560 million to €650 million
0
4
.
0
€
/
S
P
E
1
2
.
0
€
/
S
P
E
ADVANCING
2014
Iberia Plan de Futuro launched
Global Business Services (GBS)
established a centre in Krakow,
Poland
IAG 2016-2020 targets presented
ACHIEVING
2015
Five year targets set in
2011, achieved
Aer Lingus acquisition
completed
Avios created as
an independent
operating unit
Dividend paid
OPERATING PROFIT
SYNERGIES
Achieved
€2.335bn
Achieved
€856m
Target
€1.5bn
Target
€400m
2011
2015
2011
2015
www.iairgroup.com
3
STRATEGIC REPORT
Available Seat Kilometres (ASKs)
Europe
+20.5%
Domestic
+7.7%
ASK
+8.2%
North
America
+5.3%
Latin
America
and
Caribbean
+7.6%
AMESA
-3.0%
Asia
Pacific
+9.0%
EQUITY FREE CASH FLOW (€m)
RoIC (%)
0
6
1
,
1
15
12
9
6
3
0
1,600
1,200
800
400
0
-400
-800
2
0
2
)
7
1
6
(
)
3
1
3
(
)
2
8
3
(
9
7
.
3
5
.
.
5
3
1
.
0
TOTAL DIVIDEND
PER SHARE1
.
7
2
1
€0.20
2011
2012
2013
2014 2015
2011
2012
2013
2014 2015
Definition
We measure Equity Free Cash flow as EBITDA less
cash tax, cash interest and capital expenditure.
Definition
Return on invested capital is defined as operating profit
before exceptional items adjusted for lease and inflation
divided by invested capital. See Glossary.
1
Includes recommended final dividend of 10 € cents per share
4
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 20152015 HIGHLIGHTSDELIVERING VALUE TO OUR SHAREHOLDERS STRATEGIC REPORT
ACHIEVING
GROWTH
TOGETHER
The strategic report that follows contains a fair and balanced
analysis, consistent with the size and complexity of the
business in accordance with the expectations of the
regulations of the Companies Act of 2006.
STRATEGIC REPORT
Chairman’s letter
22 Aer Lingus
6
8
Chief Executive
Officer’s Q&A
10 Our network
12
14
17
IAG Platform
for growth
Chief Executive
Officer’s review
Business model
and strategy
23 British Airways
24
Iberia
25 Vueling
26 Avios
27
28
35
IAG Cargo
Sustainability
Financial overview
36 Economic landscape
18 Our strategy
38 Financial review
20
Key performance
indicators
47
Risk management
and principal risk factors
www.iairgroup.com
5
“ It is a great pleasure to welcome you to International
Airline Group’s fifth Annual Report which covers a
period of huge achievement for the Company and
looks confidently ahead to further significant success
in the future.”
2015 was a year of really significant
achievement for IAG and I’m delighted
to have this chance to reflect on all the
progress we’ve made since the Company
was established five years ago.
Our achievements in that time have
been significant. As you recall, we set a
target to achieve an operating profit of
€1.5 billion in 2015 when we laid out our
initial plans for the Company. Thus to
report operating profits, excluding
Aer Lingus, of €2.3 billion on Group
revenues of €22.9 billion for the year is
a stunning result. All the more so when
you think of the significant progress
since the €485 million combined profit
that British Airways and Iberia recorded
when we first formed IAG.
And that achievement is mirrored
across a whole range of other measures.
We realised some €856 million of annual
synergies from across the business,
more than double our 2011 target of
€400 million. This year we carried
almost 95 million passengers on our
four airlines, twice the number we were
carrying five years ago, and our total
fleet has grown from 348 to 529 aircraft.
This is a formidable growth record, and,
on the strength of it, we were able to
upgrade our targets for the five years to
2020 very considerably at our Capital
Markets day in November. The ambitious
new goals for earnings growth, operating
profit margin, equity free-cash flow and
return on invested capital underline
our confidence that we can continue
growing strongly and profitably in the
years ahead.
But commercial aviation is a complicated
business and the history of our industry
has been a bumpy one. So perhaps one
of the most pleasing aspects of our
performance to date is that we now have
the sort of financial ratios that would
apply to a “normal” company, operating
in a far less complex sector. This has
never been the case for an airline
company before and we are very
pleased with that situation.
Overcoming challenges
Our performance is even more striking
when you remember where we started.
In 2011, British Airways was just emerging
from major financial surgery to mend the
injuries inflicted by the global financial
crisis. Iberia was in intensive care and in
a fight for its very survival.
So it was vital that the Management
Team laid out a very clear vision of what
we needed to do to build the IAG of
today. It’s a plan we’ve followed with
real determination, with the Board, the
Management Team, and everyone
throughout the business working
cohesively to bring that vision to life.
In the process, we have completed a
depth of transformation at both British
Airways and Iberia that is without
precedent, certainly in Europe. Indeed,
you have to look at some of the Chapter
11 restructurings of US airlines to find
anything comparable. That is something
we can be truly proud of.
Industry context
As we execute our future growth
strategy the outlook for the industry
remains positive. Despite some obvious
global economic challenges, not least
in the short term, the International
Air Transport Association (IATA) is,
nevertheless, forecasting that global
passenger numbers will double to
around 7 billion by 2034, with an average
annual growth rate of 3.8 per cent.
In addition, the industry is in much better
shape and taking a much more rational
approach to managing investment,
remunerating investors and controlling
capacity, as we’ve seen in the recent
period of sharply falling oil prices.
That mirrors our own very disciplined
approach. It is, and will remain, the
right way forward.
Antonio Vázquez
Chairman
6
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015CHAIRMAN’S LETTERA CREDIBLE AND CONFIDENT CASE FOR FUTURE GROWTH Dividend and outlook
I’m glad to end this letter by focusing
on another crucial ambition we have
always had as a company and were able
to meet in 2015 – our desire to reward
shareholders for their tremendous
support of IAG over the years.
We were really delighted to confirm our
dividend payments during the year and
we’ve made it absolutely clear that we
intend to pursue a sustainable dividend
policy for the long term.
I think the investor community
understands very well where we are as
a company, where we are going and are
increasingly confident that we will deliver
on our targets and our promises. It’s very
good to have that level of transparency
in our relationship with them.
I want to thank all our other stakeholders
for their support as well. In particular I
pay tribute to people right across the
business who have worked so hard to
get IAG to where it is today. They, above
all, give me huge confidence that we
can achieve even greater things in the
years ahead.
Antonio Vázquez
Chairman
It was always IAG’s stated ambition to
lead the process of consolidation in our
industry and our unique business model
has allowed us to acquire and integrate
bmi, Vueling and Aer Lingus with relative
ease. Progress on consolidation is slower
than we would like, due to foreign
investment controls and regulation,
making it all the more important to
pursue other forms of co-operation for
the benefit of our customers. That’s why
we are so pleased to have signed a
far-reaching joint business agreement
between Iberia, British Airways,
and LATAM.
Under this revenue sharing agreement,
which is awaiting regulatory approval
from the appropriate competition
authorities in South America, the airlines
will be able to offer customers greater
choice, a range of frequent flyer benefits
and much better links, including serving
100 destinations in South America and
87 in Europe.
Corporate governance
Governance structures at IAG were
inevitably complex at the outset. But
progressively we have sought to simplify
our structures so we have the flexibility
to manage this fast-moving business
on a day-to-day basis, while still
remaining compliant with the more
exigent governance and transparency
requirements. I’m satisfied that we’ve
handled the process very well.
We continue to adapt our processes.
In 2015 we made changes to meet new
governance codes in both Spain and
the UK. We now comply with most of
the recommendations in these codes
and explain our position carefully where
we take a slightly different approach.
Over the years we’ve refreshed the
board regularly to strengthen our
capabilities. We have a superb
Board at IAG, with a diverse group of
talented people who have a wealth of
international business and public policy
experience. The Board and particularly
the Nominations Committee continue
focusing in succession planning of the
Board so as to ensure we have the
right balance of skills, experience and
capabilities that IAG could require
at every given moment.
Significant changes are underway
in the leadership of our airlines.
Careful succession planning remains
a constant focus for the IAG Board
and Management Committee and it’s
a significant milestone to see Alex Cruz
move from Vueling to lead British
Airways following Keith Williams’
retirement. Javier Sánchez-Prieto,
previously CFO of Iberia, will become
CEO of Vueling. We’re also delighted
to see Steve Gunning become the
British Airways CFO and be replaced
by Andrew Crawley from British Airways
as the CEO of IAG Cargo. These moves
are evidence of the fantastic inventory
of talent we have within the business.
Sustainability
We continue to look constantly
for ways to improve our environmental
performance. In 2015 we consolidated
our sustainability activities at a Group
level and also set challenging new
2020 targets for noise and CO2
reduction. We will use all the tools
at our disposal – modern aircraft,
efficient technology and sustainable
fuels – to improve our footprint.
We also work collaboratively with
other airlines and governments to
ensure our industry makes a meaningful
contribution to tackling climate change.
We’ve taken a lead role here, for instance
pushing for the industry to adopt a
target to halve CO2 emissions by 2050.
2016 is a critical year in achieving those
goals. October’s International Civil
Aviation Organisation assembly could
see the adoption of a new global
agreement on emissions trading for
our industry, something we strongly
support. We need a truly global deal
and I believe we are closer to that
today than ever before.
All of our airlines continue to
operate successful corporate
responsibility programmes in their
home markets and in locations they
fly to, another important part of our
sustainability agenda.
7
www.iairgroup.comSTRATEGIC REPORT As IAG completes its fifth year in business and sets out ambitious new
targets for 2020, Chief Executive Officer Willie Walsh tackles some of
the main questions on the minds of IAG stakeholders.
Q What lessons have
you learnt from your
achievements of the last
five years?
We’ve had five very successful years and,
when I look back, I’m really pleased with
the tremendous progress we’ve made.
We set ourselves very ambitious targets
back in 2011 and people questioned if
we’d be able to achieve them. But not
only have we met those targets, we’ve
exceeded them comfortably. I think
that shows that, with a clear vision,
determination, strong leadership and
strong management, you can achieve
very good results in this industry and
I’m really pleased IAG has led the field
in proving that.
See page 35 for more on our
financial performance
Q Can you sustain and
significantly improve
your financial performance?
Without question IAG can sustain and
improve this financial performance –
the best is yet to come! That’s the clear
message we gave to investors during
our Capital Markets Day in November,
2015. We are confident we can do better
because we have created a business that
is structurally more efficient founded on
a sustainably lower cost base. We’ll build
on that efficiency to grow our business
in a profitable way, taking advantage of
all the opportunities in front of us. But
we’ll also make sure we protect ourselves
from any external challenges we come
across. So, yes, we will definitely do
better in future – even though we’ve
done exceptionally well so far.
See page 20 for more on our future
growth targets
8
Q What are the risks to
IAG’s profitability in
terms of suppliers, taxes
and airport charges?
Every industry faces risks from external
suppliers and the airline sector is no
exception. I’ve highlighted unjustifiable
increases in airport charges as the main
issue we need to focus on and the
industry is actually coming together on
this. We’ve created a new association,
Airlines for Europe, to defend ourselves
against what we see as quasi-monopoly
practices by the airports. And I’ll just
give you one example – proposals to
build a third runway at Heathrow.
There’s an £18 billion price tag on the
expansion plans. But when you consider
that building the third runway itself
would only cost £180 million – just 1 per
cent of that £18 billion bill – you’ve got
to ask yourself why is so much money
being spent? It’s prohibitive. And if it
translates into a huge increase in
charges at Heathrow, we will object to it.
We will not pay a bill that will inevitably
translate into huge increases in charges
– charges that our customers and
shareholders will ultimately incur.
See page 47 for more on our
market risks
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015QUESTIONS & ANSWERSWITH CHIEF EXECUTIVE OFFICER WILLIE WALSH Q What does Aer Lingus
bring to the Group?
Aer Lingus is a fantastic addition to IAG.
It’s a very efficient, well-run airline and
it’s operating in an environment where
it has very strong growth opportunities.
It’s got an excellent network on
transatlantic routes, which is one of the
key areas we’ve always said IAG would
focus on. And people often forget that
it’s not just the Irish market itself that is
exciting for Aer Lingus. When you
consider that there are 40 to 50 million
Americans with Irish roots or
connections, you’re selling a very
strong brand into a US market that’s
much bigger than people imagine. And
that’s why we’re focusing so hard on the
transatlantic business and so pleased
to welcome Aer Lingus into the group.
See pages 22 – 27 for more information
on our operating companies
Q What is the impact
of low fuel prices and
how has this affected your
capacity discipline?
We saw a significant fall in the oil price
in 2015 but some of that benefit has
been offset by the strengthening of
the US dollar. As we pay for our fuel
in dollars, we’ve not seen the full
advantage of the fall in prices.
But I’m pleased to see that the industry
is responding in a rational manner to
this volatile situation. And I think that
suggests, in the first place, that airlines
do not expect the oil price to remain
as low as it is now for long. More
importantly, I think it reflects an industry
that has learned from its past mistakes.
Capacity discipline is broadly the same
today as it was when the oil price was
at $100 a barrel, as opposed to $34 or
$35 today and I would expect that to
continue. So, in the short term, lower
prices should provide some cost
benefits. But, longer term, we’d
expect the oil price to increase again.
See pages 10 – 19 for more on
our operations
Watch the full interview
on our website
www.iairgroup.com
Q What were the
environmental
achievements in 2015?
Our environmental performance
continued to improve in 2015 and
we’ve set ourselves challenging new
targets for the future. On CO2 emissions,
for instance, we are achieving 95.4
grammes of CO2 per passenger km
in 2015, down from 101.2 in 2012. Now
we’ve committed to reducing this to
87.3 grammes by 2020 – a tough but
important challenge.
We’ve also made some important
changes in how we manage
performance, consolidating all our
activities on the environmental front
within IAG to create greater focus and
to learn from each other on areas such
as noise reduction. But we also did
some very smart things in 2015. We’re
retrofitting our Airbus A320 aircraft
with “sharklets” that will improve
performance. We continue to invest
in new, lighter equipment on board the
aircraft – new seating and new carts, for
example. These small changes make a
big difference because anything we can
do to reduce the weight of the aircraft
significantly improves fuel efficiency
and environmental performance.
But there’s a bigger picture here.
We’re committed to taking a lead role
in improving the environmental
performance of the industry as a
whole, not just the performance of
our individual airlines.
See pages 28 – 34 for more information
on our environmental performance
and goals
9
www.iairgroup.comSTRATEGIC REPORT Aer Lingus
opened its seventh
North American
transatlantic gateway,
Washington
Iberia
opened three new
destinations in Latin
America: Cali, Medellin
and Havana
IAG combines the leading airlines in the UK, Spain and Ireland.
The airlines’ customers benefit from a larger combined network
for both passenger and cargo.
95 million
passengers
carried on IAG’s
global network1
OUR MAIN CITIES
LONDON
MADRID
BARCELONA
ROME
DUBLIN
1
Includes Aer Lingus passengers from January 1, 2015.
10
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015OUR NETWORKMEETING CUSTOMER NEEDS THROUGH OUR GLOBAL FOOTPRINT Key strategic aims
1
2
Leadership in IAG’s main cities
Leadership across the Atlantic
3
4
Stronger Europe-to-Asia
position in critical markets
Grow share of Europe-to-Africa
routes
5
6
Stronger intra-Europe profitability
Competitive cost positions across
our business
See pages 18 – 19 for more about our
strategic objectives
Vueling
continued to expand
its footprint in Europe
by growing 14.2%
British Airways
resumed direct flights
to Kuala Lumpur
11
www.iairgroup.comSTRATEGIC REPORT SYNERGY PROGRAMME COMPLETE
Targets exceeded
1,000
800
600
400
200
0
€856m
6
6
5
0
9
2
2015
€400m
0
5
1
0
5
2
Original
target set
in 2011
Operating
profit
€364m
€802m
Implementation
cost
€36m
€54m
In 2015 the Group
completed the merger
synergy programme, its
actual benefits considerably
exceeding the original
merger targets. The Group
has positioned itself to
embed these savings and
further revenue generation
into its day-to-day
activities. The IAG platform
will continue to deliver
transformational benefits.
The merger synergy programme has
been a success
The synergy programme has leveraged
internal capabilities, best practices and
economies of scale across the operating
companies, achieving significant savings
for the Group. In 2015 net benefits were
more than double the initial target set in
2011, reaching €802 million for the year.
Many of the initial savings came from
predictable economies of scale but as
we progressed into the programme we
found additional ways to extract value
from the business.
The revenue work stream has been a
real success, offering a wider choice of
trip combinations and code-shares to
customers while benefiting from an
increase in revenue generation and
from an integrated sales team.
Other areas of success include:
• simplification of the IT structure
and implementation of a new
selling solution for IAG Cargo;
• improvement of competitiveness
of maintenance services, while
preserving high quality;
• establishment of a Group procurement
function, covering all categories of
supplier expenditure, with actions
targeted on agreeing optimal
specification of goods and services;
and
• the launch of Avios as the Group’s
new single loyalty reward currency.
Planning for growth: The IAG platform
In 2011 IAG’s objective was to establish
a scalable platform to deliver IT,
procurement and back office support
functions in such a way that new and
existing airlines would be able to quickly
and seamlessly plug into these services.
The concept has evolved into the
creation of the IAG platform. Teams
across the group have worked to
centralise and harmonise services,
exploiting strengths and transforming
the way the Group operates. IAG is
expanding into new Group initiatives
that will strengthen and maximise
value across the Group portfolio.
The chart below shows the components
of the IAG platform and how these
services are established to deliver
benefits for the airlines. This global
integrated platform is about leveraging
economies of scale, driving better
service, cost effectiveness and higher
returns on investment, but also allowing
the operating companies to focus on
their brands, customers and operations.
IAG PLATFORM PROGRESS
OPCO PLUG AND PLAY FOR EFFICIENCY AND HIGHER QUALITY SYSTEMS
IAG Cargo
Avios
GBS
Procurement,
F&A
GBS
IT
MRO/Fleet
Digital
95% complete
45% complete
40% complete
25% complete
5% complete
5% complete
ATTRACTING PARTNERS FOR FURTHER GROWTH
12
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015IAG PLATFORM FOR GROWTHTRANSFORMING THROUGH ONGOING GROUP INITIATIVES Global Business Services (GBS)
The GBS model aims to deliver back-
office services at lower costs,
embedding modern working practices in
the Group and delivering a higher quality
of service. GBS Group Finance Services,
Group Procurement and Group IT are
working together to unleash incremental
value that could not be done with
individual functions in the operating
companies. Significant progress has
been made in the implementation of
the Global Business Services that will
eventually progress beyond shared
service models.
Key achievements in 2015:
• GBS offices fully operational
in Krakow, Poland;
• alignment of finance and
procurement functions;
• implementation of a single
consolidated treasury
management system;
OUR BRANDS
• launch of IT transformation
programme; and
• first significant IT outsourcing
contract agreed
Post transformation, GBS aims to
deliver around 30 per cent saving
in people costs across the global
finance community.
The procurement and finance
transformation is underway and will
expand to all operating companies.
GBS Group IT will continue to deliver
an IT platform scalable for future growth.
Fleet: The teams have continued to
work on the fleet harmonisation in three
areas: cabin configuration, avionics and
emergency equipment. The model has
been extended to all new fleet. The goals
of the programme remain to lower
operation costs through lean and flexible
capital expenditure. The teams have also
developed a group connectivity strategy
and are evaluating options for the
shorthaul fleet.
Digital
The IAG Digital Transformation team was
set up in January 2015 to drive business
model transformation across IAG and
embrace its digital potential. The team
is designed to think big, act small and
scale quickly. IAG is developing a
connectivity strategy by exploring
learnings from trials that have been
in progress since 2010. IAG is setting
aggressive targets: 90 per cent of the
longhaul fleet will be fitted by early 2019
and the first in service “air to ground”
shorthaul aircraft is planned for 2017.
The team is in its initial stages and
collaborating with digital experts in
Israel and on the West coast to identify
potential opportunities for the Group.
Maintenance, repair and overhaul
(MRO)
A small team led by Luis Gallego has
been created in 2015 to undertake a
strategic assessment of maintenance
activities across the Group.
one of the world’s leading
global premium carriers.
low-cost and premium service
leading airline between Europe
and Latin America
loyalty solutions
the best product in the Irish airline market
to customers at a competitive price
one of the world’s leading
international air freight carriers
See pages 22 – 27 for more about
our operating companies
13
www.iairgroup.comSTRATEGIC REPORT
handling routine transactional activities
in Krakow, Poland, as a case in point.
But we’re looking for other areas where
we can combine resources for the
benefit of our airlines, such as IT, digital
solutions and maintenance, all of which
look promising.
Challenges and opportunities
Last year was not without its challenges.
2015 was a year of extreme and
unprecedented volatility in both the
oil and currency markets.
The oil price declined from a peak of
around $100 a barrel in 2014 to recent
lows of around $30. However, sharp rises
in the value of the US dollar – the
currency we use to buy our fuel – meant
that we realised less benefit than many
expected and with volatility likely to
remain, we continue to hedge our fuel
purchases to manage that uncertainty.
The aviation industry has responded well
to this situation. Traditionally it would
have reacted to falling prices by flooding
the market with new capacity. This time
airlines have maintained their discipline
and stuck to their fleet replacement
plans, as we have. That indicates a
general belief that oil prices will rise
again and reflects an industry that has
learned from past mistakes.
We saw both threats and opportunities
during the year. Some markets suffered
and in response, we temporarily reduced
capacity, demonstrating our ability
to quickly mitigate unexpected risks.
Similarly, where opportunities emerged,
we used our increased flexibility to
boost capacity.
New targets for growth
To retain the confidence of IAG
shareholders and investors we need
to demonstrate we can continue to
grow while still covering our cost of
capital, year in and year out.
We believe we can and at our Capital
Markets Day in November 2015, we
unveiled even more ambitious targets
covering the five years to 2020.
We’re now working to a new 15 per cent
target for return on invested capital.
Meeting that will be testing, but we
are not afraid of the challenge. We are
targeting an operating profit margin
of between 12 and 15 per cent and
average growth in earnings per share
of more than 12 per cent per annum.
“ Last year IAG
comfortably exceeded
its original 2015 targets
and committed to new
goals that will stretch
our performance further
in the next five years.
I’m very confident we
have the right structure
and the determination to
sustain our record
of profitable growth.”
Willie Walsh
Chief Executive Officer
Since the creation of IAG, 2015 was
always an important milestone for the
business and, five years on, I’m very
pleased with the progress we’ve made.
To be able to achieve a record financial
performance, secure continued growth
in our existing airlines, complete the
acquisition of Aer Lingus, and introduce
dividend payments to shareholders is a
great achievement. But we’re clear we
can do a great deal more.
That’s always been our position. When
we unveiled ambitious five-year targets
for IAG in 2011, many investors were
sceptical that we could achieve them.
So it was particularly pleasing that we
not only met, but comfortably exceeded
those targets in 2015.
Above all it’s been really satisfying to
prove a basic conviction that, with clear
vision, strong leadership and a constant
14
determination to beat our targets,
we can achieve sustainable profitable
growth in the long term.
Highlights of the year
We had many successes last year, not
least achieving a record operating profit
of €2.335 billion, far outstripping our
initial €1.5 billion target for 2015.
We’ve done a great job securing
synergies confirming our original belief
that together we would be a stronger
business, capable of building a
formidable growth platform. Net annual
savings after our first five years
amounted to €856 million, more than
double our initial €400 million target.
We also continued to demonstrate the
strength of our unique business model,
a structure that is now the envy of many
of our competitors. To be able to operate
four independent airline brands – British
Airways, Iberia, Vueling, and now
Aer Lingus – and see them all improve
their performance despite confronting
different markets, opportunities and
challenges, is a fantastic achievement.
Our Cargo operation has been
successfully re-organised and continues
to perform well despite structural
changes in the sector and a growing
imbalance between capacity and
demand. Our Avios loyalty business
goes from strength to strength and
is now set for new growth in the year
ahead as it expands its customer
and supplier base.
We’re also making good progress in
centralising parts of the business where
we can achieve real efficiencies. Our
Global Business Services (GBS) is
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015CHIEF EXECUTIVE OFFICER’S REVIEWCREATING FIRM FOUNDATIONS FOR FUTURE PROFITABLE GROWTH Capital spending will continue as we
improve our business, expand our
network, replace aircraft and provide
better services for customers. But the
same unwavering discipline will apply.
We will only spend money where it’s
clear we can make a return.
I’m convinced 2016 will be a better year
for IAG than 2015. I’m equally sure we
can sustain that performance.
Succession planning
2016 will see some significant changes
in the leadership of IAG and it’s great
to have succession plans in place
which reward talented people within
the business. Keith Williams retires as
Executive Chairman of British Airways
after a fantastic career at the airline.
It’s been a huge pleasure to work with
Keith and I can’t over-emphasise the
contribution he has made, not least
to the creation of IAG.
He will be replaced by Alex Cruz, who
moves from the role of Vueling Chairman
and Chief Executive Officer. Alex has
spearheaded Vueling’s phenomenal
success in recent years and as part of
the IAG management committee he
knows the strengths of British Airways
and the challenges that lie ahead. He will
be a different leader to Keith, but equally
successful, I am sure. I am pleased to
announce Javier Sánchez-Prieto as
CEO of Vueling, previously CFO of Iberia.
Steve Gunning becomes Chief Financial
Officer at British Airways, having
successfully led the IAG Cargo business,
while Andrew Crawley will move from his
commercial role in British Airways to
take over running the Cargo operation.
Our airlines
While it’s been a successful year for all
of the IAG airlines, all four remain firmly
focused on future profitable growth
driven by the stretching targets we’ve
set for them.
An undoubted highlight of the year
was the acquisition of Aer Lingus.
We’ve been impressed with what it has
achieved under the leadership of Chief
Executive Officer Stephen Kavanagh,
and the development of its transatlantic
network, from its Dublin hub.
Leadership in the transatlantic market
has always been a key goal, and Aer
Lingus will bolster that ambition and
offer a strong dollar revenue base.
People look at Ireland as a relatively
small market, but Aer Lingus is a great
brand with a very strong point of sale
in North America. Also Ireland is
increasingly attracting investment from
US multinationals, particularly in the
pharmaceuticals, IT and digital sectors.
Dublin is fed by a very good shorthaul
network and enjoys pre-flight US
customs and border clearance benefits
that play really well with customers.
The airline is a natural fit with IAG and
a very welcome addition to the Group.
With a more efficient cost base,
British Airways continues to make good
financial progress, but cost efficiency
will remain a priority. It is investing wisely
in new products, winning rising customer
satisfaction scores and has been voted
the number one UK Superbrand for the
last two years.
Capacity constraints at Heathrow
obviously put some limits on network
growth, but we continue to launch
new routes including San Jose,
California, and Tehran.
MANAGEMENT TEAM
IAG Management Committee led by Willie Walsh
is responsible for the overall direction and
strategy of the Group, the delivery of synergies
and co-ordination of central functions.
Not pictured Executive Directors:
Willie Walsh Chief Executive Officer;
Enrique Dupuy de Lôme, Chief Financial Officer.
See page 58 for our Board of Directors.
Stephen Kavanagh
Chief Executive
Officer of Aer Lingus
Keith Williams
Executive Chairman
of British Airways
Luis Gallego Martin
Chairman and Chief
Executive Officer of Iberia
Alex Cruz
Chairman and Chief
Executive Officer of
Vueling
Steve Gunning
Chief Executive Officer
of IAG Cargo
Robert Boyle
Director of Strategy
Ignacio de Torres Zabala
Director of Global Services
Julia Simpson
Chief of Staff
Chris Haynes
General Counsel
For a full biography of each member please visit
iairgroup.com/govmanage
15
www.iairgroup.comSTRATEGIC REPORT I can’t praise the people at Iberia enough
for the fantastic turnaround they have
achieved under the airline’s Plan de
Futuro – a true example of real
transformation. Under Luis Gallego’s
leadership, every aspect of the airline
has been changed – from operational
standards, to brand strength, customer
satisfaction, culture and, of course, the
financial performance and cost base of
its network.
This has given us the confidence to
accelerate investment. Having scaled
back the network to mend Iberia’s
finances, we are now reclaiming territory
that was ours, particularly in South
America. We’re growing into new
markets too with the launch in 2016
of non-stop services to Tokyo and –
subject to the granting of slots and
permissions – to Shanghai, a fantastic
first for Iberia.
Vueling is now established as a
significant premium brand in Europe’s
low-cost sector and performed strongly
despite some tough operational issues
in 2015. It continues to focus hard on
what it does best – controlling costs
and growing profitably. It is not afraid to
test new markets – capitalising on its
successes, but prepared to move on if
it is the right call. It’s this approach that
has seen it build on its strong presence
in Barcelona and expand its network,
notably in Italy and France.
Acquisition strategy
One of the key strengths of our business
model is that we can add new airlines
to the Group relatively easily as we can
dedicate resources from IAG on
acquisitions, without distracting any
of our existing airlines. That’s a unique
strength, certainly in Europe.
We continue to review further potential
acquisitions, but will only make
acquisitions that are right for the business.
While regulation and foreign ownership
controls mean opportunities remain
relatively scarce, joint ventures are an
important subset of the consolidation
process. We were delighted to reach a
joint business agreement between
British Airways, Iberia and LATAM.
Although subject to final regulatory
approval, it will allow us to offer
customers much greater connectivity
between South America and Europe
and many other important benefits.
Tackling risks
Like any industry, airlines constantly
face risks, but I think we’ve proved that
we are good at anticipating threats and
responding quickly.
Airport charges are one particular risk
where we face quasi-monopoly activity
by airport operators. We’ve come
together as an industry on this, and
other, issues forming a new association
called Airlines for Europe.
The proposed development of a third
runway at Heathrow illustrates the
issue well. The Davies Commission
has estimated the cost of the project
would be a prohibitive £18 billion, an
extraordinary sum, when you consider
the cost of building the actual runway
would be just £180 million – or 1 per cent
of the total bill.
Environmental performance
We continue to take a lead role in
improving the environmental
performance of our industry. 2015 saw
us centralise our global environmental
activities within IAG to create more focus
and to make it easier to share ideas.
We also set tough new targets for
CO2 emissions. Introducing new, more
efficient aircraft to our fleet makes a big
difference but we’re also increasing the
efficiency of our existing fleet in smart
ways, for instance retrofitting our Airbus
A320s with “sharklets” and using lighter
equipment inside aircraft.
We’ve been critical of the UK
government’s short-sighted failure to
support the development of aviation
bio-fuels, one of the reasons our
waste-to-liquid joint venture with Solena
ended during the year. Biofuels are
critical to unlocking the long-term
sustainability of our industry and we
continue to talk to alternative suppliers.
More immediately, 2016 is a critical year
for the industry with governments
coming together at the International
Civil Aviation Organisation’s assembly
in Montreal in October to agree a new
global emissions trading scheme for
the industry. We have long advocated
such a system. We now need to make
real progress.
Looking ahead
It’s been a momentous five years for IAG
and I look back on our achievements
with great pride. But I hope it’s clear that
we are in no way resting on our laurels.
We are firmly focused on the future.
As our new targets for profitable growth
indicate, we’re determined to build on
the strong foundations we have created
– a determination I know is shared across
the entire Group.
Thanks to our achievements to date
and the tremendous hard work, skill
and dedication of people throughout
the business, I’m very confident we can
do just that.
Willie Walsh
Chief Executive Officer
16
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED IAG’s performance is driven
by its unique structure
which supports each
operating company in
delivering returns, while
leading strategy and
driving Group synergies.
This approach enables the
Group to be responsive
to the needs of individual
markets and customers
while capturing the value
of group scale.
T R A C T Q UALITY AIRLINES
T A I N B R A ND AND CULTU
R
E
A T
E
R
P
r
o
c
u
r
e
m
e
n
t
IT
GLOBAL
PLATFORM
Financ e
Higher returns
to our
shareholders
Service and
value to our
customers
T
S
A
T
TRACT AND DE V E L O P B E
PEOPLE IN THE I N D U S T R Y
Agile operating companies
IAG is able to anticipate and respond
rapidly to changing dynamics by giving
the individual airlines the independence
to manage their different challenges.
While IAG oversees and sets individual
airlines financial targets, local
management retains profit accountability
and is responsible for the delivery of
the plan. Individual airlines are also
responsible for adapting its customer
proposition to the local markets they
operate in. Retaining individual airlines’
brands has proven to be a very effective
model to maintain customer loyalty in
each of the markets IAG operates in.
Integrated platform
Although IAG’s operating companies
have the autonomy to adapt to the
needs of individual markets, IAG
continues to develop an integrated
platform where individual airlines
can benefit from Group efficiencies and
share in best practices. The “plug & play”
platform provides scalable systems
to drive more ambitious cost savings
programmes, further revenue
improvement opportunities and
improved service delivery. Cost
synergies have transitioned to a higher
level of ambition through the creation
of IAG’s back office platform, Global
Business Services (GBS). The centrally
managed platform is embedding
modern working practices to deliver
higher quality and more efficient service
to IAG airlines in IT, Procurement and
Finance functions.
The integrated platform also provides
new revenue opportunities by driving
customer loyalty across a portfolio of
brands through IAG’s shared global
reward currency, Avios. Similarly,
IAG Cargo is creating new cargo
revenue opportunities by offering
an integrated product portfolio
to key cargo forwarders.
Consolidation and strategic
partnerships
IAG continues to play a key role in the
consolidation of the airline industry
and continuously evaluates possible
acquisitions and strategic partnership
to further enhance the Group’s portfolio.
The parent company’s structure has
been designed to assess and facilitate
new acquisitions without distracting
the individual airlines’ management
that will remain focused on delivering
the financial plan.
See page 20 for how we are
achieving our goals
17
www.iairgroup.comSTRATEGIC REPORTBUSINESS MODEL AND STRATEGYMAXIMISING VALUE ACROSS THE GROUP PORTFOLIO 1
2
3
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
COMPETITIVE COST
POSITIONS ACROSS
OUR BUSINESSES
We do this by
Increasing our direct network footprint,
improving our product offering and
leveraging our partners’ network reach.
We do this by
We do this by
We do this by
Leveraging shorthaul growth
Optimising our legacy shorthaul
opportunities and strengthening our
networks, maximising commercial
presence in core established markets.
collaboration between our business
Leveraging our scale, integrating best
practices and driving simplification
and harmonisation across the Group.
Our performance in 2015
IAG has continued to strengthen its
presence in Asia. Group capacity to the
region increased by 3 per cent in 2015
and Kuala Lumpur was reintroduced as
a destination directly serviced by British
Airways. IAG enhanced the customer
proposition through further leveraging
our partnerships in the region that
ultimately provide customers with a
greater network footprint and service
options throughout Asia. British Airways
continued to invest through deployment
of new aircraft as well as developing a
more tailored service offering to Asian
customers. Airbus A380 and Boeing 787
deployment in the region almost
doubled from one in eight departures
in 2014 to a quarter of IAG’s operations
in 2015. British Airways also announced
that it will open two new cabin crew
bases in Shanghai and Beijing to offer
Chinese customers the language skills
and cultural experience they are
accustomed to. Finally, China Southern
joined IAG’s cargo Partner Plus
Programme, enabling IAG Cargo
customers to book confirmed space
on China Southern’s Asian network.
units and expanding our low cost
carrier footprint.
Our performance in 2015
Our performance in 2015
Our performance in 2015
2015 has been another year of high
IAG’s growth in Europe has primarily
2015 saw the completion of the Iberia-
volatility in the region. Geopolitical issues
been driven by the strongest RoIC
British Airways merger synergy
coupled with a decline in commodity
prices have negatively impacted the
performing shorthaul entities within the
programme, delivering cost
Group, Vueling and Iberia Express. The
improvements of €290 million through
Europe-to-Africa market. IAG has been
Barcelona based carrier reached the
a combination of common fleet
proactive in managing its regional
significant milestone of operating 100
specification and outsourcing of
exposure and has adapted capacity
shorthaul aircraft in 2015, a landmark
transactional activities, as well as IT
to address market volatility in order to
that has been achieved by only two
standardisation and joint procurement.
manage our RoIC performance. British
other European low cost carriers. Iberia
Beyond our synergy programme, IAG
Airways adjusted its network, ceasing
continued to execute its Transformation
will continue to enhance its integrated
operations to Entebbe while at the
Plan, driving improved European
same time increasing capacity to South
performance, while British Airways
platforms of GBS and maintenance,
providing IAG airlines with a greater
Africa. Vueling continued to benefit
strengthened its position by increasing
ability to deliver cost reductions while at
from Barcelona’s geographical position,
the seat density of its shorthaul fleet.
the same time improving overall system
launching new narrow body services to
Commercial collaboration across the
quality. Achieving our cost savings
Sub-Saharan Africa (Ghana and Cape
group saw improved utilisation of key
programmes is key in order to achieve
Verde) while also reducing capacity in
assets including Avios, BA Holidays,
our shareholder return targets. IAG has
Senegal and Gambia. Looking ahead,
intra-group codeshares and combined
also extended its fleet harmonisation
Iberia will be returning to South Africa
marketing efforts which have enabled
programme to include the Airbus A330
after a three year absence through the
IAG to grow both capacity and
relaunch of Johannesburg services.
profitability in key markets.
and Airbus A350 aircraft families with
Airbus A330 specific savings estimated
at €3 million per aircraft. The
harmonisation programme will not only
increase our capital efficiency but also
provide the flexibility to shift capital
between operating companies.
We do this by
Providing the broadest choice of
destinations to our customers in our
five main cities: London, Barcelona,
Madrid, Dublin and Rome.
Our performance in 2015
The acquisition of Aer Lingus in 2015 has
resulted in Dublin becoming IAG’s fifth
main city with continued expansion of
the network footprint and improved
routing options. Aer Lingus, together
with its regional franchise added seven
new destinations throughout 2015
and now operates to a total of 77
destinations from Dublin. IAG has
continued to invest in Rome by
increasing based aircraft from four
to nine and adding 20 new routes
reaching a total of 58 destinations
served from Rome in 2015. IAG has
also strengthened its leadership
position in Barcelona, London and
Madrid through continued capacity
growth and network expansion adding
21, 17 and 10 destinations respectively.
IAG has also continued to improve
its customer proposition in main
cities, delivering improved operational
performance, increasing personalisation
capabilities and upgrading service
recovery programmes.
We do this by
Providing the most comprehensive
frequency and network proposition
in collaboration with our oneworld
partners American Airlines and
LATAM Airlines Group.
Our performance in 2015
Demand in 2015 was significantly
impacted by currency volatility and
economic uncertainty in Latin America
mainly driven by the disappointing
economic performance of Brazil. The US
Dollar appreciated 8.8 percent against
the euro while the Brazilian real plunged
to historic lows against the US dollar.
The addition of Aer Lingus to the
group has further strengthened IAG’s
leadership across the Atlantic providing
opportunities to leverage Dublin’s
advantageous geographical position
for serving connecting flows between
Europe and North America. Aer Lingus
increased transatlantic capacity by 15
percent in 2015 and added Washington
as the seventh North American
destination served by the airline. British
Airways continued to strengthen key
markets by deploying the Airbus A380
in Miami, San Francisco and Washington.
Iberia also strengthened its position
across the Atlantic leveraging new
aircraft and continued cost reductions to
launch three new routes to Cali, Medellin
and Havana, providing an overall
increase of eight percent in total
capacity.
See pages 20 – 21 for more about our key performance indicators
18
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015OUR STRATEGYSIX CORE STRATEGIC OBJECTIVES 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
COMPETITIVE COST
POSITIONS ACROSS
OUR BUSINESSES
4
5
6
We do this by
We do this by
We do this by
Providing the broadest choice of
Providing the most comprehensive
Increasing our direct network footprint,
destinations to our customers in our
frequency and network proposition
improving our product offering and
five main cities: London, Barcelona,
Madrid, Dublin and Rome.
in collaboration with our oneworld
partners American Airlines and
leveraging our partners’ network reach.
LATAM Airlines Group.
Our performance in 2015
Our performance in 2015
Our performance in 2015
The acquisition of Aer Lingus in 2015 has
Demand in 2015 was significantly
IAG has continued to strengthen its
resulted in Dublin becoming IAG’s fifth
impacted by currency volatility and
presence in Asia. Group capacity to the
main city with continued expansion of
economic uncertainty in Latin America
region increased by 3 per cent in 2015
the network footprint and improved
routing options. Aer Lingus, together
mainly driven by the disappointing
and Kuala Lumpur was reintroduced as
economic performance of Brazil. The US
a destination directly serviced by British
with its regional franchise added seven
Dollar appreciated 8.8 percent against
Airways. IAG enhanced the customer
new destinations throughout 2015
the euro while the Brazilian real plunged
proposition through further leveraging
to historic lows against the US dollar.
our partnerships in the region that
and now operates to a total of 77
destinations from Dublin. IAG has
continued to invest in Rome by
increasing based aircraft from four
to nine and adding 20 new routes
reaching a total of 58 destinations
served from Rome in 2015. IAG has
also strengthened its leadership
position in Barcelona, London and
Madrid through continued capacity
growth and network expansion adding
21, 17 and 10 destinations respectively.
IAG has also continued to improve
its customer proposition in main
The addition of Aer Lingus to the
group has further strengthened IAG’s
leadership across the Atlantic providing
opportunities to leverage Dublin’s
advantageous geographical position
for serving connecting flows between
Europe and North America. Aer Lingus
increased transatlantic capacity by 15
percent in 2015 and added Washington
as the seventh North American
destination served by the airline. British
Airways continued to strengthen key
markets by deploying the Airbus A380
cities, delivering improved operational
in Miami, San Francisco and Washington.
performance, increasing personalisation
Iberia also strengthened its position
capabilities and upgrading service
across the Atlantic leveraging new
recovery programmes.
aircraft and continued cost reductions to
launch three new routes to Cali, Medellin
and Havana, providing an overall
increase of eight percent in total
capacity.
ultimately provide customers with a
greater network footprint and service
options throughout Asia. British Airways
continued to invest through deployment
of new aircraft as well as developing a
more tailored service offering to Asian
customers. Airbus A380 and Boeing 787
deployment in the region almost
doubled from one in eight departures
in 2014 to a quarter of IAG’s operations
in 2015. British Airways also announced
that it will open two new cabin crew
bases in Shanghai and Beijing to offer
Chinese customers the language skills
and cultural experience they are
accustomed to. Finally, China Southern
joined IAG’s cargo Partner Plus
Programme, enabling IAG Cargo
customers to book confirmed space
on China Southern’s Asian network.
We do this by
Leveraging shorthaul growth
opportunities and strengthening our
presence in core established markets.
We do this by
Optimising our legacy shorthaul
networks, maximising commercial
collaboration between our business
units and expanding our low cost
carrier footprint.
Our performance in 2015
2015 has been another year of high
volatility in the region. Geopolitical issues
coupled with a decline in commodity
prices have negatively impacted the
Europe-to-Africa market. IAG has been
proactive in managing its regional
exposure and has adapted capacity
to address market volatility in order to
manage our RoIC performance. British
Airways adjusted its network, ceasing
operations to Entebbe while at the
same time increasing capacity to South
Africa. Vueling continued to benefit
from Barcelona’s geographical position,
launching new narrow body services to
Sub-Saharan Africa (Ghana and Cape
Verde) while also reducing capacity in
Senegal and Gambia. Looking ahead,
Iberia will be returning to South Africa
after a three year absence through the
relaunch of Johannesburg services.
Our performance in 2015
IAG’s growth in Europe has primarily
been driven by the strongest RoIC
performing shorthaul entities within the
Group, Vueling and Iberia Express. The
Barcelona based carrier reached the
significant milestone of operating 100
shorthaul aircraft in 2015, a landmark
that has been achieved by only two
other European low cost carriers. Iberia
continued to execute its Transformation
Plan, driving improved European
performance, while British Airways
strengthened its position by increasing
the seat density of its shorthaul fleet.
Commercial collaboration across the
group saw improved utilisation of key
assets including Avios, BA Holidays,
intra-group codeshares and combined
marketing efforts which have enabled
IAG to grow both capacity and
profitability in key markets.
We do this by
Leveraging our scale, integrating best
practices and driving simplification
and harmonisation across the Group.
Our performance in 2015
2015 saw the completion of the Iberia-
British Airways merger synergy
programme, delivering cost
improvements of €290 million through
a combination of common fleet
specification and outsourcing of
transactional activities, as well as IT
standardisation and joint procurement.
Beyond our synergy programme, IAG
will continue to enhance its integrated
platforms of GBS and maintenance,
providing IAG airlines with a greater
ability to deliver cost reductions while at
the same time improving overall system
quality. Achieving our cost savings
programmes is key in order to achieve
our shareholder return targets. IAG has
also extended its fleet harmonisation
programme to include the Airbus A330
and Airbus A350 aircraft families with
Airbus A330 specific savings estimated
at €3 million per aircraft. The
harmonisation programme will not only
increase our capital efficiency but also
provide the flexibility to shift capital
between operating companies.
19
www.iairgroup.comSTRATEGIC REPORT We have defined the
Group’s key performance
indicators in terms of
long-term goals to reach
our strategic objectives.
See page 18 – 19 for more about strategy
See page 76 – 97 for more about
remuneration. KPIs linked to
remuneration of executive directors
are marked with the symbol R 3
The KPI “Total shareholder return” is
described in the remuneration report
on pages 76 – 97 together with its
performance. The performance of the
other KPIs is discussed in the financial
overview on pages 35 – 46
1 The Business Plan is based on a number of
assumptions relevant to our industry, including
economic growth in our strategic markets, fuel price
and foreign exchange rates. The goals and targets of
the Group are therefore subject to risk. For a list of the
risks to our business, see page 47.
2 The long-term goals are before Aer Lingus integration.
3 In 2015 Aer Lingus results were excluded for incentive
plan purposes.
20
Financial metrics
IAG established long-term planning
objectives for the Group with the aim
to deliver sustainable cash returns to
its shareholders. These objectives are
summarised in four categories that
are interrelated.
• Improving profitability – Measured
through operating profit, operating
margins and return on invested capital;
• Growing efficiently – Balancing
earnings per share growth and
capacity increase with a focus on
progressing in our strategic markets;
• Managing cash flow and strong
balance sheet – Maintaining
appropriate equity free cash flow
levels, generating strong EBITDAR,
keeping capital discipline and
improving our gearing to achieve
investment grade zone; and
• Increasing value creation for our
shareholders – Sustaining ordinary
dividend payment with potential to
improve the payout ratio.
IAG reviewed its long-term planning
objectives as part of the Group’s
Business Plan1 process and defined
goals for the next five years1 for each
of the objectives. Through this year‘s
business planning cycle we have
identified further benefits from internal
initiatives together with tailwinds from
the fuel price. As a result, we have
announced an upgrade to our long-term
goals for the period 2016-2020.
Each objective is measured by a set of
financial key performance indicators and
metrics. Following the completion of the
business plan review process, IAG sets
stretching financial targets annually for
each operating company to support the
delivery of the Group‘s long-term goals.
The Group’s performance against the
KPIs is measured on a regular basis by
IAG’s Management Committee and their
remuneration reward is linked to the
achievement of the targets and long-
term planning goals.
Operating companies also use
specific metrics to measure their
operating performance.
Non-financial metrics
Although not key performance
indicators, the Group measures non-
financial metrics, such as the diversity
of our people and the impact that our
airlines have on the environment.
Read more about our non-financial
performance in our Sustainability
Report on pages 28 – 34.
In addition, the operating companies
review non-financial measures, such
as airline punctuality and customer
satisfaction, which are linked to
variable remuneration and used
to incentivise their employees.
These measures are reviewed
regularly by the management teams of
each of the airlines, and by exception,
by the IAG Management Committee.
IAG OBJECTIVES AND LONG-TERM GOALS
Objective
Goals2 2016-2020
Objective
Goals2 2016-2020
Profitability
Average
growth
RoIC (real terms)
targeting
sustainable 15%
Operating margin
12% – 15%
ASK 3%-4%
per annum
Average EPS
growth 12%+
per annum
Balance sheet
& cash flow
Gearing: Investment
grade zone
EBITDAR:
c€5.6bn average
per annum
Capex: targeting
less than €2.5bn
per annum
Equity FCF €1.5bn
– €2.5bn per annum
Value creation for
our shareholders
Sustainable ordinary dividend
TSR
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015KEY PERFORMANCE INDICATORSSTRETCHING OUR TARGETS TO MORE AMBITIOUS GOALS STRATEGIC REPORT
RoIC (%)
R
OPERATING PROFIT (€m)
R
EPS (€ cents)
R
15
12
9
6
3
0
.
7
2
1
9
7
.
3
5
.
.
5
3
1
.
0
Operating profit (€m)
Adjusted operating margin
2,500
2,000
1,500
1,000
500
0
-500
0
9
3
,
1
0
7
7
5
8
4
)
3
2
(
5
3
3
2
,
12
10
8
6
4
2
0
80
60
40
20
0
-10
-30
4
.
1
7
.
2
0
4
.
8
0
2
.
0
7
2
.
)
4
3
2
(
2011
2012
2013
2014 2015
2011
2012
2013
2014 2015
2011
2012
2013
2014 2015
Why do we use this KPI ?
We use 12-months rolling RoIC1 as a profitability KPI
to assess efficient return on the Group’s asset base. It
quantifies how well the airlines generate cash flow in
relation to the capital invested1 in their business together
with their ability to fund growth and to pay dividends.
Definition
Return on invested capital is defined as operating profit
before exceptional items adjusted for lease and inflation
divided by invested capital2. See Glossary.
Why do we use this KPI ?
We measure improvement in the financial
performance of each operating company through
the operating profit. It is also a key component of
the Group’s remuneration policy.
Why do we use this KPI ?
Earnings per share reflects the profitability of our
business and the core elements of value creation for our
shareholders. Growing earnings indicates that the Group
is on the right path to create value for its shareholders.
We use the operating margin ratio to measure the
efficiency of our business which links with our strategic
objective to reach a competitive cost position and to
optimise revenues through market leadership.
Definition
Operating profit is the Group operating result before
exceptional items.
Adjusted operating margin is defined as operating
profit/(loss) adjusted for lease before exceptional items
as a percentage of total revenue. See glossary.
Definition
Adjusted earnings per share is defined as profit before
exceptional items, after tax adjusted for earnings
attributable to equity holders and interest on convertible
bonds, divided by the number of outstanding shares
adjusted for dilutive impact.
ADJUSTED NET DEBT TO EBITDAR
EBITDAR (€m)
EQUITY FREE CASH FLOW (€m)
6
3
.
3
2
.
5
2
.
9
.
1
9
1
.
4
3
2
1
0
5,000
4,000
3,000
2,000
1,000
0
1
0
3
4
,
7
3
1
,
3
8
5
2
2
,
7
6
8
,
1
0
8
4
,
1
1,600
1,200
800
400
0
-400
-800
2
0
2
0
6
1
,
1
)
7
1
6
(
)
3
1
3
(
)
2
8
3
(
2011
2012
2013
2014 2015
2011
2012
2013
2014 2015
2011
2012
2013
2014 2015
Why do we use this KPI ?
We use this KPI to monitor our capital and to assess
financial headroom through the same lens as financial
institutions.
Why do we use this KPI ?
EBITDAR is an indicator of the profitability of the
business and of the core cash flows generated by
our business model. The measure is not impacted
by the financing structure of our aircraft.
Why do we use this KPI ?
Equity free cash flow is a key indicator of the financial
management of the business. It reflects the cash
generated by the business that is available to fund
dividends to our shareholders, to improve leverage
and to undertake inorganic growth opportunities.
Definition
Adjusted Net Debt to EBITDAR is calculated as
long-term borrowings, less cash and cash equivalents
and other current interest-bearing deposits plus
capitalised operating aircraft lease costs divided
by EBITDAR. In 2013 and in 2015 the full year
EBITDAR of Vueling and Aer Lingus, respectively,
were included in the metric.
Definition
EBITDAR is calculated as operating profit before
exceptional items, depreciation, amortisation and
rental charges.
Definition
We measure Equity Free Cash flow as EBITDA before
exceptional items less cash tax, cash interest and capital
expenditure.
1
2
In the calculation, the asset inflation is estimated at 1.5 per cent to allow for inflation and efficiencies of new fleet. Pre-delivery payments and intangible assets are
excluded from the RoIC calculation. We use value of the assets at period end. Through this year’s business plan process, we have refined the definition of the RoIC.
It had a 0.5 points impact on the 2014 reported result. Prior year information has not been restated.
In 2015, the full year results of Aer Lingus were included in the calculation.
www.iairgroup.com
21
21
www.iairgroup.comSTRATEGIC REPORT
investment in hard product
enhancements. We introduced a new
lie-flat business class seat on our
expanded Airbus A330 fleet and
upgraded our lounges in Dublin and
North America. We modernised the Aer
Lingus brand to support our positioning
as the smart choice for consumers in our
markets. Our new website went live in
the fourth quarter and we released our
new mobile application in early 2016 with
improved functionality and experiential
content. The results so far have been
very encouraging – we carried more
passengers in 2015 than ever before.
Dublin transatlantic gateway
Our transatlantic network sustained the
momentum of recent years throughout
2015. We successfully filled our
additional seat capacity growth of 14 per
cent without compromising yield growth
while maintaining the ratio of point to
point and network traffic flows. In 2016
we will add Los Angeles, Newark and
Hartford to the network and bring to ten
the number of North American gateways
that we serve directly. This growth will
further strengthen IAG’s leadership in
the North Atlantic market.
Robust home market
As demand conditions in Ireland began
to improve towards the end of 2014 we
set ambitious targets for seat factor
growth across our shorthaul network. In
2015 we added 2.6 points to seat factor.
Our offering is synonymous with central
airports, schedule quality and hospitable
service. We are intensifying our efforts to
preserve our differentiation while closing
the cost gap with our main competition.
We will continue to improve shorthaul
performance through targeted load
factor growth, retail success and
aggressive cost management.
PERFORMANCE
€ million
Revenue
EBITDAR
Operating profit
Adjusted operating profit margin
RoIC
Group synergies
Already we have commenced a number
of exciting initiatives as we look to
harness the potential benefit to Aer
Lingus and IAG presented by Group
platforms. They will continue to develop
throughout 2016 and be complemented
by further initiatives as integration
deepens. Our newly launched frequent
flyer programme, Aer Club, will plug into
the global Avios network and transform
the way we manage loyalty.
We will bring a whole new set of
customers to Aer Lingus with expanded
market reach; whether through
codeshare partnerships or broader
alliances. Group Global Business
Services will provide us with economies
of scale across a range of key support
areas that until now we could only
aspire to. Joint procurement is already
delivering value. Two Airbus A330s
resourcing our 2016 expansion have
been procured at a rate Aer Lingus
could not have achieved on a stand-
alone basis.
Conclusion
In 2016 Aer Lingus will celebrate its
80th anniversary. It will be a year
of opportunity for Aer Lingus: the
opportunity to extract the benefits
delivered by IAG ownership, the
opportunity to deliver and contribute
to Group RoIC targets; and the
opportunity to compete for the
resources necessary to continue
to successfully grow Aer Lingus.
20151 Higher/lower2
+10.4%
+29.7%
+72.2%
+2.9pts
+4.4pts
1,718
284
124
8.9%
12.0%
1 Relates to full year to December 31, 2015 under aligned Group accounting policies.
2 Variance against full year to December 31, 2014 under aligned Group accounting policies, excluding certain
non-recurring items.
“ Aer Lingus joins IAG as a
strong, profitable airline
with a resilient business
model and a competitive
cost base.”
Stephen Kavanagh
Chief Executive Officer of Aer Lingus
Strong foundations
2015 saw us post a strong operating
profit result, while keeping the discipline
on the operating expenditure excluding
fuel per available seat kilometre on a
constant currency basis (-1 per cent yoy).
We believe the business is now well
positioned to combine efficient growth
with appropriate investment to deliver
on our RoIC targets;
• exploiting the potential of the Dublin
gateway on the Europe-to-North
America corridor; driving
improvements in our home market
through increased load factors,
retail and enabling technology;
• continuing investment in product
and brand to maintain our “value
carrier” market position; and
• accelerating the delivery of our
pre-integration unit cost
reduction targets.
Passenger experience
We remain committed to delivering
choice and quality service to our
customers at a competitive price.
In 2015 we initiated our “Good to Great”
programme, which incorporates
consistent service standards across the
customer journey, training 1,600 frontline
staff. This was supported by significant
22
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015AER LINGUS DELIVERING ON THE INVESTMENT • raising customer satisfaction with
£6.7 billion investment in new product;
• target 1 per cent per annum reduction
in non-fuel unit costs;
• further development of our alliance
relationships; and
• running a safe, secure and reliable airline.
Maintain our leading position across
the North Atlantic
The North Atlantic is a fairly mature air
travel market for British Airways, but it
continues to be a significant one, and,
British Airways forecasts continued
growth over the business plan period.
The key change in the market place
in recent years has been Delta taking
effective ownership of Virgin Atlantic.
The two airlines have coordinated
schedule, upgraded product and are
actively seeking to take corporate
market share from British Airways
and our partner American Airlines.
The Atlantic Joint Business (AJB) is
responding robustly to the challenge
with a commitment to strengthening
key markets supplemented by the
launch of new destinations.
Build a sustainable shorthaul model
British Airways believes it is important
to keep market share in its key market
to maintain relevance with consumers.
Gatwick returned to profitability and is
now growing. The focus of improvement
is now Heathrow. Commercial
developments including growing
leisure routes in the peak summer
and improvements to ba.com and
mobile to increase sales conversion
of flight and non-flight products.
A competitive cost base is essential to
a sustainable shorthaul model. British
Airways will reduce unit costs by further
densifying the cabins and up-gauging
aircraft. There will be renewed focus
on airport and engineering costs.
Raise customer satisfaction
British Airways is investing significantly in
the customer over the next five years with
a target of improving the Customer NPS.
In 2015 the refurbishment of the shorthaul
cabins was completed and, between 2016
and 2020, 41 brand new longhaul and 31
shorthaul aircraft will be taken on which
will be quieter, more comfortable and with
the latest In Flight Entertainment (IFE)
systems. In addition, 18 Boeing 747s and
46 Boeing 777s will be refurbished with
new IFE. By 2020, 99 per cent of the
longhaul fleet will be new or refurbished.
Reduced non-fuel unit costs
Through the growth outlined above the
company will seek more favourable unit
costs with key suppliers including hub
airports, European handling agreements,
parts pool agreements, maintenance
providers, and catering. In addition, the
company will review opportunities for
further synergies within IAG on core
functions and use of technology to
reduce overheads.
AJB development
The British Airways and American
Airlines on-board product will be
upgraded in 2016 and investment
on the ground will continue.
A number of sales and marketing
initiatives have been launched to further
enhance the offering to customers
including the launch of a new joint
business loyalty programme for small
and medium enterprises customers.
Run a safe, secure and reliable airline
Safety and security performance will
focus on the two key drivers of
engineering our safety risks and
developing a proactive safety culture.
British Airways was again more reliable
than key competitors in 2015 with more
on-time departures from London than
EasyJet or Ryanair according to Civil
Aviation Authority (CAA) data.
PERFORMANCE
£ million
Revenue
EBITDAR
Operating profit
Adjusted operating profit margin
RoIC
1
Includes allocation of Avios results.
20151
Higher/lower
11,598
2,252
1,375
12.2%
13.2%
-1.0%
+19.4%
+41.0%
+3.7pts
+4.1pts
23
“ 2015 was marked by further
progress in financial and
operational performance
towards our targets
and putting in place the
framework for increased
targets to 2020.”
Keith Williams
Executive Chairman of British Airways
Overview
The new 2020 plan will build on the
positive sentiment already achieved
by continuing to invest in the areas
we know our customers value the
most whilst continuing financial and
operational discipline and improvement.
There is no better person than Alex Cruz
as incoming Chairman and Chief
Executive to implement the new plan.
We saw an increase in the number
of customers willing to recommend
British Airways (as measured by NPS),
reflecting the positive impact of
shorthaul cabin refurbishments and
new aircraft on longhaul routes, and saw
improvements in punctuality despite this
being a difficult year for airlines as a
result of air traffic control strikes across
Europe. The airline’s customer service
scores held steady, despite a significant
increase in the number of customers.
British Airways’ business plan targets an
operating margin of between 12 and 15
per cent. Key to achieving this are:
• maintaining our leading position
across the North Atlantic;
• building sustainable, profitable shorthaul
model and hold London market share;
STRATEGIC REPORT www.iairgroup.comBRITISH AIRWAYSCONTINUED GROWTH IN VALUE CREATION two years ago allowed us to continue
closing the unit revenue gap with our
competitors, placing the airline in a
strong position to minimise the potential
impact of a slowdown in Latin America.
Also we continued investing strongly to
improve our new longhaul product, with
a new in-flight experience in our business
and economy classes. By the end of 2016,
we will have 100 per cent of new product
in longhaul, as we complete retrofitting
of Airbus A340-600 and substitute the
Airbus A340-300 with the Airbus
A330-200.
Client satisfaction was further enhanced
by our operational excellence, which
allowed Iberia to be the second most
punctual airline in the world, up from
third last year1. Iberia Express was
ranked the most punctual low cost
airline across the globe for the record
second year in a row1.
Profitable growth
The new cost base of the Plan de Futuro
allowed us to recover the majority of the
longhaul routes withdrawn during the
restructuring. In 2015, Iberia returned to
Havana and announced the re-opening
of Johannesburg and San Juan de Puerto
Rico. Furthermore, we strengthened our
network with new destinations such as
Cali and Medellin, additional frequencies
to Panama, Chile and Mexico, and further
European routes such as Budapest,
Manchester and Florence.
This growth meant that, after 11 years
without hiring pilots, Iberia announced
the entry of up to 200 new pilots,
joining under the new productivity
and compensation conditions set
out in the 2014 labour agreements.
More efficient fleet
In 2015, Iberia marked a new step in the
renewal and optimisation of its fleet. At
the end of the year Iberia took delivery
of the first of 13 Airbus A330-200s,
phasing out the Airbus A340-300 fleet
and reducing fuel burn by 15 per cent
with 40 per cent lower maintenance
costs. The airline confirmed eight
options for Airbus A350-900 to join
its fleet from 2018 onwards.
Iberia also placed its first order for the
new Airbus A320-NEOs joining its
portfolio with a harmonised layout,
common to all IAG airlines that will
bring significant savings on purchase
price and maintenance costs.
Profitable complementary businesses:
Handling and Maintenance, Repair
and Other services (MRO)
The improvements derived from the Plan
de Futuro allowed Iberia airport services
to compete in the auction process for
Spanish airports handling licences,
winning 17 out of the 20 licences,
including the recovery of Barcelona
airport. This success will allow Iberia to
maintain its position as market leader
for the next seven years.
The implementation of Plan de Futuro
productivity and cost optimisation
measures have allowed to increase
the competitiveness of our MRO unit.
The Iberia of the future
2015 results show a strong financial
improvement, with an operating profit
of €247 million (2014: €50 million),
confirming that we are on the right
path towards a future of flexible growth
and sustainable profitability
Iberia remains confident in our Plan de
Futuro and of achieving the Group’s
financial targets:
• 8-14 per cent operating margin
• 15 per cent return on invested capital
• 7 per cent growth in our key markets
leveraging our new cost base while
keeping a close eye on flexibility
PERFORMANCE
€ million
Revenue
EBITDAR
Operating profit
Adjusted operating profit margin
RoIC
1 According to Flightstats Global Airlines ranking.
2 Includes allocation of Avios results.
20152
4,764
720
247
7.0%
10.0%
Higher/lower
+13.5%
+43.4%
+394.0%
+3.5pts
+5.8pts
“ At Iberia, we are halfway
through our Plan de Futuro
and confident we will
achieve our targets.”
Luis Gallego
Chairman and Chief Executive Officer
of Iberia
Background
In 2014 Iberia put into action Plan de
Futuro. The plan is allowing Iberia to
radically transform the company towards
a profitable and sustainable future.
In 2015 we can proudly announce we
have successfully flown half of our
journey, improving results significantly,
through a more competitive cost base
and our continuous commercial
improvement.
Cost optimisation
In terms of labour, we continue with the
optimisation plan of our workforce, while
in parallel simplifying processes and
structure. We have already reduced our
employee cost over total ASK (CASK)
by almost 25 per cent since 2012 and
expect this reduction to reach 35 per
cent by 2018.
In 2015 we also had a strong focus on
supplier cost optimisation, through the
steady implementation of Plan de Futuro
measures on operating costs and
overheads. In addition; the initial benefits
of the implementation of IAG projects
led by IAG’s Global Business Services
further contributed to our finance and IT
cost saving objectives.
Commercial and client focus
The commercial plan that we launched
24
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015IBERIAHALFWAY THROUGH OUR TRANSFORMATION • Harmonisation: Vueling is part of
the IAG fleet harmonisation project,
adopting the same features such
us the introduction of light seats.
Moreover, the airline continues
working on the premium services
with more legroom, cabin dividers,
power outlets and mood lighting.
Profitable growth
Vueling’s profitable growth is based
mainly on three factors:
• Market leadership in key airports:
- Barcelona continues to grow as
Europe’s largest shorthaul airport;
- Rome-Fiumicino consolidates its
domestic and international hub; and
-
International routes from Paris-Orly
continue to increase.
• Focus on international markets: with
60 per cent of passengers originating
from outside Spain in 2015.
• Cost discipline: Vueling has
developed a sustainable model based
on cost discipline which helps the
airline to become the one with lowest
unit costs of any premium-low-cost
company. The 2015 Vueling cost
saving drivers were:
- Fuel efficiency: The next
harmonisation of the new Airbus
A320 and Airbus A321 including
lighter seats and the introduction
of more efficient aircraft (Airbus
A320-NEO), will further reduce
fuel costs.
- Employees: Local crew recruitment
in international bases optimises
crew productivity, as well as
further enhancing cost savings
via selected outsourcing.
- Suppliers: Continued the
implementation of the ongoing
annual saving programme of costs
to offset inflationary increases, as
PERFORMANCE
€ million
Revenue
EBITDAR
Operating profit
Adjusted operating profit margin
RoIC
well as, joint tender processes
with IAG, are contributing to
improve efficiency.
Despite the weaker euro, the favourable
fuel price scenario has benefited
Vueling’s costs with a fuel unit cost
decrease of around 4 per cent.
Innovating culture
Vueling is characterised by its track
record of continuous innovation. In the
last few years, the airline has developed
mobile services making the mobile app
the first tool for the customer full flight
self-management. Other innovation
concepts related with airports services
include auto check-in, on-board services
such as Wi-Fi and power outlets are
currently being developed. In 2015 there
were 15 aircraft with power outlets
on-board.
LOW-COST
• Single aircraft
• High crew
model
productivity
• High fleet
utilisation
• Short
turnarounds
• Low cost base
• No crew
• High
night-stops
punctuality
• Ancillary revenue
• Excellence class:
VIP lounge, free
catering, empty
middle seat
• Connecting
flights
• Codeshare
agreements
• Frequent flyer
programme
• Flexible fares
• Multiple daily
frequencies
PREMIUM SERVICE
2015 Higher/lower
+13.7%
+18.4%
+13.5%
+0.2pts
-1.2pts
1,962
386
160
11.7%
13.7%
25
“ Vueling has increased
capacity by 14 per cent
in 2015 with more than
350 routes, 23 bases, 155
destinations and 25 million
passengers and continues to
see profitable opportunities
for growth in 2016.”
Alex Cruz
Chairman and Chief Executive Officer
of Vueling
In 2015 the flexibility and harmonisation
of the Vueling fleet, ensured profitable
growth and saw a strengthening of
Vueling’s culture of innovation.
The Vueling fleet
Vueling has tripled its fleet since 2009,
with 104 aircraft in 2015. Flexibility,
gauge and harmonisation are the three
main axes for the Vueling fleet to
achieve cost savings and improve
customer perception:
• Flexibility: Fleet flexibility is based
on obtaining lease extensions
supplemented by short term leases,
used aircraft from the market and
balancing the mix of fleet. Managing
seasonality and adapting to market
conditions have always been among
Vueling’s strengths.
• Gauge: In 2015, Vueling introduced
five Airbus A321 aircraft with 220
seats, which led to unit cost
improvement as well as a greater
commercial flexibility. Vueling expects
to have ten Airbus A321 in the fleet
by the end of 2016.
STRATEGIC REPORT www.iairgroup.comVUELINGFLEXIBILITY AND HARMONISATION ENSURES PROFITABLE GROWTH Customer proposition
During the year, Avios offered customers
access to greater redemption flight
availability by successfully managing the
realignment of collection and
redemption propositions across the IAG
frequent flyer programmes, whilst
minimising and managing risks with
currency partners and ensuring no
degradation in revenue.
Avios continued to expand its reach into
new markets and geographies by
concluding partnership agreements with
Kulula and Aer Lingus that will see those
airlines adopt the Avios currency. These
agreements complement the strong
foundation within IAG airlines, increasing
Avios future growth and evidencing its
scalability and partner interest in the
Avios currency model. Additionally,
Avios also successfully renegotiated
multi-year contracts with key financial
partners, establishing a solid platform
for future growth.
Throughout 2015, additional and
enhanced redemption products were
deployed, including the broadening of
the hotel content, inventory and price
options, expansion of the international
ferry and car hire portfolio and the
introduction of new online shopping
platforms. Improved upgrade products
and Pay with Avios (offering discounts
on commercial published tickets) on a
wider range of flights were also instated.
The implementation of peak and off
peak reward flight prices, lowering off
peak longhaul flights by 35 per cent, was
a further step towards enhancing the
customer proposition.
Avios launched the ‘Do More’ with
Avios campaign, focussing on driving
satisfaction and currency utility with
existing collectors. ‘Do More’, based on
the Avios brand essence of ‘Time Well
Spent’, was another step towards
aligning Avios to the emotional, rather
than functional, benefits of travel.
Avios has successfully brought together
‘Do More’ across all customer channels
including social media, specifically
Twitter feeds to connect ‘real time’ with
customers to demonstrate the value of
the Avios currency. It was through this
and other initiatives in 2015 that Avios
was able to increase its active customer
numbers so markedly.
In November 2015, Avios formally took
responsibility for the servicing of English
speaking British Airways Executive Club
applicant tier card holders, establishing
its contact centre capabilities as a Group
centre of excellence, driving synergies and
expertise by increased focus on selling
and servicing redemption products.
Innovation and engagement
Avios pursued an ambitious innovation
agenda in 2015, creating a dedicated
digital innovation directorate. The
establishment of an innovation lab has
created an environment to deliver new
currency applications and prototypes.
Avios has delivered Europe’s first loyalty
app for the Apple watch and rebuilt and
relaunched both its mobile apps, going
through an accelerated process from
first designs to launch inside three
months. These continue to have
functionality added.
The Avios culture embraces
engagement and promotes the potential
of the virtual currency to stimulate
innovation. Avios ran its first hackathons
which generated over 200 ideas from
employees about how to develop
improved customer experiences. Avios
built a stand-alone payment portal
prototype to allow partners to integrate
Avios payments more easily, and also
piloted a social media sales widget.
Collectively, these tools increase the
utility of the Avios digital platform in
order to make reward and redemption
of the currency easier and quicker for
customers and partners.
“ With multiple ways to earn
rewards through a growing
alliance of leading brands
Avios offers unmatchable
travel rewards and benefits
leading to extraordinary
experiences for our
customers.”
Gavin Halliday
Chief Executive Officer of Avios
Avios represents a profitable, dynamic
and scalable tool for IAG. Avios has
increased its active customer base
by 18 per cent in 2015 and continues
to see growth opportunities in 2016
and beyond. Avios is favourably
positioned to perform well based
upon its core loyalty capabilities,
cost model and portfolio of current
and potential partners.
In January 2015 the Avios loyalty reward
business was carved out to create an
independent operating unit of IAG.
Through greater independence, IAG’s
wholly owned customer loyalty currency
provider is on a trajectory to deliver even
better results, with a new commercial
model and legal structure whereby
Avios has formalised relationships
with British Airways and Iberia and
partnerships outside IAG, including
Flybe and Meridiana.
26
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015AVIOSFOCUSED ON CUSTOMER ENGAGEMENT which in turn enables us to fill spare
capacity on the aircraft. Utilisation of
capacity across the network was also
supported by the recently launched
revenue management system, Optima.
This has been a critical tool in setting
price more effectively, enabling the
delivery of optimal returns.
IAG Cargo expanded its global network
in 2015. By launching several important
destinations: Kuala Lumpur, Cali, Medellin
and Havana. The company has provided
its customers with new options for
shipping goods into key markets. In
addition, new aircraft joined the fleet
this year. The Boeing 787 fleet provides
customers with larger, temperature
controlled holds that are well suited
to the increasing volumes of sensitive
cargo being sent by air.
Despite what has been a difficult 2015
for the industry, we have delivered a
stable and resilient performance, while
growing our bottom line contribution.
IAG Cargo’s model is now firmly
established and, with the integration
of Aer Lingus Cargo well underway, the
unified sales team, revenue management
system and network will bring further
benefits to customers.. Therefore we
remain confident that the right strategy
is in place for 2016.
Premium product growth and
cost efficiency
IAG Cargo has continued to set its own
path in an industry subject to excess
capacity and market fluctuations,
initiating several industry defining firsts.
Underpinning IAG Cargo’s initiatives in
2015 has been our relentless focus on the
growth of premium products. A strong
network, customer proposition and
product portfolio have enabled growth in
our premium product mix to 20 per cent
this year. A primary driver of this is our
pharmaceutical product, Constant
Climate. This grew by 44 per cent, in
volume terms and, following a Good
Distribution Practice (GDP) certification
award, is now regarded as an industry
leading product. IAG Cargo now serves
110 pharma approved destinations.
Prioritise, our express product, also grew
by 32 per cent in 2015. This was driven
by several company-wide initiatives, such
as an increase in premium warehouse
capacity and substantial growth from
express intact and small business. IAG
Cargo also optimised its schedule to
open up 2,000 new same-day
connections through its London and
Madrid hubs. This shortening of transit
times further strengthened the express
proposition offered.
We continue to focus on unit cost
control through suppliers’ renegotiations
and productivity improvements.
Flexible regional strategies
and partnerships
Through focusing on strategic
partnerships and the utilisation of the
carrier’s substantial belly hold network,
IAG Cargo has continued to commit
to sensible capacity management
throughout 2015. Extending and
expanding its capacity sharing
agreement with Qatar Airways, as well
as introducing new freighter capacity
arrangements with Finnair cargo, has
meant that IAG Cargo is able to expand
its network and provide additional
freighter services to its customers in
a cost effective way. This stems from
establishing sensible partnership deals.
The Partner Plus programme grew
to seven members this year, with the
addition of Finnair, China Southern and
Aer Lingus. Partner Plus allows IAG
cargo to expand its network, without
having to invest in new infrastructure
“ Our strategy has
undoubtedly been put
to the test this year and,
most importantly, it has
proven its worth.”
Steve Gunning
Chief Executive Officer of IAG Cargo
The airfreight industry experienced a
challenging year, with excess capacity
and reduced demand leading to
significant price and yield pressures. The
year began with an unexpected boost
from the US West Coast port strike,
which in turn led to a sharp rise in
demand that forced traditionally sea
going freight onto aircraft. However,
while this provided air freight with a
welcome boost through to spring 2015,
the increase in demand was temporary.
In the second quarter, challenging
market conditions returned, again
putting air carriers under pressure.
In 2014, IAG Cargo designed and
launched a strategy specifically built
for unpredictable trading conditions
often caused by uncontrollable external
factors. IAG Cargo has termed this a
‘new normal’, whereby overcapacity and
aggressive competition have become
expected day-to-day challenges. In
light of this, 2015 has seen IAG Cargo
continue to deliver its strategy of
differentiation via premium products,
cost efficiency and volume variability,
and flexible regional strategies and
partnerships, all of which tackle the
regionally unique trading conditions that
exist across 350 destinations served.
27
STRATEGIC REPORT www.iairgroup.comIAG CARGORESILIENT PERFORMANCE IN CHALLENGING MARKET CONDITIONS Differentiation viapremium products Flexibleregional strategies& partnershipsCost efficiencyand volumereliability Single commercial platformTo be the leading air cargo networkUnified network At IAG we have a focus on sustainability as we recognise its importance in
enabling the growth of our business but we also firmly believe that as a
responsible company this is the right way to do business. Demonstrating this
ethos, this year we set ourselves the ambition of becoming the world’s leading
airline group on sustainability.
The Group will continue to focus on efficiency through investing in modern aircraft
and technology, and supporting delivery of new sustainable fuels and operational
procedures to reduce aircraft emissions and noise. We will also continue to work
collaboratively with the rest of the industry and with governments to ensure our
sector has a sustainable future.
2016 will be a significant year for the aviation industry as we prepare to agree a
global-market based measure for carbon dioxide emissions at the International
Civil Aviation Organisation (ICAO) General Assembly in September 2016. This
agreement is pivotal in enabling the industry to meet its target of carbon neutral
growth from 2020 and setting the course towards the further target of halving
industry CO2 emissions by 2050.
IAG has been an important player in the international work to develop a global-
market based measure and will continue to actively support this activity during 2016
and beyond to ensure aviation plays its full part in addressing global climate change.
Antonio Vázquez
Chairman
IAG’s contribution to society and
economic prosperity
As one of the largest airline groups in
the world, IAG contributes to global
economic prosperity by connecting
people, places, communities, and
cultures. The connectivity that airlines
provide, which cannot be met by
alternative means of transport,
contributes to increased productivity
and prosperity by encouraging
investment, innovation and efficiency.
In 2015 IAG transported over 95 million
customers (including Aer Lingus
passengers since January 1, 2015) and
delivered 5,293 million tonnes of cargo
kilometres. Total revenue was €22,858
million and the Group employed 60,862
people (average manpower equivalent).
IAG sustainability
In 2015, we established an IAG
sustainability function led by the
Group Head of Sustainability with
the following primary responsibilities:
• to develop and implement a Group
sustainability policy and strategy;
• to establish Group and operating
company targets to improve
sustainability performance; and
• to develop Group and individual
operating company sustainability
programmes to deliver our targets.
Progress has already been made
in these areas with a new Group
Sustainability Policy established and
our Pathway 2020 strategy defining
the main areas of focus for the Group.
While the individual airlines within the
Group will continue to drive their own
sustainability programmes, this new
function at IAG defines Group ambition
and will drive further performance
improvement and consistency
across the Group, delivering both
environmental and financial benefits.
The new Group sustainability
governance structure is shown
in the chart to the right.
“ In 2015, we established a
new Group sustainability
function in IAG, set
ambitious goals on noise
and carbon efficiency
and developed a
programme to deliver
these targets by 2020.”
28
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SUSTAINABILITYESTABLISHING NEW AMBITIONS The Group Head of Sustainability
reports directly to the Chief of Staff and,
twice per year, provides reports to the IAG
Management Committee, and also to the
IAG Audit and Compliance Committee.
Sustainability programmes within the
individual airlines are maintained under
the control of each airline and their
boards. The Group sustainability team
works closely with the relevant leaders
in each of the operating companies to
ensure delivery of initiatives contributing
to the Group sustainability targets.
The IAG risk management process
(see page 47 of this report) provides
both assessment and action on risks
in the area of sustainability, such as
climate change regulation, noise and
labour relations.
Stakeholder engagement
On sustainability, we actively engage
with industry partners and associations,
policy makers, shareholders, the
investment community and
governments to influence policy
and drive action to support our
Group sustainability objectives.
IAG also actively participates in the
industry delegation on the ICAO work
programme for a global climate deal and
will positively engage in the next phase
of this process, concluding at the ICAO
General Assembly in September 2016.
In the UK we work closely with
Sustainable Aviation (SA), an industry
coalition working towards cleaner,
quieter and smarter aviation. Since 2005
we’ve worked through SA with other
airlines, manufacturers, airports and
the air traffic control authority to
deliver a common, credible voice for
aviation sustainability.
2015 marked the tenth anniversary
of SA and the conclusion of our two
year tenure as Chair of the SA Council.
Showcase outputs from SA include the
UK-wide continuous descent campaign
which delivered over 45,000 additional
continuous descents in the first year to
August 2015, saving both noise and
emissions, and the industry-leading
Carbon, Noise and Alternative Fuels
roadmaps which describe how the
industry can deliver improved
sustainability performance to 2050.
We continue to chair two of SA’s working
groups on Sustainable Fuels and
Operational Improvements and have
extended the scope of our membership
from British Airways to IAG.
Inspired by the progress of Sustainable
Aviation in the UK, we have begun talks
with partners in Spain to establish
a similar group to improve our
sustainability performance there.
Climate change
IAG is determined that the Group and
our industry contribute to global climate
change goals, including the United
Nations target to avoid more than
two degrees rise in global temperatures
due to climate change, as agreed at the
November 2015 Paris Climate Change
Summit. Our contribution to this global
goal will be delivered by playing our
part in delivering the industry target of
carbon neutral growth from 2020 and
the further target of halving aviation’s
net CO2 emissions by 2050.
The Group demonstrates good
performance on fuel efficiency with
95.4 grammes of carbon dioxide
per passenger kilometre in 2015.
SUSTAINABILITY MANAGEMENT STRUCTURE
IAG Board
IAG
Audit & Compliance Committee
IAG
Management Committee &
Chief of Staff
IAG
Group Head of
Sustainability
Aer Lingus
British Airways
Iberia
Vueling
Stephen
Kavanagh
CEO
Keith
Williams
Executive
Chairman
Luis Gallego
Chairman
and CEO
Alex Cruz
Chairman
and CEO
IAG Sustainability Network
29
STRATEGIC REPORT www.iairgroup.com Vueling Green Book
In 2015 Vueling launched the Green Book to be distributed to all Vueling pilots,
which highlights practical steps to improve fuel management and efficiency.
The Green Book is just part of a wider training programme to promote
fuel efficiency among Vueling pilots. Over half of Vueling pilots have now
attended face-to-face fuel efficiency training which provides an opportunity
to ask questions and share ideas for further improvements. Just a year after
first adopting the Green Book and the new training programme, results are
already manifesting in the improvement of operating efficiency and reduced
carbon emissions.
In 2015, Vueling added 19 aircraft to its fleet, reducing average fleet age
by 3.3 per cent. In addition average weight per aircraft was reduced by over
100 kilograms, contributing to further fuel savings. 35 per cent of Vueling’s
fleet is fitted with sharklets, which improve fuel efficiency by up to 4 per cent
during the cruise phase of flight.
Aer Lingus Fuel Management System
Aer Lingus have developed a new fuel management system designed to
improve data collection, analysis, validation and management of one of the
airlines biggest costs: fuel. In 2015, this system has already delivered further
significant benefits for Aer Lingus and has helped the Fuel Management
Committee track the success of their initiatives. For example:
• 121 tonnes of fuel saved during 2015 by flying a shorter route between
Dublin and London Heathrow;
• 356 tonnes of fuel saved by reducing the use of reverse thrust which also
has a noise benefit; and
• 48 tonnes of fuel saved by reducing extra fuel carried.
The Fuel Efficiency Network shares with the other airlines the success of the
Aer Lingus Fuel Management System.
DUBLIN
UK and Ireland
Flight planned route
Flight flown route
LONDON
We have set a group target to further
improve our carbon efficiency to
87.3 grammes of CO2 per passenger
kilometre by 2020, representing a 9 per
cent improvement on performance.
During 2016, we will be looking to
improve this target through identifying
additional fuel operating efficiencies.
In addition, significant progress has
been made towards the development
of sustainable low carbon fuels and a
global economic measure to enable
further cost-effective emissions
reductions. The Group is at the
forefront of efforts to ensure the
success of these key elements of
our sustainability strategy.
The Group advocates carbon
pricing through global carbon
markets as the most cost effective
mechanism to tackle aviation’s
emissions. In collaboration with
industry partners, IAG is contributing to
development of an intergovernmental
global market-based measure to cap
net CO2 emissions from 2020. ICAO
members are working towards
agreement of a simple and equitable
design of the mechanism, as previously
mentioned, at the autumn 2016 ICAO
General Assembly.
IAG airlines comply with the EU
Emissions Trading System (ETS) that
currently applies to intra-European
flights. The EU ETS will be reviewed at
the end of 2016 following the outcome
of the ICAO General Assembly.
Our customers have a strong interest
in the climate change activities at our
airlines and we actively engage them by
taking steps to mitigate our emissions.
For example, British Airways’ Carbon
Fund channels customer donations from
flight bookings at ba.com to projects that
invest in renewable energy and energy
efficiency. It is one way the airline is
working with customers to tackle climate
change and have positive social impacts
in the UK. So far the Carbon Fund has
supported 14 renewable energy projects,
exceeding €1.3 million in community
benefits through projects such as solar
panels, efficient lighting and installation
of biomass boilers for schools,
communities and leisure centres.
30
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SUSTAINABILITY CONTINUED Fuel efficiency
Carbon efficiency and other
environmental performance attributes
were important factors in selecting the
23 new aircraft that entered the IAG
fleet during 2015, including 5 Boeing
787-900s, 2 Airbus A380s, 5 Airbus
A321s and 11 Airbus A320s. These aircraft
are significantly cleaner and quieter than
the aircraft they replace.
In 2015 IAG’s combined carbon
efficiency, expressed in grams of
carbon dioxide per passenger kilometre
(gCO2/pkm), was 95.4 gCO2/pkm.
This represents a 2.2 per cent
improvement over 2014, and was
largely driven by fleet renewal.
IAG continues to improve coordination
across the Group on operational fuel
saving initiatives through a dedicated
team of pilots and experts. In November
2015 we formed the IAG Fuel Efficiency
Network bringing together the experts
in each airline to share best practice in
fuel efficiency with a target in 2016 to save
an additional 200,000 tonnes of CO2.
IAG aircraft fleet
IAG’s fuel efficiency, carbon and noise
performance is largely driven by new,
more efficient aircraft replacing older
aircraft in the fleet. The table below
shows the significant acquisition of new
aircraft by IAG over the next five years.
Aircraft fleet – current and forecast
Sustainable low carbon fuels
IAG remains committed to the
development of sustainable fuels that
provide measurable greenhouse gas
emission reductions.
The Group supports a range of projects
with the IAG Fuel Procurement team
working collaboratively with the Group’s
airlines. During 2015, there has been
progress on a number of projects and on
our work with governments to introduce
more supportive policies for sustainable
aviation fuels.
In 2014 we reported on British Airways’
GreenSky project to construct an
advanced fuels facility converting
waste to sustainable jet fuel. During
2015, the project was delayed following
the withdrawal of a key partner but
British Airways is actively working to
establish a partnership with a new
technology supplier and we remain
optimistic that this pathway offers a
viable future for sustainable aviation
fuels in the UK.
British Airways also continued to work
with the UK Government and took part
in the Transport Energy Taskforce on
future biofuel policy resulting in a
recommendation for aviation fuels to be
included in the Government’s Renewable
Transport Fuels Obligation.
Iberia has continued to participate in
the Spanish Government’s collaborative
programme Bioqueroseno to support
the development of a sustainable fuels
industry for aviation. During 2015 the
Bioqueroseno programme, along with
the EU Initiative Towards Sustainable
Kerosene for Aviation (ITAKA), made
further progress in developing
sustainable camelina plantations,
taking Spain a step closer to
production of biojet fuel.
Supporting climate research
Iberia continues to support the
international atmospheric research
project IAGOS (In-service Aircraft for a
Global Observing System), by carrying
atmospheric monitoring instruments on
board one of its Airbus A340 aircraft. In
2015 the aircraft collected data during
334 flights, helping scientists achieve
better weather prediction and informing
future climate prediction models.
Noise
IAG is actively pursuing a range of
ways to reduce the noise impact of
our operations on communities
around airports.
In 2015 the noise performance of IAG
fleet continued to improve as we
invested in new, quieter aircraft. 99 per
cent of IAG aircraft fleet now meet the
ICAO Chapter 4 technology standard for
noise, an increase of 0.3 per cent from
2014. Investment in over 168 new aircraft
over the next five years will continue to
improve our noise performance, which
will deliver a 10 per cent reduction in our
noise per flight by 2020. During 2016,
we will be looking to improve this target
through developing additional noise
efficient flying procedures.
Airbus A320 family
Airbus A330
Airbus A340
Airbus A350
Airbus A380
Boeing 747
Boeing 767
Boeing 777
Boeing 787
Other
Total fleet
2015
335
2014
271
16
24
–
10
40
12
58
13
21
8
24
–
8
43
14
58
8
25
529
459
Future
deliveries
121
14
-
43
2
-
-
-
29
2
211
Options
128
7
-
57
7
-
-
-
18
15
232
31
STRATEGIC REPORT www.iairgroup.com These procedures will include
continuous descent approaches,
delayed landing gear extension,
optimised approach, flap settings slightly
steeper and two segment approaches
British Airways also led a series of flight
trials during 2015 to test quieter
operational techniques.
Air quality
The air quality performance of IAG fleet
has continued to improve as part of
our fleet renewal. In 2015, Group
compliance with the ICAO Committee
on Aviation Environmental Protection
(CAEP4) standard for oxides of nitrogen
(NOx) was 93 per cent, up 1.3 per cent
from 2014, and 65 per cent of our fleet
meet the more stringent CAEP6
NOx standard, up 3.3 per cent from 2014.
Operational practices such as reduced
auxiliary power unit (APU) run times
while aircraft are on stand, and reduced
engine taxiing, are also helping reduce
the impact of our aircraft on local
air quality.
Waste and recycling
IAG airlines are continuing to pursue a
range of initiatives to reduce waste and
increase recycling. Examples of British
Airways initiatives including on-board
segregation of plastic bottles and
aluminium cans for recycling and
working with a service partner and the
airport to segregate EU, origin aircraft
waste on arrival to London Heathrow.
This has allowed significantly more
material to be recycled whilst meeting
strict regulations for the control of
international catering waste.
Vueling is continuing to work with
the non-profit organisation Nutrition
without Borders, to reduce food waste
by retrieving some products from
crew meals for redistribution in
community kitchens.
Responsible procurement
IAG remains committed to procuring
goods and services from suppliers who
can demonstrate ethical principles in the
way they conduct their business in
relation to quality, safety, environmental
responsibility and human rights.
British Airways noise trials
In 2015, British Airways collaborated with industry partners Airbus, Heathrow
Airport and NATS, the UK air traffic control agency, on a ‘Fly Quiet Programme’
to explore opportunities for quieter flight operations.
• The initial trials involved the first use of Airbus’ ‘optimised noise departures’
on four British Airways Airbus A380 flights from London Heathrow. The
aircraft’s advanced technology was used to tailor the climb profile to
minimise noise over densely populated areas. The noise benefit for the low
noise departure was 5 A-weighted decibels (dBA) over a selected location.
• A second trial involved ten flights demonstrating the viability of steeper
segmented approaches on British Airways Boeing 777 aircraft. These aircraft
started their final approach descending at 4.5 degrees and intercepted the
standard 3.0 degrees glideslope at 5 nautical miles (nm) from touchdown.
Noise benefits are approximately 3 dBA at the start of the approach with
aircraft approximately 1,500 feet higher than on a standard 3.0 approach at
around 14 miles to touchdown. The trials were successful and this procedure
offers an exciting opportunity with potential to deliver noticeable noise
reduction on flights during the night period.
• A third trial involved testing 3.2 degrees slightly steeper approaches. Initially
a small number of British Airways Airbus A380 tested this procedure and
subsequently a larger scale trial was led by Heathrow Airport involving a wider
range of aircraft types. Noise benefits are 1 – 2dBA for aircraft flying this profile,
with aircraft circa 200 feet higher than a normal approach when 11.5 nm from
touchdown. At the end of December 2015, IAG aircraft had completed circa
1,500 of the 1,700 trial 3.2 degrees approaches flown at Heathrow.
In 2015 IAG completed health, safety and
environment supplier audits and worked
with suppliers on mitigating actions with
a focus on safety leadership, training and
local programmes. Vueling also launched
a new Supplier Portal, a platform
enabling closer management and more
transparency in supplier relationships.
Safety
Safety across the IAG Group is managed
independently by each airline through
the establishment of a safety board
structure with each Accountable
Manager ensuring the delivery of a
safe and compliant operation.
While each airline is accountable
under EASA Operations for their safe
operation, an IAG Safety Committee
meets regularly and is chaired by the
IAG Chief Executive Officer and
attended by senior representatives
from British Airways, Iberia, Vueling
and Aer Lingus.
The purpose of the IAG Safety
Committee is to compare safety and
compliance performance across the
airlines, to learn from safety events and
share best practice. The current focus
is on the delivery of common standards
for ground handling operations.
In 2015 Vueling successfully passed the
audit to renew its IOSA certification
standard, fulfilling the highest quality and
safety standards in the aviation industry.
Human trafficking
British Airways is providing guidance to
flight crew and cabin crew to support
the UK Border Agency initiative to
reduce human trafficking. Awareness of
this issue is now part of the normal cabin
crew training. This is in addition to
general cabin observation for unusual
behaviour on board which is standard
procedure across the Group’s airlines.
32
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SUSTAINABILITY CONTINUED Diversity
The IAG Board monitors and reports
on diversity at all levels across the
Group. In particular, diversity has been
a key consideration in planning the
long-term composition of the Board
itself. The Board diversity policy is
described on the Company’s website,
where the gender diversity figures are
also disclosed and are shown in the
graphs below:
As well as encouraging diversity in our
workforce IAG is also improving our
services to make air transport more
accessible for everyone. At Vueling, for
example, a new booking process allows
passengers with reduced mobility to
check in on-line, automatically assign a
seat and, if needed, request additional
assistance during their travel. They have
also updated their guide for passengers
with special needs and published a
guide for families travelling with children
to help make the travel experience
easier. At Barcelona and Rome airports
dedicated check-in counters for
passengers with special needs and
those travelling with children have
also been created. IAG supports equal
pay and will capture data to report this
in the future.
Society and community
IAG actively contributes to the
development and support of local
communities, including flight
destinations and areas where the Group
works. IAG aims to be a responsible
neighbour, and limit the impact of its
operations on these communities.
The generosity of our employees
and passengers continues to make
a significant positive contribution to
communities around the world. In 2015
for example:
• Iberia renewed its collaboration with
Unicef to support the ‘100 per cent
vaccinated’ campaign, raising over
€500,000 from passenger donations.
• Iberia’s Envera group continued to
integrate parents of disabled children
into the workplace and supported the
charity ‘Mano a Mano’ in distributing
medicines, clothing, food and
equipment such as computers to
disadvantaged parts of the world.
• Vueling passengers donated
€95,000 to the Sant Joan de Déu
children’s hospital in Barcelona and
€145,000 for Bambino Gesù children’s
hospital in Rome.
• Vueling donated €10,000 to Unicef
to assist children affected by Nepal’s
earthquake, started a fundraising
campaign with Save the Children
for child refugees in Europe and
continued to support the non-profit
organisation Make-a-Wish.
• Aer Lingus continue to support the
Unicef Change for Good programme,
raising over €900,000 per year
through on-board donations and
employee fundraising activities.
• British Airways contributed €9 million
in donations to the charities it
supports, the payroll giving scheme
raised €809,000 for employee chosen
charities and staff volunteering
supported a range of good causes
with 1,810 colleagues donating
14,828 hours in the community.
• British Airways London Heathrow
Community Learning Centre hosted
8,781 students and 218 students
participated in British Airways work
experience programme.
• Flying Start, British Airways corporate
charity partnership with Comic Relief
celebrated its 5 year relationship by
reaching its fundraising target, raising
over €15.6 million since June 2012 to
support Comic Relief’s work both in
the UK and overseas.
GENDER DIVERSITY
Board
Senior management
Group
25%
24%
75%
76%
44%
56%
Male – 9
Female – 3
Male – 163
Female – 51
Male – 34,260
Female – 26,602
33
STRATEGIC REPORT www.iairgroup.com Sustainability indicators
Indicator
Total energy consumption from jet
fuel, gas and electricity
Greenhouse gas (GHG) emissions1 2 3 4
Units
Megawatt
hours
201510
2014
2013
Year over year
(2015-2014)
2012
101,051,244
96,712,371
91,062,826 89,350,479
4.5%
Direct (Scope 1)
Indirect (Scope 2)
Tonnes CO2e 26,335,726
25,219,827 23,664,495
23,249,641
Tonnes CO2e
115,304
113,833
118,036
132,610
Other indirect (Scope 3)
Tonnes CO2e
5,419,599
5,179,537
4,871,126
n/a
4.4%
1.3%
4.6%
GHG emissions intensity
(grammes of carbon dioxide
per passenger kilometre)1 2 4
CO2 emissions intensity for flight
operations only
Percentage of aircraft fleet that
meet ICAO Chapter 4 technology
standard for noise5 6
Percentage of aircraft fleet that meet
ICAO CAEP 4 technology standard for
Oxides of Nitrogen (NOx) emissions5 6
Percentage of aircraft fleet that meet
ICAO CAEP 6 technology standard for
Oxides of Nitrogen (NOx) emissions5 6
Water consumption at main sites
Waste produced at main sites
excluding suppliers7
Average age of aircraft fleet
Average manpower equivalent
Number of new permanent
hires in calendar year
Average hours of training per year,
per employee
Monetary value of significant
fines for non-compliances with
laws and regulations8
Total customer and colleague direct
and in-kind donations to charity9
gCO2/pkm
gCO2/pkm
96
95.4
98.2
97.5
100.4
101.2
(2.2%)
99.7
100.5
(2.2%)
Percentage
99.0%
98.7%
93.1%
90.9%
0.3pts
Percentage
93.0%
91.7%
89.7%
87.5%
1.3pts
Percentage
Cubic metres
65.0%
543,02811
61.7%
501,219
9,932
10.5
59,484
56.1%
n/a
n/a
11.1
60,089
48.0%
n/a
n/a
11.8
59,574
3.3pts
8.3%
6.2%
2.9%
2.4%
3,670
2,647
4,389
42.1%
37.3
35.6
35.0
(3.2%)
10,546
10.8
60,892
5,216
36.1
468,576
392,359
n/a
n/a
19.4%
11,457,171
13,515,678
15,058,811
20,139,797
(15.2%)
Tonnes
Years
Number
Number
Hours
Euros
Euros
Notes
1 GHG indicators represent the most accurate figures available at date of publication. The IAG Investor CDP report available later in the year will contain the finalised data.
2 IAG has reported all GHG emissions sources required under the 2006 Companies Act (Strategic and Directors’ Reports) Regulations 2013. IAG uses the Greenhouse Gas
Protocol Corporate Accounting and Reporting Standard (revised edition), applying an operational control boundary.
3 The GHG emissions are split into Scope 1 (direct, burning jet fuel and natural gas), Scope 2 (indirect, electricity), and Scope 3 (indirect, upstream fossil fuel production).
4 The emissions data was calculated by applying the UK Government’s GHG conversion factors for Company Reporting (2012 to 2015).
5 The International Civil Aviation Organization’s Committee on Aviation Environmental Protection (CAEP) establishes international standards for aircraft noise and engine
emissions. Oxides of Nitrogen (NOx) emissions are relevant to local air quality around airports. The ICAO CAEP 4 and 6 NOx standards were applicable for engines first
manufactured after December 31, 2003 and December 31, 2007 respectively. The ICAO CAEP Chapter 4 technology standard for aircraft noise is applicable for new aircraft
certified on or after January 1, 2006.
6 Noise and NOx indicators include the combined performance of all airlines in the Group. Historic values have been revised in line with this and therefore are different to those
shown in previous reports.
7 Waste figures cover all airlines in the Group but for Vueling include paper waste only. British Airways data is for British Airways only Grundon contract at Heathrow and Gatwick
and includes dry and liquid waste but does not include contractor waste such as catering.
8 Figures referring to monetary fines relate to British Airways, Iberia, Vueling and Aer Lingus. The fines incurred by British Airways in 2015 were; (1) a fine for failing to have 24/7
Brazilian Portuguese language speaking call centre (from 2012) resulting in fine c. USD 30,000. The fines incurred by Iberia were: (1) USA treasury settlement for FAA (Fine
2014EA700185 FAA), USD30,000. (2) Tax charge €59,797, (3) Tax charge €46,327, (4) Tax charge €21,384, (5) Adjustments for fuel €111,547, (6) Tax charge €20,905, (7) Tax
charge €30,001 for Iberia.com sales, (8) Adjustments €32,600 for deposit return to Spanish tour operator, (9) Tax charge €22,788 for deposit return to Spanish tour operator,
(10) Treasury fine €22,788 for deposit return to Spanish tour operator, (11) Local payment €47,200 with settlement 201502040033 Colombia (National Treasure Aerocivil),
punishment UEAC. Vueling and Aer Lingus incurred no fines over value USD 20,000.
9 Figures referring to charity donations for 2013 and 2012 relate to British Airways and Iberia only. 2014 includes Vueling and 2015 also includes Aer Lingus from acquisition date.
Figures converted into euros based on 2015 conversion rate pounds to euros of 1.3711.
10 All figures for IAG 2015 include Aer Lingus from acquisition date.
11 Water data includes Vueling, Iberia and Aer Lingus for 2015, with British Airways 2014 water data as placeholder until 2015 data is available later in the year as part of CDP report.
34
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SUSTAINABILITY CONTINUED 2015 has been a positive year for IAG and we have been able to improve our targets
significantly in the context of the industry and general economic environment.
Our operating result for the Group was €2,300 million (excluding Aer Lingus)
reaching the high end of our expected range, with all three airlines beating their
performance from last year. Behind this strong performance we have to mention
efficient management of our passenger unit revenues on a significant capacity
growth, and accelerating unit cost reductions, both in non-fuel and in fuel cost lines.
These achievements have generated margin and RoIC increases in British Airways,
Iberia and Vueling. The successful completion and integration of Aer Lingus has also
exceeded our expectations.
Our capacity growth has been allocated mostly to Iberia and Vueling on their
strategic market opportunities and cost advantages, while British Airways focus
has been kept on product and market leadership together with cost savings.
The key to our success has been from our continuous efforts in cost control, with
significant progress in productivity and supplier cost reductions across the Group.
This has driven the significant improvement in equity free cash flow versus last year,
getting us closer to the expected average for the next five year period of an EBITDAR
increase of circa €1.2 billion, lower capital expenditure from a slower pace of new fleet
deliveries, a strong focus on investment rationalisation and cash preservation.
The Group cash position has improved, even after completion of the Aer Lingus
acquisition and an initial dividend payment. Our gearing ratio, expressed in adjusted
net debt divided by EBITDAR remained at 1.9 times, reflecting our strong cash
generation, financial strength and our ability to consider new business opportunities
in the future.
Finally, 2015 has also been a success in terms of our earnings per share. Our fully
diluted earnings per share before exceptional items increased by 77.6 per cent
and we paid our maiden dividend this year.
Enrique Dupuy de Lôme Chávarri
Chief Financial Officer
IAG period highlights on results:
• 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
• 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
• 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
• Adjusted gearing up 3 points to
54 per cent and adjusted net debt
to EBITDAR remained constant at
1.9 times including Aer Lingus
• Fuel unit costs for the year before
exceptional items down 6.3 per cent,
down 17.2 per cent at constant currency
35
“ We are pleased with the
success of our synergies
programme exceeding
€800 million in 2015.
The Group has begun to
benefit from the new IAG
platform including Avios
reorganisation, through
IAG GBS savings, and new
developments in digital
and MRO.”
See pages 36 – 37 for more about our
economic landscape
See pages 38 – 46 for the financial review
See pages 47 – 54 for risk management
and principal risk factors
STRATEGIC REPORT www.iairgroup.comFINANCIAL OVERVIEWIMPROVING OUR TARGETS SIGNIFICANTLY Summary
Global GDP growth came in below
expectations in 2015 at 3.1 per cent, 0.3
percentage points lower than in 2014, and
0.4 percentage points below International
Monetary Fund (IMF) forecasts issued
in January 2015. The IMF expects the
rate of GDP growth to increase in 2016,
forecasting GDP growth of 3.4 per cent,
representing a slight pick-up from
advanced economies, but a decline in
emerging and developing economies.
UK
Whilst the UK economy continued to
recover at a strong pace relative to other
G7 economies in 2015, it lost momentum
through the year. The economy grew 2.5
in the first quarter down to 1.9 per cent
growth in the last quarter. Unemployment
continued to fall in 2015 ending at 5.2 per
cent compared to 5.7 per cent in 2014,
representing the lowest level for eight
years. UK consumer confidence also
continued to improve in 2015. The GfK UK
Consumer Confidence Index remained
positive in every month of 2015, with the
index at +2 in December 2015, compared
to -4 in December 2014 and -13 in
December 2013. Inflation fell short of
the Bank of England’s 2 per cent target,
with CPI expanding only 0.2 per cent
in 2015. There continued to be much
debate around the timing of interest
rate increases by the Bank of England
during the year, but the official bank
rate remained unchanged in 2015. The
Organisation of Economic Co-operation
and Development (OECD) and the IMF
currently forecast UK Real GDP growth
of around 2.3 per cent in 2016 compared
to 2.2 per cent in 2015.
Eurozone
Economic growth in the Eurozone
picked up in 2015, with the economy
growing 1.3 per cent in the first quarter,
1.6 per cent in the second quarter and
third quarter and 1.5 per cent in the last
quarter. However, as in 2014 and 2013,
there continued to be a divergence in
performance between different member
states. Spain was one of the fastest
growing countries in the Eurozone in
2015, with the economy strengthening
through the year and reporting a +3.5
per cent rise in real GDP in the fourth
quarter of 2015. In contrast, real GDP
in France rose only +1.3 per cent in
the fourth quarter. As had been
widely expected, the European
Central Bank (ECB) expanded its
Quantitative Easing programme at
the beginning of 2015, with the
programme continuing into 2016. The
inflation rate for the Eurozone turned
positive in the second quarter, but the
level of inflation growth remained low,
increasing +0.2 per cent in December
2015, with ECB President Mario Draghi
reiterating the ECB’s commitment to
raising inflation as quickly as possible.
The unemployment rate continued to
fall, reaching a four year low by the
end of 2015 of 10.4 per cent.
US
The solid economic recovery in the US
continued in 2015, although there was
a reduction in momentum as the year
progressed. The US economy grew
2.9 in the first quarter, 2.7 per cent in
the second quarter, 2.1 per cent in the
third quarter and 1.8 per cent in the last
quarter. Although consumer confidence
fell slightly in 2015, based on the
University of Michigan Consumer
Sentiment Index, this decline happened
in the second half of 2015. The labour
market continued to strengthen with the
unemployment rate dropping to 5.0 per
cent at the end of 2015, from 5.6 per
cent last year. Whilst the rate of inflation
growth remained muted throughout
2015, the US Federal Reserve increased
interest rates 0.25 percentage points in
December 2015, the first rise since 2006.
Latin America
Latin America experienced another
difficult year in 2015 , with real GDP
contracting 0.3 per cent compared to
growth of 1.3 per cent in 2014. Growth
was once again weakest in South
America with a reduction in real GDP of
1.5 per cent compared to growth of 0.7
per cent in 2014. Venezuela remained in
recession, with real GDP reducing 10.0
per cent in 2015 compared to a
reduction of 4.0 per cent in 2014. Brazil,
Latin America’s largest economy, and
Ecuador also slipped into recession this
year, with real GDP reducing 3.8 per cent
in Brazil and 0.6 per cent in Ecuador. In
addition, the rate of growth, compared
with 2014, declined in every country in
South America with the exception of
Chile and Peru. Uncertainty continues
to undermine economic recovery, with
falling commodity prices, emerging
market slowdown, currency depreciation
and political turbulence. Economies
in Central America, such as Mexico,
remained more robust, with real GDP
increasing 3.9 per cent, compared to
growth of 4.1 per cent in 2014.
Industry outlook
Trading conditions
IATA is forecasting industry operating
margins of 8.2 per cent in 2016, building
on operating margins of 7.7 per cent
in 2015. IATA forecast industry seat
capacity to increase 4.0 per cent
compared to 3.7 per cent in 2015, with
ASKs increasing ahead of this by 7.1 per
cent compared to 5.5 per cent in 2015.
Passenger load factor is expected
to slip slightly to 80.4 per cent from
80.6 per cent in 2015, with return fares
per passenger to decline 7.9 per cent
in 2016, lower than the 13.8 per cent
decline in 2015.
As was the case in 2015 and 2014, IATA
forecast North America to generate the
highest net post-tax profit margin in
2016, of 9.5 per cent, the same as 2015.
As in the past three years, IATA
forecast Africa to generate the lowest
net post-tax margin in 2016 at -0.5 per
cent although an improvement from
2015. Africa is the only region IATA
forecast to be loss making in 2016,
with losses due to regional conflict
and competitive challenges.
GDP GROWTH
OECD
IMF
Eurozone
US
Latin America
2016
1.8%
1.6%
2015
1.5%
1.5%
2016
2.5%
2.8%
2015
2.4%
2.6%
2016
n/a
0.8%
2015
n/a
(0.8%)
36
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015ECONOMIC LANDSCAPEONGOING DEVELOPMENTS IMPACT OUR INDUSTRY UK aviation policy
The Airports Commission set up by the
previous coalition Government delivered
its report on UK airport capacity during
the year, recommending a new 3,500
metre runway to the north west of
Heathrow. The Government was
expected to announce its decision
on this recommendation in December
2015, but has delayed doing so until
summer 2016 at the earliest. Given the
uncertainty we remain sceptical about
the Government’s commitment to
make a final decision in favour of a
new airport capacity.
IAG believes that Heathrow is the correct
location for new runway capacity but
has challenged the excessive costs of
the proposals put forward by Heathrow’s
operator (HAL), arguing that any
new capacity must be delivered cost
effectively. We will continue to pursue this
objective vigorously over the coming year.
European aviation policy
The European Commission launched its
“Aviation Strategy” on December 7, 2015,
its objective is to ensure that the
European aviation sector remains
competitive and takes full advantage
of the benefits of the fast-changing
and developing global economy.
Legislative initiatives in the strategy
include a request to negotiate
comprehensive EU-level air transport
(“Open Skies”) agreements with a
number of countries, the completion
of the Single European Sky project
and an update of the EU’s aviation
safety rules. In the coming year IAG
will continue its engagement with
the EU Institutions to ensure its
interests are taken into account as
the various initiatives are developed.
In contrast to Africa, IATA expects
airlines in Latin America to generate a
profit in 2016, recovering from the losses
in 2015. For Europe, IATA forecast net
post-tax margins of 4.3 per cent in 2016,
better than the 3.5 per cent in 2015.
While IATA expects, Asia Pacific net tax
margins of 3.2 per cent, up 0.3 points
from last year.
Changes in the industry
Positive changes to the industry
continue, with many companies,
including IAG, undertaking multi-year
programmes aimed at reducing their
operating costs to sustainable levels
for the medium and long-term.
IAG paid its maiden dividend and
updated its long-term planning goals for
2016-2020. These included a Return on
Invested Capital (real terms) targeting
sustainable 15 per cent compared to
+12 per cent previously; an operating
profit margin range of 12 to 15 per cent
compared to 10 to 14 per cent; and
average earnings per share growth of
+12 per cent per annum compared to
+10 per cent.
IAG completed the acquisition of Irish
airline Aer Lingus, which joined the
Group in August 2015. Iberia made
significant progress towards the goals
set as part of their Plan de Futuro
restructuring programme launched in
2014. British Airways made further
progress towards its goals, and Vueling
continued to expand across Europe,
announcing the launch of a new base
at Paris Charles de Gaulle airport
opening in 2016.
Regulatory controls
The airline industry remains among
the most heavily regulated in the world.
In 2015 there have been significant
developments impacting the industry.
Air Passenger Duty (APD)
The UK government continues to
impose APD on airlines, the heaviest
tax of its kind in the world, which cost
the industry as a whole some £3.2 billion
in the financial year to March 2015.
Previously announced changes to APD
were implemented during the year for
passengers on longhaul services to
destinations in the Far East, South
America, Caribbean and Southern Africa.
APD was also removed for children
under 12 years old from May 2015 and
this will be extended to children under
16 years old from May 2016.
Following last year’s recommendation
by the Smith Commission to devolve
APD at Scottish airports, the Scottish
Government is currently consulting on
the structure and level of the tax with
a view to possibly reducing tax. IAG
considers that piecemeal reductions
could simply serve to distort competition
between UK airports and will therefore
continue to argue for the complete
abolition of APD across the UK.
Visa policy
During the year, the UK Government
responded to the arguments put by IAG
and many airlines to improve the visa
regime for visitors to the UK. Specifically,
improvements were announced for
Chinese visitors that will be implemented
in early 2016, including the introduction
of a two year visit visa at the same cost
as the existing six month visa and trials
of a ten year visa similar to that offered
by the US to visitors from China. This
could improve the UK’s competitive
position in terms of attracting high
spending visitors from China. IAG will
press for similar improvements for
visitors from other key markets.
European Union’s emissions trading
scheme (EU ETS)
In 2012, the European Union (EU)
launched an emissions trading scheme.
Following international opposition, the
EU reduced the coverage of the scheme
to flights within the EU to allow time for
the development of a global market-
based approach by the International
Civil Aviation Organisation (ICAO).
The ICAO General Assembly in October
2013 agreed to develop a global market-
based measure by 2016. As a result of
this progress at ICAO, the EU introduced
a regulation to continue with intra-EU
scope of the ETS until 2016. This
reduced scope will be reviewed after
the ICAO General Assembly in October
2016 when a decision will be made
about its future scope.
37
STRATEGIC REPORT www.iairgroup.com • 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
Domestic
Europe
North America
Latin America
and Caribbean
Africa, Middle East
and South Asia
Asia Pacific
Total network
ASKs
higher/
(lower)
7.7%
20.5%
5.3%
Passenger
load factor
78.2
79.1
84.0
Higher/
(lower)
0.9 pts
1.0 pts
0.9 pts
7.6%
83.1
1.7 pts
(3.0%)
9.0%
8.2%
78.6
83.2
81.4
0.7 pts
1.1 pts
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.
38
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015FINANCIAL REVIEWIATA market growthsThe 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, 2015Capacity ASKsPassenger load factorHigher/ (lower) Europe3.8% 82.6 1.0 ptsNorth America3.1% 81.8 0.1 ptsLatin America9.2% 80.1 0.1 ptsAfrica1.5% 68.5 1.0 ptsMiddle East13.2% 76.4 (1.7) ptsAsia Pacific6.4% 78.2 1.3 ptsTotal market 5.9%79.70.5 ptsSource: IATA Air Passenger Market analysisIAG NETWORKDomesticEuropeNorth AmericaLatin America and CaribbeanAfrica, Middle East and South AsiaAsia Pacific7%9%14%17%25%28%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 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
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Higher/(lower)
Year over
year
14.2%
3.2%
9.7%
13.3%
Per ASK
at ccy
(3.5%)
(4.1%)
2015
20,350
1,024
1,484
22,858
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.
n
o
i
l
l
i
m
€
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
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i
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ASK
PASK at ccy (%)
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s
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-1.0
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-3.0
-4.0
-5.0
-6.0
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39
STRATEGIC REPORT www.iairgroup.com
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
€ million
Fuel, oil costs and
emissions charges
Higher/(lower)
2015
Year over
year
Per ASK
at ccy
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
€ million
Supplier costs:
Handling, catering and
other operating costs
Landing fees and
en-route charges
Engineering and other
aircraft costs
Property, IT and
other costs
Selling costs
Currency differences
Higher/(lower)
2015
Year over
year
Per ASK
at ccy
4.5%
2,371
14.9%
1,882
21.0%
1,395
965
912
45
9.3%
4.1%
6.2%
40
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015FINANCIAL REVIEW CONTINUEDExpenditure before exceptional itemsEmployee 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 costsHigher/(lower)€ million2015Year over year Per ASK at ccyEmployee costs4,90513.4%3.5% ProductivityHigher/(lower)2015Year over yearProductivity4,4815.8%Average manpower equivalent60,8622.3% 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
€ million
Ownership costs
Higher/(lower)
Year over
year
12.5%
Per ASK
at ccy
4.3%
2015
1,966
Number of fleet
Higher/(lower)
Shorthaul
Longhaul
2015
351
178
529
Year over
year
20.6%
6.0%
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.
OPERATING PROFIT
2,500
2,000
n
o
i
l
l
i
m
€
1,500
1,000
500
0
5
2
-500
2015
2014
)
0
5
1
(
Q1
5
3
3
2
,
0
9
3
,
1
0
5
2
,
1
0
0
9
0
3
5
0
8
3
0
3
5
0
6
2
Q2
Q3
Q4
Full
year
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.
41
STRATEGIC REPORT www.iairgroup.comBy supplier cost categoryHandling, 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. 1%31%25%18%13%12%Handling, catering andother operating costsLanding fees and en-route chargesEngineering and other aircraft costsProperty, IT and other costsSelling costsCurrency differencesLanding 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.
Financial performance by Brand
CAPACITY
3%
11%
22%
64%
Aer Lingus
British Airways
ASKs
Seat factor (per cent)
Iberia
Vueling
OPERATING PROFIT
7%
1%
10%
82%
Aer Lingus
British Airways
Iberia
Vueling
British Airways
£ million
Aer Lingus
€ million
2015
174,274
81.5
10,279
547
772
11,598
3,030
2,516
3,800
2,252
877
1,375
12.2%
Higher/
(lower)
2.0%
0.5pts
(1.7%)
(8.5%)
15.4%
(1.0%)
(13.8%)
2.2%
(1.5%)
19.4%
(3.7%)
41.0%
3.7pts
7.24
(4.1%)
5.90
(3.6%)
2015
21,476
81.6
1,628
53
37
1,718
388
331
715
284
160
124
8.9%
9.29
7.58
Higher/
(lower)
5.4%
2.6pts
11.3%
12.8%
(19.6%)
10.4%
4.0%
2.8%
11.4%
29.7%
8.8%
72.2%
2.9pts
2.2%
5.6%
6.66
(2.9%)
8.00
4.8%
1.74
(15.5%)
1.81
(1.1%)
4.13
(2.4%)
5.87
(6.7%)
5.62
7.42
3.1%
1.9%
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Fuel, oil costs and emissions
charges
Employee costs
Supplier costs
EBITDAR
Ownership costs
Operating profit before
exceptional items
Adjusted operating margin
Passenger yield
(£ pence or € cents/RPK)
Unit passenger revenue
(£ pence or € cents/ASK)
Total unit revenue
(£ pence or € cents/ASK)
Fuel unit cost
(£ pence or € cents/ASK)
Non-fuel unit costs
(£ pence or € cents/ASK)
Total unit cost
(£ pence or € cents/ASK)
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.
* Aer Lingus 2014 comparative results exclude the cost
of pension settlement which is considered
exceptional in nature.
42
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015FINANCIAL REVIEW CONTINUED CAPACITY
3%
11%
22%
64%
Aer Lingus
British Airways
ASKs
Seat factor (per cent)
Iberia
Vueling
Passenger revenue
Cargo revenue
Other revenue
OPERATING PROFIT
7%
1%
10%
82%
Aer Lingus
British Airways
Iberia
Vueling
Total revenue
Fuel, oil costs and emissions charges
Employee costs
Supplier costs
EBITDAR
Ownership costs
Operating profit before
exceptional items
Adjusted operating margin
Passenger yield
(€ cents/RPK)
Unit passenger revenue
(€ cents/ASK)
Total unit revenue
(€ cents/ASK)
Fuel unit cost
(€ cents/ASK)
Non-fuel unit costs
(€ cents/ASK)
Total unit cost
(€ cents/ASK)
Iberia
€ million
Vueling
€ million
2015
59,872
81.1
3,561
253
950
4,764
1,249
1,021
1,774
720
473
Higher/
(lower)
10.2%
2.5pts
12.1%
0.0%
13.5%
11.6%
8.0%
(1.4%)
12.6%
43.4%
4.6%
2015
30,476
81.3
1,962
–
–
1,962
533
189
854
386
226
Higher/
(lower)
14.2%
0.9pts
13.7%
–
–
13.7%
9.2%
21.2%
13.1%
18.4%
22.2%
247 394.0%
3.5pts
7.0%
160
11.7%
13.5%
0.2pts
7.33
(1.6%)
7.92
(1.5%)
5.95
1.7%
6.44
(0.3%)
7.96
1.3%
6.44
(0.3%)
2.09
(1.9%)
1.75
(4.4%)
5.46
(3.2%)
4.16
1.2%
7.55
(2.7%)
5.91
(0.5%)
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.
43
* Excludes intragroup dividends received and profit
on the sale of the Iberia plus (to Avios).
STRATEGIC REPORT www.iairgroup.com 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
Reported revenue
Translation impact
Transaction impact
Total exchange impact on revenue
Reported operating expenditure
Translation impact
Transaction impact
Total exchange impact on
operating expenditures
Reported operating profit
Translation impact
Transaction impact
Total exchange impact on
operating profit
Higher/
(lower)
1,652
265
1,917
(1,441)
(387)
(1,828)
211
(122)
89
Translation
£ to €
Transaction
£ to €
€ to $
£ to $
2015
1.37
1.37
1.12
1.54
Higher/
(lower)
7.9%
10.5%
(16.4%)
(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.
44
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015FINANCIAL REVIEW CONTINUED 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
EBITDAR before exceptional
Aircraft lease costs ('rentals')
EBITDA
Interest
Tax
Capex
Equity free cash flow
Movement in working
capital and other non-cash
Pension and restructuring
Acquisition of subsidiary
(net of cash and deposits) /
divestment of investment
Dividend paid
Net financing and refinancing
Other investing movements
Other financing movements
Cash in flow
Opening cash, cash equivalents
and interest bearing deposits
Net foreign exchange differences
Cash and cash equivalents and
other interest-bearing deposits
€ million
British Airways
Iberia
Aer Lingus
Vueling
IAG and other Group companies
Cash and cash equivalents
and interest-bearing deposits
2015
4,301
(659)
3,642
(197)
(245)
(2,040)
1,160
(658)
(588)
(438)
(163)
1,067
366
(184)
562
4,944
350
2014
3,137
(551)
2,586
(159)
(118)
(2,622)
(313)
(150)
(457)
589
–
1,000
455
(43)
1,081
3,633
230
5,856
4,944
2015
2,806
832
772
633
813
2014
3,206
870
–
651
217
5,856
4,944
45
STRATEGIC REPORT www.iairgroup.com Net debt and adjusted net debt
€ million
Debt
Cash and cash
equivalents and interest
bearing deposits
Net debt at January 1
Increase in cash
net of exchange
Net cash outflow from
repayments of debt and
lease financing
New borrowings and
finance leases
Increase in net debt
from regular financing
Debt acquired
Cash and cash
equivalents and
interest bearing
deposits acquired
Net debt through
Business combination
Financing raised
for acquisition
Exchange and other
non-cash movements
Net debt at
December 31
Capitalised aircraft
lease costs
Adjusted net debt
at December 31
2015
(6,617)
2014
(5,122)
Higher/
(lower)
(1,495)
4,944
(1,673)
3,633
(1,489)
1,311
(184)
–
1,311
(1,311)
1,026
1,009
17
(905)
(2,009)
1,104
121
(406)
(1,000)
–
1,121
(406)
913
507
(1,087)
–
–
–
913
507
(1,087)
(642)
(495)
(147)
(2,774)
(1,673)
(1,101)
(5,736)
(4,408)
(1,328)
(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.
ADJUSTED NET DEBT TO EBITDAR
10,000
n
o
i
l
l
i
m
€
7,500
5,000
2,500
0
0
1
5
8
,
4
7
7
2
,
1
8
0
6
,
3
7
6
,
1
3.0
2.0
%
1.0
0.0
2015
2014
Adjusted net debt
Net debt
Adjusted net debt to EBITDAR
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.
46
2
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015FINANCIAL REVIEW CONTINUED
The Board has overall
responsibility for ensuring
that IAG has appropriate
risk management and
internal controls in place
and that they continue
to work effectively.
There is a comprehensive
risk management process
and methodology ensuring
a robust assessment of
the principal risks facing
the Group. This process is
led by the Management
Committee and supported
by Head of Group Audit
and Risk Management.
Best practices are shared
across the Group.
During 2015 the Board adopted 19 risk
appetite statements following the 2014
UK Corporate Governance Code’s
guidance on risk management. These
statements inform the business, either
qualitatively or quantitatively, on the
Board’s appetite for certain risks. Each
risk appetite statement formalised how
performance is monitored either on a
Group wide basis or within major projects.
The highly regulated and commercially
competitive environment, together
with the businesses’ operational
complexity, exposes the Group to a
number of significant risks. We remain
focused on mitigating these risks at all
levels in the business although many
remain outside our control; for example,
changes in government regulation,
adverse weather, pandemics, fuel
prices and foreign exchange.
Risks are grouped into four categories:
strategic; business and operational;
financial; and compliance and regulatory
risks. Guidance is provided below on
the principal risks that may threaten
the Group’s business model, future
performance, solvency and liquidity.
Where there are particular circumstances
that mean that the risk is more likely
to materialise, those circumstances are
described below. The list is not intended
to be exhaustive.
Throughout the Group, risk owners are
responsible for identifying risks within
their area of responsibility, quantifying
the risk and managing the risk including
putting in place appropriate response
plans. They are supported by risk
management professionals who
maintain risk maps for each airline.
The risk maps plot each critical risk
on an impact and probability scale. For
each critical risk, mitigating actions are
documented and are actively managed.
Risk maps are reviewed by each airlines’
management committee who consider
the accuracy and completeness of the
map, significant movements in risk and
any changes required to the response
plans addressing those risks Aer Lingus’
existing risk management process
is being integrated into the Group
framework and Aer Lingus risks
were considered in the Management
Committee’s December 2015 risk update.
At the Group level, material risks from
the airlines, together with Group wide
risks, are maintained in a Group risk
map. The IAG Management Committee
reviewed the Group risk map twice
during the year in advance of reviews by
the Audit and Compliance Committee
of the Board in accordance with the
September 2014 UK Corporate
Governance Code and the 2015 Spanish
Unified Good Governance Code of
Listed Companies recommendations.
The IAG Board discussed risk at a
number of meetings including a review
of the Group’s risk appetite; Chief
Executive Officer updates; regular
discussions around strategy and the
Business Plan.
47
STRATEGIC REPORT www.iairgroup.comRISK MANAGEMENT AND PRINCIPAL RISK FACTORS Strategic risks
Open competition and markets are
in the long-term best interests of the
airline industry and we have a high
appetite for continued deregulation
and consolidation. We seek to minimise
the risk that government intervention
or the regulation of monopoly suppliers
disadvantages us. In general the Group’s
strategic risk was stable during the year,
as the economy in Spain recovered and
competitor capacity growth was broadly
rational. The table on page 49 includes
digital disruption as a new strategic risk,
the Group will continue to invest in
exploiting digital technology and
monitor competitor activity closely.
Business and operational risks
The safety and security of our customers
is a fundamental value to us. The Group
balances the resources we devote to
building resilience into operations and
the impact of disruption on customers.
In 2015 British Airways commenced the
implementation of its new customer
management systems that provide
airport check in and aircraft boarding
functionality. The plan has been
designed to build up operational
experience of the new system before it
is implemented in high volume stations.
It was implemented in 33 stations in
2015 and 2016 will see a gradual roll out
to all international stations followed
by Gatwick and Heathrow.
Cyber risk has been separately
identified as a principal risk this year,
the Management Committee has led the
response to cyber risk through monthly
reviews and initiatives to ensure that
there are consistently robust defences
and incident response plans throughout
the Group.
Financial risks
IAG balances the relatively high
business and operational risks inherent
in our business through adopting a
low appetite for financial risk. This
conservative approach involves
maintaining high cash balances and
substantial committed financing
facilities. Policies around fuel price and
currency risk explicitly consider our
appetite for fluctuations in cash and
profitability resulting from market
movements. However, we are also
careful to understand our hedging
positions compared to our competitors
to ensure that we are not commercially
disadvantaged by being over-hedged
in a favourable market.
In 2015 financial risks generally
decreased as falling fuel prices reduced
our short US dollar exposure and the
financing market for both aircraft and
corporate transactions continued to be
favourable.
Compliance and regulatory
The Group has no tolerance for breaches
of legal and regulatory requirements in
the markets in which IAG operates.
RISK MANAGEMENT FRAMEWORK
IAG Board
IAG Audit and Compliance Committee
IA
IAG Management Committee
IAG Head of Group Audit
and Risk Management
Risk systems
Risk owners
48
Iberia
Board
British
Airways
Board
British
Airways
Risk Team
British
Airways
Leadship
Team
Vueling
Management
Committee
Iberia
Management
Committee
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015RISK MANAGEMENT AND PRINCIPAL RISK FACTORS CONTINUED
Risk
Strategic
Competition
Potential impact
Management and mitigation
The markets in which we operate are highly
competitive. The Group faces direct competition
on our routes, as well as from indirect flights,
charter services and other modes of transport.
Competitor capacity growth in excess of demand
growth could materially impact our margins.
Some competitors have cost structures that
are lower than ours or have other competitive
advantages such as government support or
benefitting from insolvency protection. In
addition the low cost model continues to be
extended into longhaul by our competitors.
Digital disruption
Competitors, or new entrants to the travel market,
may use digital technology to disrupt the
business.
Consolidation
and deregulation
Although the airline industry is competitive, we
believe that the customer would benefit from
further consolidation. Failing airlines can be
rescued by government support delaying
the opportunity for more efficient airlines to
capture market share and expand. Mergers
and acquisitions amongst competitors have
the potential to adversely affect our market
position and revenue.
Joint business arrangements such as the
agreements with American Airlines and JAL
include delivery risks such as realising planned
synergies and agreeing the deployment of
additional capacity within the joint business.
Any failure of a joint business or a joint
business partner could adversely impact
our business.
Failure of a franchise partner will reduce traffic
feed into our hubs or major outstations.
The airline industry is dependent on alliances
and IAG is no exception to this.
The IAG Management Committee devotes one
weekly meeting per month to strategic issues.
The Board dedicates two days per year to Group
strategy. The Group strategy team supports the
Management Committee by identifying where
resources can be devoted to exploit profitable
opportunities. Airline revenue management
departments and systems optimise market
share and yield through pricing and inventory
management activity.
The Group’s strong global market positioning,
leadership in strategic markets, alliances, joint
businesses, cost competitiveness and diverse
customer base continue to address this risk.
The Group is continually reviewing its product
offerings and responds through initiatives, such
as investing in Wi-Fi across 90 per cent of the
longhaul fleet by early 2019.
The Group’s unrelenting focus on the customer,
together with our own exploitation of digital
technology, reduces the impact digital disruptors
can have. In 2015 the Group established a digital
team focusing on innovation.
The Group maintains rigorous cost control
and targeted product investment to remain
competitive.
The Group has the flexibility to react to market
opportunities arising from weakened competitors.
Vueling and Iberia Express give us additional
flexibility in this regard as it can deploy capacity
at short notice across Europe.
The Management Committee regularly reviews
the commercial performance of joint business
agreements and the status of negotiations
between the parties.
The Management Committee regularly reviews
our franchisee performance and risks.
Maintaining a leading presence in oneworld
and ensuring the alliance attracts and retains
the right members are key to safeguarding
the network.
49
STRATEGIC REPORT www.iairgroup.com Risk
Potential impact
Management and mitigation
Strategic continued
Government
intervention
Airports
Some of the markets in which the Group operates
remain regulated by governments, in some
instances controlling capacity and/or restricting
market entry. Relaxation of such restrictions,
whilst creating growth opportunities for the
Group, may have a negative short-term impact
on our margins.
Regulation of the airline industry covers many of
our activities including route flying rights, airport
landing rights, departure taxes, security and
environmental controls. Excessive taxes or
increases in regulation may impact on our
operational and financial performance.
IAG is dependent on and may be affected by
infrastructure decisions or changes in policy by
governments, regulators or other entities outside
the Group’s control. London Heathrow has no
spare runway capacity and has operated on the
same two main runways since it opened over
60 years ago. As a result, British Airways is
vulnerable to short-term operational disruption.
IAG is also dependent on the oil industry making
sufficient investment in fuel supply infrastructure.
Peak consumption at London Heathrow and
London Gatwick airports is nearing the capacity
of the pipe and rail infrastructure serving these
airports. In addition, storage capacity at London
Heathrow is lower than at other international
airports, increasing the risk of any disruption
to supply impacting our operations.
IAG is also dependent on the performance of
suppliers of airport services such as airport
operators, border control and caterers.
The Group’s government affairs department
monitors government initiatives, represents
our point of view and forecasts likely changes
to laws and regulations.
The Group’s ability to comply with and influence
changes to regulations is key to maintaining
operational and financial performance. We
continue to discuss the negative effect the
imposition of APD has on the UK economy
with the UK Government.
The Group continues to promote the timely
conclusion of the UK Government’s deliberations
on additional runway capacity at London Gatwick
and London Heathrow airports. We advocate
development at a reasonable cost which should
be borne by the users of the new capacity.
IAG’s airlines participate in the slot trading market
at Heathrow airport; acquiring slots at reasonable
prices when available.
British Airways enters into long-term contracts
with fuel suppliers to secure fuel supply at a
reasonable cost.
Short-term fuel shortages are addressed
by contingency plans.
These risks are mitigated by active supplier
management and contingency plans.
50
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015RISK MANAGEMENT AND PRINCIPAL RISK FACTORS CONTINUED Risk
Potential impact
Management and mitigation
Business and operational
Brand reputation
The Group’s brands have significant commercial
value. Erosion of the brands, through either a single
event or a series of events, may adversely impact our
leadership position with customers and ultimately
affect our future revenue and profitability.
Economic
conditions
Employee
relations
Failure of a critical
IT system
IAG’s revenue is highly sensitive to economic conditions
in the markets in which we operate. Deterioration in
either a domestic or the global economy may have
a material impact on our financial position.
Economic conditions in the Group’s main markets
were good in 2015 as their economies have adjusted
to an extended period of low inflation. The UK (36 per
cent of Group revenue) and the USA (15 per cent of
Group Revenue) have remained stable. Economic
conditions in Spain (15 per cent of Group Revenue);
have continued to improve with growth of around
3.5 per cent in 2015.
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.
The UK Brexit vote is likely to be accompanied by the
risk of some short term economic uncertainty within
the UK; that risk may extend into the longer term
should there be a vote to exit. We have undertaken
a risk assessment to ensure that we can operate
effectively should this scenario occur. At this stage,
we don’t believe it will have a significant impact on
our business.
The Group has a large unionised workforce
represented by a number of different trade unions.
Collective bargaining takes place on a regular basis
and breakdowns in the bargaining process disrupt
operations and adversely affect business performance.
IAG is dependent on IT systems for most of our
principal business processes. The failure of a key
system may cause significant disruption to our
operation and/or lost revenue.
In 2015 the British Airways Travel Programme
commenced implementation of its new customer
management system that provides passenger check-
in and aircraft boarding functionality. As such it is a
critical operational system. In 2016, the system will be
implemented in complex and high volume stations,
including Gatwick and Heathrow.
The Group allocates substantial resources to
safety, operational integrity and new aircraft
to maintain its market position. Our 2016
– 2020 Business Plan sees an annual Capital
Expenditure of less than €2.5 billion of
which around 80 per cent is directed
towards improving, growing and replacing
the aircraft fleet.
The Board and the Management Committee
review the financial outlook and business
performance of the Group through the
financial planning process and regular
reforecasts. These reviews are used to drive
the Group’s financial performance through
the management of capacity and the
deployment of that capacity in geographic
markets, together with cost control, including
management of capital expenditure and the
reduction of operational and financial
leverage.
External economic outlook, fuel
prices, and exchange rates are carefully
considered when developing strategy
and plans and are regularly reviewed by
the Management Committee and Board
as part of the monitoring of financial and
business performance.
Human resource departments within the
airlines engage in collective bargaining with
the many trade unions representing our staff.
System controls, disaster recovery and
business continuity arrangements exist to
mitigate the risk of a critical system failure.
The programme has a strong risk
management work stream designed to
minimise, but not eliminate, the risk of
disruption during implementation. The roll
out plan is designed to build up operational
experience of the system before it is
implemented in higher volume stations.
The programme is subject to regular
internal audits. The Audit and Compliance
Committee’s review of the programme is
set out in their report on page 69.
51
STRATEGIC REPORT www.iairgroup.com Risk
Potential impact
Management and mitigation
Business and operational continued
Cyber attack
Financial loss, disruption or damage to brand
reputation arising from an attack on our systems
by criminals, terrorists or foreign governments.
Pandemic
Landing fees and
security charges
Safety/security
incident
Event causing
significant
network
disruption
If there is a significant outbreak of infectious disease
such as swine flu, staff absence will increase which
may seriously impact the operation. Leisure customers
may cancel trips and key corporate clients may
discourage travel, significantly impacting sales.
Airport, transit and landing fees and security charges
represent a significant operating cost to the airlines
and have an impact on operations. Whilst certain
airport and security charges are passed on to
passengers by way of surcharges, others are not.
There can be no assurance that such costs will not
increase or that the Group will not incur new costs
in the UK, Spain or elsewhere.
The safety and security of our customers and
employees are fundamental values for the Group.
Failure to prevent or respond effectively to a major
safety or security incident may adversely impact
our brand, operations and financial performance.
Several possible events may cause a significant
network disruption. Example scenarios include a major
failure of the public transport system; the complete
or partial loss of the use of terminals; adverse weather
conditions such as snow, fog or volcanic ash;
widespread or coordinated air traffic control industrial
action; war; civil unrest or terrorism. Such a disruption
may result in lost revenue and additional cost.
A Group Cyber Security Governance Board
reviews the Group IT security strategy, cyber
risk initiatives and considers advice from
industry experts. The IAG Management
Committee reviews cyber risk on a monthly
basis and supports Group wide initiatives
to enhance defences and response plans.
Whilst ensuring that we are up to date
with industry standards and address
identified weaknesses, the fast moving
nature of this risk means that we will
always retain some vulnerability.
Management has business continuity plans
to mitigate this risk to the extent feasible.
The Group engages in regulatory reviews of
supplier pricing, such as the UK Civil Aviation
Authority’s quinquennial review of charges
at Heathrow and Gatwick airports.
The corresponding safety committees of
each of the airlines of the Group, satisfy
themselves that they have appropriate
resources and procedures which include
compliance with Air Operator Certificate
requirements. Their incident centres respond
in a structured way in the event of a safety
or security incident.
Management has robust business
continuity plans to mitigate these risks
to the extent feasible.
52
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015RISK MANAGEMENT AND PRINCIPAL RISK FACTORS CONTINUED Risk
Potential impact
Management and mitigation
Financial
Debt funding
The Group has substantial debt that will need to
be repaid or refinanced. The Group’s ability to
finance ongoing operations, committed aircraft
orders and future fleet growth plans is vulnerable
to various factors including financial market
conditions and financial institutions’ appetite
for secured aircraft financing.
Financial risk
We used approximately 8.3 million tonnes of
jet fuel in 2015. Volatility in the price of oil and
petroleum products can have a material impact
on our operating results.
The Group is exposed to currency risk on revenue,
purchases and borrowings in foreign currencies.
The Group is exposed to currency devaluation of
cash held in currencies other than the airlines’
local currencies of euro and sterling. This risk is
minimised by holding cash in euro and sterling
wherever possible but exchange controls in some
markets will from time to time delay conversion
and repatriation of funds. British Airways
experienced delays in the repatriation of funds
from Nigeria during the second half of 2015 and
at the year end held balances of €72 million
equivalent in Nigerian Naira.
The IAG Management Committee regularly
reviews the Group’s financial position and
financing strategy.
The Group has multiple sources of debt financing
and has continued to diversify the debt financing
within each operating company. In 2015 Iberia
raised unsecured debt from the capital markets
through the commencement of a Medium
Term Note programme and Vueling raised debt
through the export credit agency markets. IAG
itself confirmed its access to the debt capital
markets by launching its second convertible
bond issue.
The Group’s high cash balances and committed
financing facilities mitigate the risk of short-term
interruptions to the aircraft financing market.
This price risk is partially hedged through the
purchase of oil derivatives in forward markets
which can generate a profit or a loss. The
objective of the hedging programme is to
increase the predictability of cash flows and
profitability whilst maintaining alignment with
our competitors. The Group regularly reviews
its fuel and currency positions. The results of
these reviews are discussed with management
and the appropriate action taken.
The Group seeks to reduce foreign exchange
exposures arising from transactions in various
currencies through a policy of matching, as far as
possible, receipts and payments in each individual
currency and actively managing the surplus or
shortfall through treasury hedging operations.
The approach to financial risk management is
set out in note 26 to the financial statements.
When there are delays in the repatriation of
cash coupled with the risk of devaluation, risk is
mitigated by the review of commercial policy for
the route. This may involve capacity reductions
and rebalancing the point of sale away from the
local market towards the airline’s home market
and renegotiating supplier contracts to allow
payment in local currencies.
53
STRATEGIC REPORT www.iairgroup.com Risk
Potential impact
Management and mitigation
Financial continued
Financial risk
continued
Tax
Interest rate risk arises on floating rate debt and
floating rate leases which are typically linked to
London Interbank Offered Rates (LIBOR). This
exposure is partially offset by the reinvestment
of cash deposits which are all of less than one
year in tenor.
The Group is exposed to non-performance of
financial contracts by counterparties, for activities
such as money market deposits, fuel and
currency hedging. Failure of financial
counterparties may result in financial losses.
The Group is exposed to systemic tax risks arising
from either changes to tax legislation or a
challenge by tax authorities on interpretation of
tax legislation. There is a reputational risk that the
Group’s tax affairs are questioned by the media.
Compliance and regulatory
Governance
The governance structure the Group put in
place at the time of the merger had a number
of complex features, including nationality
structures to protect British Airways’ and Iberia’s
routes and operating licences and merger
assurances to preserve the specific interests
of those companies.
The Group is exposed to the risk of individual
employees’ or groups of employees’ unethical
behaviour resulting in reputational damage,
fines or losses to the Group.
Non-compliance
with competition,
bribery and
corruption law
The impact of rising interest rates is mitigated
through structuring selected new debt and lease
deals at fixed rate throughout their term. The
approach to interest rate risk management and
proportions of fixed and floating debt is set out
in note 26 to the Financial statements.
The approach to financial counterparty credit
risk management and the Group’s exposure
by geography is set out in note 26 to the
Financial statements.
The Group seeks to comply with the law, act
with integrity in all tax matters and maintain
an open relationship with regulators. The Group
complies with the tax policy approved by the
IAG Board during the year. Tax risk is managed
by the IAG tax department and reviewed by
Management Committee.
The governance structure continued to work
well in 2015. From January 21, 2016, the merger
assurances expired.
The Group has comprehensive policies designed
to ensure compliance, together with mandatory
training programmes in place to educate
employees in these matters.
Viability statement
The directors have assessed the viability of the Group over a five year period to December 2020. The assessment takes account
of the Group’s current position and the potential impact of the Group’s principal risks. Based on this assessment, the directors
have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due
over the period to December 2020.
In making this statement the directors have considered severe but plausible scenarios in which combinations of principal risks
materialise together. The effectiveness of mitigating management actions has also been considered. Each scenario considered
the impact on liquidity, solvency and the ability of to raise financing over the period to December 2020.
The directors have determined that the five year period to December 2020 is an appropriate period over which to provide its
viability statement. In making this assessment, the directors have taken account of the planning horizon of the five year Group
business plan and the Group’s financial targets. In selecting the five year horizon for the viability statement, it is recognised that
such future assessments are subject to a level of uncertainty that increases with time and, as a result, future outcomes cannot
be guaranteed or predicted with certainty.
54
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015RISK MANAGEMENT AND PRINCIPAL RISK FACTORS CONTINUED CORPORATE
GOVERNANCE
ACHIEVING
FLEXIBILITY
TOGETHER
In compliance with the Financial Reporting Council’s UK
Corporate Governance Code, the company has prepared
the Corporate Governance Report that follows.
CORPORATE GOVERNANCE
56
Chairman’s introducion
to Corporate governance
58
Board of Directors
60 Corporate governance
69
72
75
76
Report of the Audit and
Compliance Committee
Report of the
Nominations Committee
Report of the
Safety Committee
Report of the
Remuneration Committee
www.iairgroup.com
55
CORPORATE GOVERNANCE
25/02/2016 12:16
CHAIRMAN’S INTRODUCTION TO
CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
“As this report testifies, the last five
years have been a momentous time for
International Airlines Group and all its
operating companies and, as you’d expect,
that has meant significant changes in our
corporate governance structure and the
profile of the Board.”
Antonio Vázquez
Chairman
Throughout this period our approach to governance and
the composition and function of the Board have evolved
considerably. Above all we have tried to create the right
internal governance structure to support our dynamic and
highly successful business model, led by a holding company
and formed of independent airlines with their own brands
and operations.
The Group was born as the product of a merger of two
companies, with structures inevitably complex due to airline-
specific regulations and the particular circumstances of both
companies. Since then, the Group has grown to include two
new airlines and has evolved as a distinct entity to those
originally merged companies. Our job as a Board has been to
look progressively at ways to adapt to this new born entity and
to its strategy and culture, simplifying the initial structures so
that we have the flexibility that this dynamic business needs. I’m
pleased to report that this work has been largely very successful.
Proof of that fact came during the year with the successful
acquisition and integration of Aer Lingus, our fourth operating
airline alongside British Airways, Iberia and Vueling.
The relative ease with which this transaction was handled,
not only underlined the power of our business model, but
showed that our governance structures have matured
considerably and that we really have achieved that desired
level of management flexibility, balanced by effective Board
oversight, within the Group.
There is always room for improvement, of course, and we continue
to look for ways to refine and improve our structures. But I’m
delighted that our latest internal review of performance – in which
I spoke, at length, to each member of the Board – produced the
most positive feedback we have had since IAG’s incorporation.
This exercise is a very useful way to assess our achievements
and a great tool for planning necessary future developments.
A major highlight of the year was the first dividend payment to
our shareholders, a very satisfying achievement for the Group.
The fact that we have been able to deliver on this promise on
schedule again illustrates well how our governance structures
are supporting the strategy and performance of the Group.
Succession planning
As we indicated last year, the Board’s Nominations Committee
is continuing to work on succession planning – a task which
is obviously of huge importance to the Group as it develops
and grows.
This work is happening at two levels. From a Board perspective,
our task is to ensure that we have the right balance of directors,
with a blend of appropriate experience, skills and profile. We must
also ensure that timely plans are in place to recruit new members
to the Board, either in the normal process of refreshment or in
emergency situations.
56
56
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 25/02/2016 12:16
CHAIRMAN’S INTRODUCTION TO CORPORATE GOVERNANCE
“As this report testifies, the last five
years have been a momentous time for
International Airlines Group and all its
operating companies and, as you’d expect,
that has meant significant changes in our
corporate governance structure and the
profile of the Board.”
Antonio Vázquez
Chairman
Throughout this period our approach to governance and
the composition and function of the Board have evolved
considerably. Above all we have tried to create the right
internal governance structure to support our dynamic and
highly successful business model, led by a holding company
and formed of independent airlines with their own brands
and operations.
The Group was born as the product of a merger of two
companies, with structures inevitably complex due to airline-
specific regulations and the particular circumstances of both
companies. Since then, the Group has grown to include two
new airlines and has evolved as a distinct entity to those
originally merged companies. Our job as a Board has been to
look progressively at ways to adapt to this new born entity and
to its strategy and culture, simplifying the initial structures so
that we have the flexibility that this dynamic business needs. I’m
pleased to report that this work has been largely very successful.
Proof of that fact came during the year with the successful
acquisition and integration of Aer Lingus, our fourth operating
airline alongside British Airways, Iberia and Vueling.
The relative ease with which this transaction was handled,
not only underlined the power of our business model, but
showed that our governance structures have matured
considerably and that we really have achieved that desired
level of management flexibility, balanced by effective Board
oversight, within the Group.
There is always room for improvement, of course, and we continue
to look for ways to refine and improve our structures. But I’m
delighted that our latest internal review of performance – in which
I spoke, at length, to each member of the Board – produced the
most positive feedback we have had since IAG’s incorporation.
This exercise is a very useful way to assess our achievements
and a great tool for planning necessary future developments.
A major highlight of the year was the first dividend payment to
our shareholders, a very satisfying achievement for the Group.
The fact that we have been able to deliver on this promise on
schedule again illustrates well how our governance structures
are supporting the strategy and performance of the Group.
Succession planning
As we indicated last year, the Board’s Nominations Committee
is continuing to work on succession planning – a task which
is obviously of huge importance to the Group as it develops
and grows.
This work is happening at two levels. From a Board perspective,
our task is to ensure that we have the right balance of directors,
with a blend of appropriate experience, skills and profile. We must
also ensure that timely plans are in place to recruit new members
to the Board, either in the normal process of refreshment or in
emergency situations.
We’re pleased our remuneration policy was approved on a
binding vote for the first time in 2015. We continue to ensure
that we meet both the Spanish and UK requirements in this
area and do all we can to adequately address any concerns our
shareholders may have. Similarly the Audit and Compliance
Committee has put a special focus on the Group’s enterprise
risk management system during 2015 to make sure we comply
with governance standards in both Spain and the UK.
One other significant change during the year was the adoption
of a new Group policy on sustainability, which will now be
supervised by the Audit and Compliance Committee. The IAG
Management Team is committed to developing common
Group practices and standards so that we can more effectively
share best practice, on such issues as noise and CO2 reduction,
between our operating airlines. We already take a lead role
in improving the environmental performance of our industry.
But these changes will, I am convinced, make our approach,
internally and externally, all the more coherent.
Looking ahead
My fellow Board directors and I regularly meet with shareholders
and investors, not only at formal events like our AGM and Capital
Markets Day, but also through regular road shows and more
informal meetings.
Since the early days of IAG I have seen our relationship with the
investment community grow stronger and stronger. Back in 2011,
some investors doubted we could fulfil our ambitious plans for
the business, but their perception of the business has now
become very positive.
They understand the unique strength of our business model –
they’ve watched it in action. They’ve seen us not just meet our
targets for the business, but exceed them. And they’ve seen us
deliver on our promises, not least our determination to introduce
dividend payments and our firm commitments to create a
sustainable dividend policy for the long term. I think we have
won the confidence of investors and we will fight very hard
to keep it in the years ahead.
I am extremely proud of what we’ve achieved in our first five
years as a combined group. But I share with all my colleagues
within IAG a confidence that greater success lies ahead.
Antonio Vázquez
Chairman
But the Board also plays a key role in supporting the
Management Committee in its plans for succession within its
own ranks and within our operating companies. A key objective
is to put schemes in place that will reward talented people within
the business, giving them opportunities to progress and build on
their skills. This work is led by our Group Chief Executive, fully
supported by the Board.
In 2015, this was a particular priority as we contemplated
significant changes in the leadership of our operating
companies and we are particularly pleased with how this
process went. The changes will see Vueling’s Chairman and
CEO, Alex Cruz, take over the leadership of British Airways
on the retirement of Keith Williams. Steve Gunning moves into
the CFO role at British Airways, while Drew Crawley moves the
other way to succeed Steve as CEO of our Cargo business.
Although we are always willing to recruit people with the
right skills from outside the business, these moves clearly
illustrate the wealth of talent we have within the Group and
that our structures offer us the chance to create continuity
even at times of great change.
Board changes
The Board has, as I’ve said, been gradually refreshed in recent
years and I am indeed fortunate to have the support of such a
superb group of colleagues. There were no new additions to the
Board in 2015. However, Jose Pedro Pérez-Llorca did not stand
for re-election at our shareholder’s meeting in June, meaning
that the number of directors on the Board has gone down from
13 to 12. We feel this is an appropriate number for our Board given
the current circumstances and the characteristics of the Group.
There were, however, several changes in the make-up of our
committees. In June, Sir Martin Broughton took over the
Chairmanship of the Nominations Committee from me in
accordance with changes in Spanish governance requirements.
In September, the Board approved the appointment of
Dame Marjorie Scardino as Chairwoman of the Remunerations
Committee, where she succeeds Baroness Kingsmill in that role.
New corporate governance requirements
Although we have tried to streamline our governance structures
in recent years, it remains vital that we comply with changing
governance requirements, and set out our reasons carefully if
we ever choose to take a slightly different approach. We
continued to do this in 2015.
As a company listed on both the Spanish and the London stock
exchanges, IAG must meet Spanish and UK listing requirements
and take into consideration governance standards in both
countries. Two new sets of governance requirements have
come into force in the last 18 months - the new Spanish Good
Governance Code for Listed Companies, which was published
in February 2015, and a new UK Corporate Governance Code
unveiled in October 2014. We have amended the Board
regulations during 2015 to adapt to these new standards
and approved several Group policies as recommended by
the Spanish Code in January 2016.
56
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
www.iairgroup.com
57
57
www.iairgroup.comCORPORATE GOVERNANCE
1
2
3
4
5
6
1 Antonio Vázquez
Chairman
N S
3 Willie Walsh
Chief Executive Officer
S
First appointed:
May 2010. Re-elected June 2015
Key areas of prior experience:
consumer, sales/marketing,
finance, governance
Current external appointments:
Member, Advisory Board of Telefónica
América Latina. Member, Advisory Board of
the Franklin Institute. Member, Advisory
Board of Loyola University.
Previous relevant experience:
Chairman, Iberia 2009-2013. Chairman and
CEO, Altadis Group 2005-2008. Chairman,
Logista 2005-2008. Non-Executive Director,
Iberia 2005-2007. Chief Operating Officer
and other various positions, Cigar Division of
Altadis Group 1993-2005. Various positions at
Osborne 1978-1983 and Domecq 1983-1993.
2 Sir Martin Broughton
Deputy Chairman
N S
First appointed:
May 2010. Re-elected June 2015
Key areas of prior experience:
consumer, finance, governance
Current external appointments:
Chairman, Sports Investment Partners.
Previous relevant experience:
Chairman, British Airways 2004-2013 and
Director since 2000. President, Confederation
of British Industry 2007-2009. Chairman,
Liverpool FC 2010. Chairman, British
Horseracing Board 2004-2007. Chairman,
British American Tobacco 1997-2004
following its demerger from BAT Industries,
previously Chief Executive Officer, BAT
Industries 1993-1997 and member of the
Board since 1988. Other executive positions
at British American Tobacco 1971-1993.
First appointed:
May 2010. Re-elected June 2015
Key areas of prior experience:
airline industry
Current external appointments:
Chairman of the Ireland State Debt Agency.
Previous relevant experience:
Chief Executive Officer, British Airways
2005-2011. Chief Executive Officer,
Aer Lingus 2001-2005. Chief Operating
Officer, Aer Lingus 2000-2001. Chief
Executive Officer, Futura (Aer Lingus‘ Spanish
Charter airline) 1998-2000. Joined Aer Lingus
as cadet pilot in 1979.
4 César Alierta
Non-Executive Director
N
First appointed:
September 2010. Re-elected June 2015
Key areas of prior experience:
finance, telecommunications, consumer
Current external appointments:
Chairman and Chief Executive Officer,
Telefónica Group. Non-Executive Director,
China Unicom. Member, Columbia Business
School Board of Overseers.
Previous relevant experience:
Member of the Board, Telecom Italia 2007-
2013. Non-Executive Director, Telefónica
1997-2000. Executive Chairman, Altadis
Group 1996-2000. Member of the Board,
Madrid Stock Exchange 1991-1996. Chairman,
Spanish Financial Analysts’ Association
1991-1996. Chairman and founder, Beta
Capital 1985-1996.
5 Patrick Cescau
Non-Executive Director
A
First appointed:
September 2010. Re-elected June 2015
Key areas of prior experience:
consumer, finance, sales/marketing,
governance
Current external appointments:
Non-Executive Chairman, InterContinental
Hotel Group. Trustee, Leverhulme Trust.
Temasek European Advisory Panel.
Patron, St Jude India Children’s Charity.
Previous relevant experience:
Senior Independent and Non-Executive
Director, Tesco 2009-2015. Director, INSEAD
2009-2013. Senior Independent and
Non-Executive Director, Pearson PLC
2002-2012. Group Chief Executive, Unilever
2005-2008. Chairman, Unilever PLC. Deputy
Chairman, Unilever NV. Finance Director and
other executive positions (including a number
of Unilever major operating companies and
divisions in the USA, Indonesia and Portugal),
having joined the Unilever Group in 1973.
6 Enrique Dupuy de Lôme
Chief Financial Officer
First appointed:
September 2013. Re-elected June 2015
Key areas of prior experience:
finance, airline industry
Current external appointments:
Chairman, Iberia Cards.
Previous relevant experience:
Chief Financial Officer, Iberia 1990-2011.
Head of finance and deputy director of
financial resources, Instituto Nacional de
Industria (INI) and Teneo financial group,
1985-1989. Head of subsidiaries at Enadimsa
(INI Group), 1982-1985, Chairman IATA
finance committee.
7 Baroness Kingsmill CBE
Non-Executive Director
RN
First appointed:
September 2010. Re-elected June 2015
Key areas of prior experience:
government, legal and regulatory affairs
Current external appointments:
Non-Executive Director, EON Supervisory
Board. Non-Executive Director, Telecom Italia.
Member of the International Advisory Board,
IESE Business School. Member of the House
of Lords since 2006.
Previous relevant experience:
Vice Chair and Senior Independent Director,
APR Energy 2010-2015. Non-Executive
Director, British Airways 2004-2011. Deputy
Chairman, Competition Commission 1997-
2003. Chairman, Department of Trade and
Industry’s Accounting for People task force
2003.
58
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015BOARD OF DIRECTORS
Committee Membership Key
A Audit and Compliance Committee
S Safety Committee
N Nominations Committee
R Remuneration Committee
7
8
9
10
11
12
8 James Lawrence
Non-Executive Director
A
10 Kieran Poynter
Non-Executive Director
A S
12 Alberto Terol
Non-Executive Director
RA
First appointed:
September 2010. Re-elected June 2015
First appointed:
September 2010. Re-elected June 2015
First appointed:
June 2013. Re-elected June 2015
Key areas of prior experience:
finance, consumer, corporate governance
Key areas of prior experience:
professional services, finance services
Current external appointments:
Chairman, Great North Star LLC. Non-
Executive Director, Smurfit Kappa Group.
Non-Executive Director and Chairman
of the Audit Committee, Avnet Inc.
Previous relevant experience:
Chairman, Rothschild North America 2012-
2015. CEO, Rothschild North America and
Co-Head of Global Investment Banking
2010-2012. Non-Executive Director, British
Airways 2006-2011. Executive Director and
Chief Financial Officer, Unilever 2007-2010.
Vice Chairman, Chief Financial Officer and
Head of International, General Mills 1998-2007.
Executive Vice President and Chief Financial
Officer, Northwest Airlines 1996-1998.
Executive Vice President and other executive
positions, Pepsi-Cola 1992-1996. Chairman and
Co-Founder, LEK Consulting 1983-1992.
Partner, Bain & Company 1977-1983.
9 María Fernanda Mejía
Non-Executive Director
R
First appointed:
February 2014. Re-elected June 2015
Key areas of prior experience:
consumer, customer development, strategic
planning, supply chain, innovation and
marketing communications
Current external appointments:
Senior Vice President and President of
Kellogg Latin America, Corporate Officer
and member of Kellogg’s Global Leadership
Team. Board Member of the Council of
the Americas.
Previous relevant experience:
Vice-President and General Manager Global
Personal Care and Corporate Fragrance
Development Colgate-Palmolive Co.
2010-2011, Vice-President Marketing and
Innovation Europe/South Pacific Division
Colgate-Palmolive Co. 2005-2010, President
and CEO Spain and Spain Holding Company
2003-2005, General Manager Hong Kong
and Director, Greater China Management
team 2002-2003, Marketing Director
Venezuela 2000-2002, Marketing Director
Ecuador 1998-2000.
Current external appointments:
Chairman, F&C Asset Management PLC.
Non-Executive Director and Chairman of the
Remuneration Committee, British American
Tobacco PLC.
Previous relevant experience:
Chairman, Nomura International plc 2009-
2015. Member, Advisory Committee for the
Chancellor of the Exchequer on the
competitiveness of the UK financial services
sector 2009-2010. Member, President’s
committee of the Confederation of British
Industry 2000-2008. Chairman and Senior
Partner, PricewaterhouseCoopers 2000-
2008. Managing Partner,
PricewaterhouseCoopers 1998-2000 and
other executive positions at
PricewaterhouseCoopers 1982-1998.
R
11 Dame Marjorie Scardino
Non-Executive Director
First appointed:
December 2013. Re-elected June 2015
Key areas of prior experience:
commercial management, government
affairs, communications, digital and media,
legal services
Current external appointments:
Non-Executive Director, Twitter, Inc. Member,
Board of Pure Tech Health Inc. Member,
charitable boards including The MacArthur
Foundation (Chairman), London School of
Hygiene and Tropical Medicine (Chairman),
and The Carter Center. Member, Board of the
Royal College of Art. Member of the Visiting
Committee for the MIT Media Lab. Member,
Board of Bridge International Academies
(HQ - Kenya).
Previous relevant experience:
Chief Executive Officer, Pearson plc
1997-2012. Chief Executive Officer,
The Economist Group from 1993-1996.
President, The Economist Group US
1985-1993. Lawyer practising in the
US 1975-1985.
Key areas of prior experience:
finance, professional services, information
technology, hospitality industry
Current external appointments:
Non-Executive Director, Indra. Non-Executive
Director, OHL. Non-Executive Director and
Chairman of the Audit Committee, Aktua.
Non-Executive Director, Broseta.
International Senior Advisor Centerbridge.
Executive Chairman of various family
owned companies.
Previous relevant experience:
Non-Executive Director, N+1 2014-2015.
International Senior Advisor BNP Paribas
2011-2014. Member, Global Executive
Committee Deloitte 2007-2009. Managing
Partner, EMEA Deloitte 2007-2009. Managing
Partner, Global Tax & Legal Deloitte 2007-
2009. Member, Global Management
Committee Deloitte 2003-2007. Managing
Partner, Latin America Deloitte 2003-2007.
Managing Partner, Integration Andersen
Deloitte 2002–2003, Managing Partner,
Europe Arthur Andersen 2001-2002.
Managing Partner, Global Tax & Legal Arthur
Andersen 1997 2001. Managing Partner,
Garrigues 1997-2000.
DIRECTORS’ TENURE
17%
17%
66%
1–2 years
3–4 years
5 years
59
www.iairgroup.comCORPORATE GOVERNANCE
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
Group governance structure and the role of the Board
IAG is the parent of different operating companies who have
their own brands and operations. The Board of IAG sets the
Group’s strategic aims, ensures that the necessary financial and
other resources are in place for the Group to meet its objectives
and reviews management performance. The Board sets the
Group’s values and standards and ensures that its obligations
to its shareholders and others are understood and met.
The IAG Management Committee is responsible for the day-to-
day management of the Group, including capturing cost and
revenue synergies, and the development of Group long-term
strategy. Headed by IAG’s Chief Executive, it includes the
Company’s leadership team and the top executives of the
four Group airlines and cargo business. This structure facilitates
the planning and execution of the Group’s strategy and the
extraction of synergies, and allows the coordination as well as
the exchange of experience and knowledge within the Group.
GROUP GOVERNANCE
3
4
1
IAG Board
Audit & Compliance
Committee
Nominations
Committee
Remuneration
Committee
Safety
Committee
Willie Walsh
Group CEO
2
IAG Management Committee
Avios
Enrique
Dupuy
CFO
Stephen
Kavanagh
CEO
Robert
Boyle
Director of
Strategy
Keith
Williams
Executive
Chairman
Luis
Gallego
Chairman
and CEO
Alex Cruz
Chairman
and CEO
Julia
Simpson
Chief
of Staff
Chris
Haynes
General
Counsel
GBS
Ignacio
de Torres
Director
of Global
Services
Steve
Gunning
CEO
Aer Lingus
British Airways
Iberia
Vueling
IAG Cargo
1. Board
• Sets Group’s strategy
• Ensures necessary resources to meet
objectives
2. Management Committee
• Day-to-day management of the Group
• Capturing cost and revenue synergies
• Development of Group long term
3. Group
• Corporate functions
• Joint business plan
• Synergies delivery
4. Operating Companies
• Management of the business
•
•
Implementation of joint business plan
Implementation of synergy plan
• Sets Group’s values
• Ensures dialogue with shareholders
strategy
60
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 From a business perspective, IAG centralises the Group
corporate functions and management, being responsible for the
joint business plan and synergies delivery. IAG is integrated by
several operating companies, each of them responsible for the
management of their respective businesses and accountable for
the implementation of the joint business and synergy plan. Each
of these companies has its own board of directors and its own
executive committee, led by the top executive of each company.
The IAG Board currently comprises ten non-executive directors
and two executive directors, IAG’s Chief Executive and Chief
Financial Officer. The Board has four advisory committees to
assist it with certain of its functions: Audit and Compliance,
Nominations, Remuneration and Safety. The role and
responsibilities of each of these committees are set out in the
Board Regulations, available on IAG’s website.
The Board Regulations (article 3.4) contain a schedule of matters
exclusively reserved for Board decision. In particular the Board
has retained for itself:
the annual budget, management objectives and business plan;
the investment and financing policy; the risk management
and control policy, including the Group’s risk appetite;
the corporate social responsibility policy;
the periodic monitoring of the internal information and the
information control systems; and
the approval of investment and divestment decisions greater
than €20 million, including significant contracts and capital
commitments.
The Chairman and the Chief Executive
The Board is led by the Chairman. The Chairman sets the agenda
for Board discussions to promote an effective and constructive
debate and to support a sound decision-making process. He
ensures that directors receive accurate, timely and clear
information, in particular about the Company’s performance, its
strategy, challenges and opportunities.
The Chairman is responsible for ensuring that there is an effective
communication with shareholders and that the directors and
the executives of the Company understand and address the
concerns of investors. The Chairman provides support and
advice to the Chief Executive, recognising his executive
responsibility for managing the Group.
The Chief Executive is responsible and accountable to the
Board for the management and profitable operation of the
Company. The division of responsibilities between the Chairman
and the Chief Executive is set out in the Board Regulations.
The Senior Independent Director
The role of the Senior Independent Director is to provide a
sounding board for the Chairman, to serve as intermediary for
the other directors when necessary and to be available to
shareholders, should they have any concerns they cannot resolve
through the normal channels. His responsibilities also include
leading the evaluation of the Chairman’s performance annually.
Non-executive directors
The non-executive directors provide a strong, independent
element on the Board. They are well placed to constructively
challenge and support management, contributing a broad range
of experience and expertise. All non-executive directors have
access to the Board Secretary and the Group General Counsel for
any further information they require. If any of the non–executive
directors has any concerns about the running of the Group, they
discuss these concerns with one of the executive directors, the
Group General Counsel or the Chairman. If their concerns cannot
be resolved in this way, then they are recorded in the Board
minutes. No such concerns arose during the reporting period.
Directors are offered the possibility to update and refresh their
knowledge of the business and any technical related matter
on an ongoing basis to enable them to continue fulfilling their
responsibilities effectively. Directors are consulted about their
training and development needs, and given the opportunity
to discuss training and development matters as part of their
annual individual performance evaluation.
In 2015 the Board received specific briefings on key business
developments, such as digital and Wi-Fi connectivity,
competition law, airline ownership and control regulations and
changes to the UK and the Spanish corporate governance codes.
In addition to this, the July Board meeting was held at Waterside,
British Airways’ head office, and the occasion was used to have
a special session for non-executive directors to give them the
opportunity to spend time with employees from the British
Airways operation, as well as to meet and discuss business
issues with the British Airways leadership team.
61
www.iairgroup.comCORPORATE GOVERNANCE CORPORATE GOVERNANCE CONTINUED
CORPORATE GOVERNANCE CONTINUED
New directors receive a tailored induction programme, including
one-to-one meetings with management both at IAG level and
throughout the Group offering them a complete overview of the
Group businesses, and also the opportunity to visit the Group’s
key sites. The induction also covers governance and directors’
duties according to both the Spanish and the UK frameworks.
During the reporting period, the Chairman and the non–executive
directors met twice without the executives present. The Chairman
met each non-executive director individually to discuss their
contribution to the Board and the Senior Independent Director
met with the other non-executive directors to discuss the
performance of the Chairman.
Corporate Governance Code Compliance
As a company incorporated and listed in Spain, IAG is subject
to applicable Spanish legislation and to the Spanish corporate
governance framework. At the same time, as it has a listing on
the London Stock Exchange, IAG is also subject to the UK Listing
Rules, including the requirement to explain whether it complies
with the UK Corporate Governance Code published by the
UK Financial Reporting Council as amended from time to time
(a copy of which is available from www.frc.org.uk).
This Corporate Governance section (the UK Corporate
Governance Report) includes an explanation regarding the
Company’s application of the main principles of the UK
Corporate Governance Code. In addition, the Company prepares
an Annual Corporate Governance Report according to Spanish
legal requirements which includes information regarding
compliance with the Spanish Good Governance Code of Listed
Companies. This report is included on pages 163 to 222.
The Company considers that during the year it has complied with
all the provisions of the UK 2014 Corporate Governance Code
but for the following matter: The service contract for Antonio
Vázquez does not comply with the recommendation that
notice periods should be set at one year or less so as to limit
any payment on exit. The terms of Antonio Vázquez’s service
contract as Executive Chairman of Iberia were considered at the
time of the merger between British Airways and Iberia, and it was
determined that an entitlement to lump-sum retirement benefits
in excess of one year’s salary should be carried over into his
IAG service contract. It was thought necessary to continue
the Iberia benefits in order to retain this key director and, as
such, complying with the UK Corporate Governance Code’s
principle of only offering a remuneration package sufficient
to retain this director. Details can be found in the Directors’
Remuneration Report.
The Company complies with the provisions of the Spanish Good
Governance Code of Listed Companies, with the exceptions
described in the Spanish Annual Corporate Governance Report.
The Company believes that, notwithstanding the above
exception, it has a robust governance structure. The
Company’s UK Corporate Governance Report is available
on the Company’s website.
Board and committee meetings
The Board physically met nine times during the reporting period. The Board also held its annual two-day strategy meeting in
September 2015.
Meetings attended by each director of the Board and the different committees during the reporting period are shown in the table below:
Director
Total in the period
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy
de Lôme Chávarri
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
José Pedro Pérez–Llorca1
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
1 José Pedro Pérez-Llorca left the Board on June 18, 2015.
Board
meetings
Audit and Compliance
Committee meetings
Nominations Committee
meetings
Remuneration
Committee meetings
Safety Committee
meetings
9
9
9
9
4
9
9
8
9
9
3
8
8
9
7
–
–
–
–
7
–
–
7
–
–
7
–
7
5
5
5
–
4
–
–
4
–
–
–
–
–
–
4
–
–
–
–
–
–
3
–
4
–
–
4
4
2
2
2
2
–
–
–
–
–
–
–
2
–
–
62
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
CORPORATE GOVERNANCE CONTINUED
New directors receive a tailored induction programme, including
legal requirements which includes information regarding
one-to-one meetings with management both at IAG level and
compliance with the Spanish Good Governance Code of Listed
throughout the Group offering them a complete overview of the
Companies. This report is included on pages 163 to 222.
Group businesses, and also the opportunity to visit the Group’s
key sites. The induction also covers governance and directors’
duties according to both the Spanish and the UK frameworks.
During the reporting period, the Chairman and the non–executive
directors met twice without the executives present. The Chairman
met each non-executive director individually to discuss their
contribution to the Board and the Senior Independent Director
met with the other non-executive directors to discuss the
performance of the Chairman.
Corporate Governance Code Compliance
As a company incorporated and listed in Spain, IAG is subject
to applicable Spanish legislation and to the Spanish corporate
governance framework. At the same time, as it has a listing on
the London Stock Exchange, IAG is also subject to the UK Listing
Rules, including the requirement to explain whether it complies
with the UK Corporate Governance Code published by the
The Company considers that during the year it has complied with
all the provisions of the UK 2014 Corporate Governance Code
but for the following matter: The service contract for Antonio
Vázquez does not comply with the recommendation that
notice periods should be set at one year or less so as to limit
any payment on exit. The terms of Antonio Vázquez’s service
contract as Executive Chairman of Iberia were considered at the
time of the merger between British Airways and Iberia, and it was
determined that an entitlement to lump-sum retirement benefits
in excess of one year’s salary should be carried over into his
IAG service contract. It was thought necessary to continue
the Iberia benefits in order to retain this key director and, as
such, complying with the UK Corporate Governance Code’s
principle of only offering a remuneration package sufficient
to retain this director. Details can be found in the Directors’
Remuneration Report.
UK Financial Reporting Council as amended from time to time
The Company complies with the provisions of the Spanish Good
(a copy of which is available from www.frc.org.uk).
This Corporate Governance section (the UK Corporate
Governance Report) includes an explanation regarding the
Company’s application of the main principles of the UK
Governance Code of Listed Companies, with the exceptions
described in the Spanish Annual Corporate Governance Report.
The Company believes that, notwithstanding the above
exception, it has a robust governance structure. The
Corporate Governance Code. In addition, the Company prepares
Company’s UK Corporate Governance Report is available
an Annual Corporate Governance Report according to Spanish
on the Company’s website.
Board and committee meetings
September 2015.
The Board physically met nine times during the reporting period. The Board also held its annual two-day strategy meeting in
Meetings attended by each director of the Board and the different committees during the reporting period are shown in the table below:
Board
Audit and Compliance
Nominations Committee
Remuneration
Safety Committee
meetings
Committee meetings
meetings
Committee meetings
meetings
Director
Total in the period
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy
de Lôme Chávarri
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
José Pedro Pérez–Llorca1
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
1 José Pedro Pérez-Llorca left the Board on June 18, 2015.
9
9
9
9
4
9
9
8
9
9
3
8
8
9
7
–
–
–
–
7
–
–
7
–
–
7
–
7
5
5
5
–
4
–
–
4
–
–
–
–
–
–
4
–
–
–
–
–
–
3
–
4
–
–
4
4
2
2
2
2
–
–
–
–
–
–
–
2
–
–
Board and committee evaluation
The Board and committees’ performance evaluation was
conducted internally in 2015. The last external evaluation was
completed in 2013. The review took the format of a self-
assessment survey designed to test directors’ opinions and views
on a number of matters including: the role and organisation of
the Board, Board composition, organisation of meetings, quality
of Board debate, knowledge and experience, relationship with
management, and progress made against the 2015 action plan.
The Board Secretary prepared a report on the performance
evaluation of the Board and each of the committees. The Board
report was considered by the Nominations Committee; with each
of the committees’ reports and the results of the questionnaires
being considered by the different committees and discussed at
the Board meeting held in January 2016. The review concluded
that the Board had effectively fulfilled its responsibilities during
2015, and the general progress made was unanimously
recognised by the Board.
The Chairman also met with each director individually to provide
feedback on their performance. He also discussed the
functioning of the Board as a whole and the contribution
expected of each director. The Board evaluation also included
an assessment of performance against the objectives agreed
for 2015. Progress made on Board and executive succession
planning and talent development was recognised, as well as
the actions agreed to improve Board effectiveness.
The Board action plan for 2016 includes:
refining the Board’s priorities ensuring that directors continue
to develop their understanding of both strategic and
commercial matters;
continued improvement of the Board’s time management
and its information processes;
bringing external knowledge to the Boardroom by inviting
experts on different subjects of interest; and
refining the induction process for new directors together
with committee members.
Board diversity
IAG adopted a Board Diversity Policy in September 2012,
which was updated in June 2014. IAG’s Diversity Policy aimed
to promote diversity in the Board composition and established
the Board’s aspirational goal of achieving 25 per cent female
representation on the Board by 2015. This target was met by
the Company ahead of this time frame.
Following the new Spanish corporate governance code
recommendation, the Board has recently approved a Directors
Selection and Diversity Policy which supersedes the former
Board Diversity Policy. The objective of this new policy is to
ensure that the appointments of directors are based on a prior
analysis of the Board’s needs and favours a diversity of
knowledge, experience and gender. This policy incorporates
the former diversity principles while regulating the process for
appointing directors. Under this policy, director appointments
are evaluated against the existing balance of skills, knowledge
and experience on the Board, and directors are asked to be
mindful of diversity, inclusiveness and meritocracy considerations
when examining nominations to the Board.
The Directors Selection and Diversity Policy establishes a
new female representation objective of 33 per cent for 2020
following the recommendation included in the final Davies
Report published in the UK. IAG’s Directors Selection and
Diversity policy is published on IAG’s website.
The Board continues to recognise the value of diversity as
a tool to enrich its discussions and decision-making process. The
Nominations Committee supports the Board in the consideration
of diversity in relation to Board composition and succession
planning taking into consideration the conclusions drawn from
the annual review of the Board’s performance. The Board,
through its Nominations Committee, regularly reviews the
percentage of women that sit on the Board and on the IAG
Management Committee, as well as the number of women in
the Group’s workforce worldwide. This information is included
on page 33 of this report. The Board and IAG Management
Committee continue to focus on this important area.
63
www.iairgroup.comCORPORATE GOVERNANCE
CORPORATE GOVERNANCE CONTINUED
CORPORATE GOVERNANCE CONTINUED
Directors’ conflicts of interests
Directors must disclose to the Board any situation of direct or
indirect conflict that they may have with the interests of the
Company. In the event of conflict, the affected directors must
abstain from participating in the transaction referred to by the
conflict. The definition of conflict of interests is set out in the
Board Regulations on the Company’s website.
Directors’ and Officers’ liability insurance
The Company has purchased insurance against Directors’ and
Officers’ liability for the benefit of the directors and officers of
the Company and its subsidiaries.
Share issues, buy-backs and treasury shares
The Annual General Meeting held on June 18, 2015 authorised
the Board, with the express power of substitution, for a term
ending at the 2016 Annual General Meeting (or, if earlier, 15
months from June 18, 2015), to:
(i) increase the share capital pursuant to the provisions of
Article 297.1.b) of the Spanish Companies Law, by:
(a) up to one-third of the aggregate nominal amount of
the Company’s issued share capital as at the date of
passing such resolution (such amount to be reduced
by the amount that the share capital has been increased
by and the maximum amount that the share capital may
need to be increased by on the conversion or exchange
of any securities issued by the Board under the relevant
authorisation); and
(b) up to a further one-sixth of the aggregate nominal
amount of the Company’s issued share capital as at
the date of passing such resolution in connection with
an offer by way of rights issue (such amount to be
reduced by the amount that the share capital has been
increased by and the maximum amount that the share
capital may need to be increased by on the conversion
or exchange of any securities issued by the Board under
the relevant authorisation).
64
(ii)
issue securities (including warrants) convertible into and/or
exchangeable for shares of the Company, up to a maximum
limit of one billion euros or the equivalent thereof in another
currency, provided that the aggregate share capital that
may need to be increased on the conversion or exchange
of all such securities may not be higher than:
(a) one-third of the aggregate nominal amount of the
Company’s issued share capital as at the date of
passing such resolution (such amount to be reduced
by the amount that the share capital has been increased
by the Board under the relevant authorisation); and
(b) a further one-sixth of the aggregate nominal amount
of the Company’s issued share capital as at the date
of passing such resolution in connection with an offer
by way of rights issue (such amount to be reduced by
the amount that the share capital has been increased
by the Board under the relevant authorisation).
(iii) exclude pre-emptive rights in connection with the capital
increases and the issuance of convertible or exchangeable
securities that the Board may approve under the previous
authorities for the purposes of allotting shares or
convertible or exchangeable securities in connection
with a rights issue or in any other circumstances for the
purposes of allotting shares or convertible or exchangeable
securities subject to an aggregate maximum nominal
amount of the shares so allotted or that may be allotted
on conversion or exchange of such securities of five per
cent of the aggregate nominal amount of the Company’s
issued share capital as at June 18, 2015.
(iv) carry out the acquisition of its own shares directly by the
Company or indirectly through its subsidiaries, subject to
the following conditions:
(a) the maximum aggregate number of shares which is
authorised to be purchased shall be the lower of the
maximum amount permitted by the law and such
number as represents 10 per cent of the aggregate
nominal amount of the Company’s issued share capital
on June 18, 2015, the date of passing the resolution;
(b) the minimum price which may be paid for an ordinary
share is zero;
(c) the maximum price which may be paid for an ordinary
share is the highest of:
(i) an amount equal to five per cent above the average
of the middle market quotations for the shares as
taken from the relevant stock exchange for the five
business days immediately preceding the day on
which that ordinary share is contracted to be
purchased; and
(ii) the higher of the price of the last independent trade
and the highest current independent bid on the
trading venues where the purchase is carried out
at the relevant time;
in each case, exclusive of expenses.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 CORPORATE GOVERNANCE CONTINUED
Directors’ conflicts of interests
Directors must disclose to the Board any situation of direct or
indirect conflict that they may have with the interests of the
Company. In the event of conflict, the affected directors must
abstain from participating in the transaction referred to by the
conflict. The definition of conflict of interests is set out in the
Board Regulations on the Company’s website.
Directors’ and Officers’ liability insurance
The Company has purchased insurance against Directors’ and
Officers’ liability for the benefit of the directors and officers of
the Company and its subsidiaries.
Share issues, buy-backs and treasury shares
The Annual General Meeting held on June 18, 2015 authorised
the Board, with the express power of substitution, for a term
ending at the 2016 Annual General Meeting (or, if earlier, 15
months from June 18, 2015), to:
(i) increase the share capital pursuant to the provisions of
Article 297.1.b) of the Spanish Companies Law, by:
(a) up to one-third of the aggregate nominal amount of
the Company’s issued share capital as at the date of
passing such resolution (such amount to be reduced
by the amount that the share capital has been increased
by and the maximum amount that the share capital may
need to be increased by on the conversion or exchange
of any securities issued by the Board under the relevant
authorisation); and
amount of the Company’s issued share capital as at
the date of passing such resolution in connection with
an offer by way of rights issue (such amount to be
reduced by the amount that the share capital has been
increased by and the maximum amount that the share
capital may need to be increased by on the conversion
or exchange of any securities issued by the Board under
the relevant authorisation).
(ii)
issue securities (including warrants) convertible into and/or
exchangeable for shares of the Company, up to a maximum
limit of one billion euros or the equivalent thereof in another
currency, provided that the aggregate share capital that
may need to be increased on the conversion or exchange
of all such securities may not be higher than:
(a) one-third of the aggregate nominal amount of the
Company’s issued share capital as at the date of
passing such resolution (such amount to be reduced
by the amount that the share capital has been increased
by the Board under the relevant authorisation); and
(b) a further one-sixth of the aggregate nominal amount
of the Company’s issued share capital as at the date
of passing such resolution in connection with an offer
by way of rights issue (such amount to be reduced by
the amount that the share capital has been increased
by the Board under the relevant authorisation).
(iii) exclude pre-emptive rights in connection with the capital
increases and the issuance of convertible or exchangeable
securities that the Board may approve under the previous
authorities for the purposes of allotting shares or
convertible or exchangeable securities in connection
with a rights issue or in any other circumstances for the
purposes of allotting shares or convertible or exchangeable
securities subject to an aggregate maximum nominal
amount of the shares so allotted or that may be allotted
on conversion or exchange of such securities of five per
cent of the aggregate nominal amount of the Company’s
(iv) carry out the acquisition of its own shares directly by the
Company or indirectly through its subsidiaries, subject to
the following conditions:
(a) the maximum aggregate number of shares which is
authorised to be purchased shall be the lower of the
maximum amount permitted by the law and such
number as represents 10 per cent of the aggregate
nominal amount of the Company’s issued share capital
on June 18, 2015, the date of passing the resolution;
(b) the minimum price which may be paid for an ordinary
share is zero;
(c) the maximum price which may be paid for an ordinary
share is the highest of:
(i) an amount equal to five per cent above the average
of the middle market quotations for the shares as
taken from the relevant stock exchange for the five
business days immediately preceding the day on
which that ordinary share is contracted to be
purchased; and
(ii) the higher of the price of the last independent trade
and the highest current independent bid on the
trading venues where the purchase is carried out
at the relevant time;
in each case, exclusive of expenses.
(b) up to a further one-sixth of the aggregate nominal
issued share capital as at June 18, 2015.
The shares acquired pursuant to this authorisation may be
delivered directly to the employees or directors of the Company
or its subsidiaries or as a result of the exercise of option rights
held thereby.
Under the above-mentioned authority, the Company, up to
December 31, 2015, purchased 18,692,036 shares with a nominal
value of 0.50 euros each. All the shares purchased will be used
to satisfy awards under the IAG Share Plans. For further details
see note 29 to the financial statements. The Securities Code
of Conduct of the Company contains the treasury stock
transactions code of the Company. This can be accessed on
the Company’s website.
Capital structure and shareholder rights
As of December 31, 2015, the share capital of the Company
amounted to 1,020,039,261.50 euros (2014: 1,020,039,261.50
euros), divided into 2,040,078,523 shares (2014: 2,040,078,523
shares) of the same class and series and with a nominal value
of 0.50 euros each, fully subscribed and paid.
As of December 31, 2015 the Company owned 14,684,018 shares
as treasury shares.
Each share in the Company confers on its legitimate holder the
status of shareholder and the rights recognised by applicable
law and the Company’s Bylaws.
The Company has a Sponsored Level 1 American Depositary
Receipt (ADR) facility that trades on the over-the-counter market
in the US. Each ADR is equivalent to five ordinary shares and each
ADR holder is entitled to the financial rights attaching to such
shares, although the ADR depositary, Deutsche Bank, is the
registered holder. As at December 31, 2015 the equivalent of 18.4
million shares was held in ADR form (2014: 23.3 million IAG shares).
The significant shareholders of the Company at December 31, 2015 were:
Name of
shareholder
Number of
direct shares
Number of
indirect shares
Name of
direct holder
Qatar Airways (Q.C.S.C)
Standard Life Investment
(Holdings) Ltd
Europacific Growth Fund
Capital Research and
Management Company
Legal & General Investment
Management Limited
BlackRock Inc
Lansdowne Partners
International Limited
Invesco Limited
– 203,863,316 Qatar Airways Luxembourg. S.à.r.l.
60,639,188
61,942,109 Standard Life Investments Limited and Ignis
107,329,400
–
Investment Services Limited
– –
102,997,951 Collective investment institutions managed
by Capital Research and Management
Company
Total shares
Percentage
of capital
203,863,316
9.993%
122,581,297 6.008%
107,329,400
102,997,951
5.261%
5.049%
54,407,837
11,611,554 Legal & General (Unit Trust Managers) Limited
66,019,391
3.236%
–
–
61,696,340 Funds and accounts managed by investors
61,696,340
3.024%
controlled by BlackRock Inc.
36,869,133 Funds and accounts managed by Lansdowne
36,869,133
1.807%
Partners (UK) LLP
–
22,064,264 Mutual benefit societies and pension funds
22,064,264
1.082%
managed by Invesco Limited and its subsidiaries
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CORPORATE GOVERNANCE CONTINUED
CORPORATE GOVERNANCE CONTINUED
Disclosure obligations
The Company’s Bylaws establish a series of special obligations
concerning disclosure of share ownership as well as certain limits
on shareholdings, taking into account the ownership and control
restrictions provided for in applicable legislation and bilateral air
transport treaties signed by Spain and the UK.
In accordance with article 7.2 b) of the Bylaws, shareholders
must notify the Company of any acquisition or disposal of shares
or of any interest in the shares of the Company that directly or
indirectly entails the acquisition or disposal of a stake of over 0.25
per cent of the Company’s share capital, or of the voting rights
corresponding thereto, expressly indicating the nationality of the
transferor and/or the transferee obliged to notify, as well as the
creation of any charges on shares (or interests in shares) or other
encumbrances whatsoever, for the purposes of the exercise of
the rights conferred by them.
In addition, pursuant to article 10 of the Bylaws, the Company
may require any shareholder or any other person with a
confirmed or apparent interest in shares of the Company to
disclose to the Company in writing such information as the
Company shall require relating to the beneficial ownership of or
any interest in the shares in question, as lies within the knowledge
of such shareholder or other person, including any information
that the Company deems necessary or desirable in order to
determine the nationality of the holders of said shares or other
person with an interest in the Company’s shares or whether it is
necessary to take steps in order to protect the operating rights
of the Company or its subsidiaries.
In the event of a breach of these obligations by a shareholder
or any other person with a confirmed or apparent interest in the
Company’s shares, the Board may suspend the voting or other
political rights of the relevant person. If the shares with respect
to which the aforementioned obligations have been breached
represent at least 0.25 per cent of the Company’s share capital
in nominal value, the Board may also direct that no transfer of
any such shares shall be registered.
Limitations on ownership of IAG shares
In the event that the Board deems it necessary or appropriate
to adopt measures to protect an operating right of the Company
or of its subsidiaries, in light of the nationality of its shareholders
or any persons with an interest in the Company’s shares, it may
adopt any of the measures provided for such purpose in article 11
of the Bylaws, including the determination of a maximum number
of shares that may be held by non-EU shareholders provided
that such maximum may not be lower than 40 per cent of the
Company’s share capital.
The Board may also (i) agree on the suspension of voting and
other political rights of the holder of the relevant shares, and (ii)
request that the holders dispose of the corresponding shares so
that no non-EU person may directly or indirectly own such shares
or have an interest in the same. If such transfer is not performed
on the terms provided for in the Bylaws, the Company may
acquire the corresponding shares (for their subsequent
redemption) pursuant to applicable legislation. This acquisition
must be performed at the lower of the following prices: (a) the
book value of the corresponding shares according to the latest
published audited balance sheet of the Company; and (b) the
middle market quotation for an ordinary share of the Company
as derived from the London Stock Exchange’s Daily Official List
for the business day on which they were acquired by the relevant
non-EU person.
Relations with shareholders
The Board is committed to maintaining an open dialogue with
shareholders and recognises the importance of that relationship
in the governance process. The Chairman is responsible for
ensuring that an effective communication with shareholders
takes place and that directors and executives understand and
address investors’ concerns.
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Disclosure obligations
Limitations on ownership of IAG shares
The Company’s Bylaws establish a series of special obligations
In the event that the Board deems it necessary or appropriate
concerning disclosure of share ownership as well as certain limits
to adopt measures to protect an operating right of the Company
on shareholdings, taking into account the ownership and control
or of its subsidiaries, in light of the nationality of its shareholders
restrictions provided for in applicable legislation and bilateral air
or any persons with an interest in the Company’s shares, it may
transport treaties signed by Spain and the UK.
In accordance with article 7.2 b) of the Bylaws, shareholders
must notify the Company of any acquisition or disposal of shares
or of any interest in the shares of the Company that directly or
indirectly entails the acquisition or disposal of a stake of over 0.25
adopt any of the measures provided for such purpose in article 11
of the Bylaws, including the determination of a maximum number
of shares that may be held by non-EU shareholders provided
that such maximum may not be lower than 40 per cent of the
Company’s share capital.
per cent of the Company’s share capital, or of the voting rights
The Board may also (i) agree on the suspension of voting and
corresponding thereto, expressly indicating the nationality of the
other political rights of the holder of the relevant shares, and (ii)
transferor and/or the transferee obliged to notify, as well as the
request that the holders dispose of the corresponding shares so
creation of any charges on shares (or interests in shares) or other
that no non-EU person may directly or indirectly own such shares
encumbrances whatsoever, for the purposes of the exercise of
or have an interest in the same. If such transfer is not performed
the rights conferred by them.
In addition, pursuant to article 10 of the Bylaws, the Company
may require any shareholder or any other person with a
confirmed or apparent interest in shares of the Company to
disclose to the Company in writing such information as the
Company shall require relating to the beneficial ownership of or
any interest in the shares in question, as lies within the knowledge
of such shareholder or other person, including any information
that the Company deems necessary or desirable in order to
determine the nationality of the holders of said shares or other
person with an interest in the Company’s shares or whether it is
necessary to take steps in order to protect the operating rights
of the Company or its subsidiaries.
In the event of a breach of these obligations by a shareholder
or any other person with a confirmed or apparent interest in the
Company’s shares, the Board may suspend the voting or other
political rights of the relevant person. If the shares with respect
to which the aforementioned obligations have been breached
represent at least 0.25 per cent of the Company’s share capital
in nominal value, the Board may also direct that no transfer of
any such shares shall be registered.
on the terms provided for in the Bylaws, the Company may
acquire the corresponding shares (for their subsequent
redemption) pursuant to applicable legislation. This acquisition
must be performed at the lower of the following prices: (a) the
book value of the corresponding shares according to the latest
published audited balance sheet of the Company; and (b) the
middle market quotation for an ordinary share of the Company
as derived from the London Stock Exchange’s Daily Official List
for the business day on which they were acquired by the relevant
non-EU person.
Relations with shareholders
The Board is committed to maintaining an open dialogue with
shareholders and recognises the importance of that relationship
in the governance process. The Chairman is responsible for
ensuring that an effective communication with shareholders
takes place and that directors and executives understand and
address investors’ concerns.
In this respect, the Board approved in January 2016 a policy
regarding communication and contacts with shareholders,
institutional investors and proxy advisors, following the 2015
Spanish Good Governance Code recommendation. This policy
is available on the Company’s website.
IAG has a comprehensive investor relations programme which
aims to help existing and potential investors understand the
Group and its business. Regular shareholder meetings were held
with executive directors, the Chairman of the Board and the
investor relations team during 2015. During March 2015, IAG’s
Chairman consulted with major institutional shareholders on
a range of topics. In addition to this, the former Chair of the
Remuneration Committee, Baroness Kingsmill, along with IAG’s
Group Head of Investor Relations met with many of our largest
shareholders to discuss remuneration matters.
Shareholder feedback is provided to the Board to ensure that
directors understand the objectives and views of major investors.
During 2015, the Group Head of Investor Relations reported to
the Board on three different occasions, providing the Board with
a regular update on shareholders views.
The Group's medium to long term plans and targets were
discussed in detail in a full day of presentations by the senior
management team at the annual Capital Markets day that took
place on November 6, 2015. Seven of the 10 non-executive
directors of the Company attended this meeting, giving major
shareholders and investors the opportunity to discuss corporate
governance matters with members of the Board. The event was
broadcast live via webcast. The presentations are available in full on
the Company’s website, along with the accompanying transcript.
Both institutional and private shareholders may contact the
Company through a dedicated website, via email and directly
by telephone.
Impact of change of control
The following significant agreements contain provisions entitling
the counterparties to exercise termination in the event of a
change of control of the Company:
the brand alliance agreement in respect of British Airways and
Iberia’s membership of “oneworld”, the globally-branded airline
alliance, could be terminated by a majority vote of the parties
in the event of a change of control of the Company;
the joint business agreement between British Airways, Iberia,
American Airlines and Finnair and the joint business agreement
between British Airways, Japan Airlines and Finnair can be
terminated by the other parties to those agreements in the
event of a change of control of the Company by either a third
party airline, or the parent of a third party airline; and
certain British Airways exchange and interest rate hedging
contracts allow for early termination if after a change of
control of the Company British Airways’ credit worthiness
was materially weaker.
In addition, the Company’s share plans contain provisions as
a result of which options and awards may vest and become
exercisable on a change of control of the Company in
accordance with the rules of the plans.
Merger assurances
As part of the merger entered into by the Company, British
Airways and Iberia in 2011, certain assurances were given to
protect the specific interests of British Airways and Iberia and
their respective stakeholders (Assurances) (page 127 of the
Registration Document available on the IAG website). The
observance and enforcement of those Assurances was carried
out via the mechanisms that were put in place for this purpose
and that are described on pages 129 and 130 of the Registration
Document. Any disputes relating to the Assurances are
determined by an Assurance Committee. No matters were
referred to the Assurance Committee during 2015. The
Assurances automatically terminated on the fifth anniversary
of the merger effective date (January 21, 2016).
Post balance sheet events
No material adjusting post balance sheet events occurred after
December 31, 2015.
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CORPORATE GOVERNANCE CONTINUED
CORPORATE GOVERNANCE CONTINUED
Board of Directors
As set out in the Company’s Bylaws the Board shall comprise a minimum of nine and a maximum of 14 members.
As of December 31, 2015 the Board composition was:
Name of Board Member
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy de Lôme
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Position
Chairman
Deputy Chairman
Chief Executive Officer
Director
Director
Chief Financial Officer
Director
Director
Director
Director
Director
Director
Category1
Other external2
Independent non-executive
Executive
Independent non-executive
Independent non-executive
Executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
1
In accordance with the definitions set forth in the Spanish Companies Act.
2 Antonio Vázquez was, until the execution of the merger between British Airways and Iberia, the Executive Chairman of Iberia. Pursuant to the Spanish Companies Act, Antonio Vázquez
will be considered, as from January 21, 2016, as an independent non-executive director given that five years have elapsed since he stepped down from such executive position.
The Board Secretary is Álvaro López-Jorrín, partner of the Spanish law firm J&A Garrigues, S.L.P and the Deputy Secretary is
Lucila Rodríguez.
Internal control
The directors are responsible for maintaining, and for reviewing
the effectiveness of the Company’s system of internal control
including internal financial control. This is designed to provide
reasonable, but not absolute, assurance regarding the
safeguarding of assets against unauthorised use or disposition
and the maintenance of proper accounting records and the
reliability of financial information used within the business or for
publication. This process is in accordance with the Financial
Reporting Council’s Guidance to Directors and the CNMV’s
Internal Control over Financial Reporting (ICFR). These controls
are designed to manage rather than eliminate the risk of failure
to achieve business objectives due to circumstances which may
reasonably be foreseen and can only provide reasonable but
not absolute assurance against material misstatement or loss.
The Company has in place internal control and risk management
systems in relation to the Company’s financial reporting process
and the Group’s process for the preparation of consolidated
financial statements.
A risk-based audit plan for the Group was approved by the
Audit and Compliance Committee. The Audit and Compliance
Committee considered control matters raised by management
and both the internal and external auditors and reported its
findings to the Board. The CNMV standard requires the disclosure
of material weaknesses in ICFR: no such weaknesses were
identified during the year under review or up until the date of
approval of this report.
68
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Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
CORPORATE GOVERNANCE CONTINUED
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
26/02/2016 10:35
Board of Directors
Name of Board Member
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Lucila Rodríguez.
Internal control
As set out in the Company’s Bylaws the Board shall comprise a minimum of nine and a maximum of 14 members.
As of December 31, 2015 the Board composition was:
Enrique Dupuy de Lôme
Chief Financial Officer
Executive
Position
Chairman
Deputy Chairman
Chief Executive Officer
Director
Director
Director
Director
Director
Director
Director
Director
Category1
Other external2
Independent non-executive
Executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
Independent non-executive
1
In accordance with the definitions set forth in the Spanish Companies Act.
2 Antonio Vázquez was, until the execution of the merger between British Airways and Iberia, the Executive Chairman of Iberia. Pursuant to the Spanish Companies Act, Antonio Vázquez
will be considered, as from January 21, 2016, as an independent non-executive director given that five years have elapsed since he stepped down from such executive position.
The Board Secretary is Álvaro López-Jorrín, partner of the Spanish law firm J&A Garrigues, S.L.P and the Deputy Secretary is
The directors are responsible for maintaining, and for reviewing
the effectiveness of the Company’s system of internal control
including internal financial control. This is designed to provide
reasonable, but not absolute, assurance regarding the
safeguarding of assets against unauthorised use or disposition
and the maintenance of proper accounting records and the
reliability of financial information used within the business or for
publication. This process is in accordance with the Financial
Reporting Council’s Guidance to Directors and the CNMV’s
Internal Control over Financial Reporting (ICFR). These controls
are designed to manage rather than eliminate the risk of failure
to achieve business objectives due to circumstances which may
reasonably be foreseen and can only provide reasonable but
not absolute assurance against material misstatement or loss.
The Company has in place internal control and risk management
systems in relation to the Company’s financial reporting process
and the Group’s process for the preparation of consolidated
financial statements.
A risk-based audit plan for the Group was approved by the
Audit and Compliance Committee. The Audit and Compliance
Committee considered control matters raised by management
and both the internal and external auditors and reported its
findings to the Board. The CNMV standard requires the disclosure
of material weaknesses in ICFR: no such weaknesses were
identified during the year under review or up until the date of
approval of this report.
Dear Shareholder
The Audit and Compliance Committee is responding to the
increasingly challenging corporate governance environment.
We recognise our role is more important than ever in reviewing
the effectiveness of internal controls and providing assurance
on risk management.
Both the Spanish and the UK regulators introduced new
Corporate Governance guidance in 2015. The Audit and
Compliance Committee has overseen the successful
implementation of this guidance, ensuring that
recommendations are adopted in a way that makes a
positive contribution to the business. In response to the
new Spanish code the Committee has expanded its remit
to include Sustainability. We are already working closely with
the IAG Head of Sustainability to ensure that the new Group
policy and pathway develop the good practices already
existing within the airlines.
Each year we assess the performance of the Committee
through a questionnaire and careful consideration of the results.
The Committee is working well and I am happy with the way we
are constructively challenging the Management Team across a
broad and relevant agenda.
James Lawrence
Audit and Compliance Committee Chairman
review and agreement of the internal audit programme,
resourcing, effectiveness and resolution of issues raised; and
recommending the appointment of external auditors and
reviewing their effectiveness, fees, terms of reference
and independence.
During the year, the Committee performed an evaluation
of its performance and concluded it is operating effectively.
The Committee updated its terms of reference to reflect the
new requirements of the 2015 Spanish Corporate Governance
Code including the Committee’s responsibility for the selection
process for the external auditor, the internal auditor reporting
functionally to the Chair of the Audit Committee and a new
oversight role with respect to Sustainability.
Other items reviewed
Viability statement
In its July 2015 meeting, the Committee reviewed management’s
proposed approach to the viability statement required for the
year ended 2015 under the 2014 UK Corporate Governance code.
The Committee focused on the risks that should be combined
to generate severe but plausible downturn scenarios, how those
risks might interact, how solvency is assessed and the period
over which viability is considered. The February 2016 Committee
reviewed the detailed analysis which adopted a five year time
horizon, reflecting the Group’s Business plan period.
COMMITTEE MEMBERS COMMITTEE MEMBER SINCE
COMMITTEE MEMBERS
COMMITTEE MEMBER SINCE
• James Lawrence (Chair)
– James Lawrence (Chair)
• Patrick Cescau
– Patrick Cescau
• Kieran Poynter
– Kieran Poynter
• Alberto Terol
– Alberto Terol
27 September 2010
27 September 2010
27 September 2010
27 September 2010
27 September 2010
27 September 2010
02 August 2013
02 August 2013
All the Committee members have recent and relevant financial experience for
the purposes of the UK Corporate Governance Code.
The Audit and Compliance Committee
The composition, competencies and operating rules of the
Audit and Compliance Committee are regulated by article 29
of the Board Regulations. A copy of these Regulations can be
found on IAG’s website.
Meetings
The Committee met seven times during 2015. Each year the
Committee also holds closed meetings and meets privately
with both the external and internal auditors as appropriate.
In addition to the Secretary and Deputy Secretary, regular
attendees at Committee meetings included the Chairman,
the Chief Executive Officer, the Chief Financial Officer, the
Head of Group Audit and Risk Management and the Head
of Group Reporting together with representatives from the
external auditors.
The Committee’s responsibilities
The Committee’s principal responsibilities and activities during
the year were:
review of financial statements and announcements relating
to the financial performance and governance of the Group;
review of the effectiveness of the internal control system,
provide assurance on the risk management process and
review the principal risks facing the Group;
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www.iairgroup.com
49
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REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE CONTINUED
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE CONTINUED
Anti-bribery, sanctions and competition law compliance
The Committee reviewed developments in the anti-bribery
compliance programme including the establishment of a Group
wide Know Your Counterparty due diligence programme which
has initially focused on general sales agents employed by the
airlines in foreign jurisdictions. A sanctions compliance risk map
was reviewed together with the results of targeted sanctions
compliance initiatives. The Committee endorsed the Head of
Compliance’s plans to develop a Group-wide sanctions policy
and training in higher risk areas. The Head of Competition Law
reported to the Committee on compliance initiatives during the
year, training attendance and priorities for 2016.
Litigation
The Committee received regular litigation status reports from the
General Counsel including the status of the remaining civil claims
against British Airways following the 2010 European Commission
decision on alleged cartel activity with respect to 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.
With respect to the civil claims the Committee agreed with
management’s view that, given the status of proceedings and
the recent General Court decision, it is not possible at this stage
to predict the outcome of the proceedings and no financial
provision should be made for the civil claims.
Sustainability
The Committee reviewed the new Group-wide Sustainability
policy that replaced existing policies in the individual airlines.
We also reviewed the sustainability strategy and targets in key
areas such as carbon footprint and noise performance.
Nigeria cash
Delays were experienced in the conversion and repatriation of
British Airways’ cash from Nigeria in the second half of 2015.
This resulted in a balance of €72 million equivalent at year end.
The Committee reviewed British Airways’ commercial responses
which balanced limiting the growth in cash balances against
maintaining a presence in the market.
Accounting issues
Throughout the year, the Committee considers the implications
of new accounting standards, reviews complex accounting
transactions, and considers the key estimates and judgements
used in the preparation of the Group financial statements. In 2015,
these included the life and residual value of the fleet, the
provisional Aer Lingus purchase price allocation, the revenue
deferral relating to unredeemed Avios and employee benefit
obligations.
The life and residual value of fleets are determined on an airline-
by-airline basis as the fleet plan will see different retirement ages
in each airline. Residual values are driven by the age of the
aircraft on retirement from the fleet and the expected demand
for the aircraft or its component parts. British Airways revised its
estimates for its Boeing 777-200 fleet and its Airbus A320 family
fleet. Iberia accelerated depreciation on its Airbus A340-300 fleet
and also amended its Airbus A320 fleet family. The Committee
reviewed the economic rationale and customer proposition
impact of the changes and satisfied itself that the new expected
lives and accompanying reduced residual values were
appropriate management estimates. The 2015 impact of life
extensions, together with changes to the residual values of
specific aircraft nearing retirement, was a net credit of €36 million.
The Committee reviewed the valuation methodologies employed
in the provisional Aer Lingus purchase price allocation together
with EY’s interim report on their audit. The Committee is satisfied
that good progress has been made and the provisional purchase
price allocation fairly reflects the work carried out to date. The
purchase price allocation will be completed by August 2016.
In 2015 management finalised its implementation of a new data
analytics tool that provides insight into customers’ acquisition
and use of Avios. The data analytics tool is also used to validate
the accounting estimate of “breakage”, the proportion of Avios
issued that will never be redeemed. The new results obtained
supported management’s existing accounting estimates.
The December 2015 Committee reviewed the accounting for
British Airways and Aer Lingus pension schemes together with
Iberia collective redundancy schemes. This review included
consideration of Aer Lingus’ participation in the Irish Airlines
Superannuation schemes and treatment as defined contribution
under IAS 19. Treatment as defined contribution is considered
to be appropriate as there is no obligation, legal or constructive,
for Aer Lingus to change its contributions to the scheme.
The Committee also reviewed and agreed with management’s
decision to include maintenance contracts as a key accounting
estimate and judgement. Contract terms are becoming more
complex, covering multiple elements and can span several years.
British Airways Travel Programme
The Travel Programme incorporates a new customer check-in
and aircraft boarding system together with new IT integration
technology. As such it is a critical programme presenting risks
to customer service as the systems are rolled out through 2015
and 2016. The Committee requested two updates from the
accountable IT and operations directors together with the lead
of the programme’s risk management work stream. The reviews
focused on the governance structure of the programme; key risks
around implementation; and how Internal Audit recommendations
relating to programme resourcing, contingency planning, testing
and go / no go criteria were being addressed.
Cyber Security
The Group Head of IT and the Group IT Security Manager
attended the Committee to discuss the fast developing cyber
risk landscape. The Committee reviewed IAG’s response which
included developing and implementing a Cyber Security Strategy.
The Committee also focused on actions arising from an Internal
Audit review and a Management Committee led tactical initiative
to ensure consistent cyber security responses across the Group.
50
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE CONTINUED
Anti-bribery, sanctions and competition law compliance
The Committee reviewed developments in the anti-bribery
compliance programme including the establishment of a Group
wide Know Your Counterparty due diligence programme which
has initially focused on general sales agents employed by the
airlines in foreign jurisdictions. A sanctions compliance risk map
was reviewed together with the results of targeted sanctions
compliance initiatives. The Committee endorsed the Head of
Compliance’s plans to develop a Group-wide sanctions policy
and training in higher risk areas. The Head of Competition Law
reported to the Committee on compliance initiatives during the
year, training attendance and priorities for 2016.
Litigation
The Committee received regular litigation status reports from the
General Counsel including the status of the remaining civil claims
against British Airways following the 2010 European Commission
decision on alleged cartel activity with respect to 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.
With respect to the civil claims the Committee agreed with
management’s view that, given the status of proceedings and
the recent General Court decision, it is not possible at this stage
to predict the outcome of the proceedings and no financial
provision should be made for the civil claims.
Sustainability
The Committee reviewed the new Group-wide Sustainability
policy that replaced existing policies in the individual airlines.
We also reviewed the sustainability strategy and targets in key
areas such as carbon footprint and noise performance.
Nigeria cash
Delays were experienced in the conversion and repatriation of
British Airways’ cash from Nigeria in the second half of 2015.
This resulted in a balance of €72 million equivalent at year end.
The Committee reviewed British Airways’ commercial responses
which balanced limiting the growth in cash balances against
maintaining a presence in the market.
Accounting issues
Throughout the year, the Committee considers the implications
of new accounting standards, reviews complex accounting
transactions, and considers the key estimates and judgements
used in the preparation of the Group financial statements. In 2015,
these included the life and residual value of the fleet, the
provisional Aer Lingus purchase price allocation, the revenue
deferral relating to unredeemed Avios and employee benefit
obligations.
The life and residual value of fleets are determined on an airline-
by-airline basis as the fleet plan will see different retirement ages
in each airline. Residual values are driven by the age of the
aircraft on retirement from the fleet and the expected demand
for the aircraft or its component parts. British Airways revised its
estimates for its Boeing 777-200 fleet and its Airbus A320 family
fleet. Iberia accelerated depreciation on its Airbus A340-300 fleet
and also amended its Airbus A320 fleet family. The Committee
reviewed the economic rationale and customer proposition
impact of the changes and satisfied itself that the new expected
lives and accompanying reduced residual values were
appropriate management estimates. The 2015 impact of life
extensions, together with changes to the residual values of
specific aircraft nearing retirement, was a net credit of €36 million.
The Committee reviewed the valuation methodologies employed
in the provisional Aer Lingus purchase price allocation together
with EY’s interim report on their audit. The Committee is satisfied
that good progress has been made and the provisional purchase
price allocation fairly reflects the work carried out to date. The
purchase price allocation will be completed by August 2016.
In 2015 management finalised its implementation of a new data
analytics tool that provides insight into customers’ acquisition
and use of Avios. The data analytics tool is also used to validate
the accounting estimate of “breakage”, the proportion of Avios
issued that will never be redeemed. The new results obtained
supported management’s existing accounting estimates.
The December 2015 Committee reviewed the accounting for
British Airways and Aer Lingus pension schemes together with
Iberia collective redundancy schemes. This review included
consideration of Aer Lingus’ participation in the Irish Airlines
Superannuation schemes and treatment as defined contribution
under IAS 19. Treatment as defined contribution is considered
to be appropriate as there is no obligation, legal or constructive,
for Aer Lingus to change its contributions to the scheme.
The Committee also reviewed and agreed with management’s
decision to include maintenance contracts as a key accounting
estimate and judgement. Contract terms are becoming more
complex, covering multiple elements and can span several years.
British Airways Travel Programme
The Travel Programme incorporates a new customer check-in
and aircraft boarding system together with new IT integration
technology. As such it is a critical programme presenting risks
to customer service as the systems are rolled out through 2015
and 2016. The Committee requested two updates from the
accountable IT and operations directors together with the lead
of the programme’s risk management work stream. The reviews
focused on the governance structure of the programme; key risks
around implementation; and how Internal Audit recommendations
relating to programme resourcing, contingency planning, testing
and go / no go criteria were being addressed.
Cyber Security
The Group Head of IT and the Group IT Security Manager
attended the Committee to discuss the fast developing cyber
risk landscape. The Committee reviewed IAG’s response which
included developing and implementing a Cyber Security Strategy.
The Committee also focused on actions arising from an Internal
Audit review and a Management Committee led tactical initiative
to ensure consistent cyber security responses across the Group.
Treasury risk management
The Committee continued to review the Group’s fuel and foreign
exchange hedging positions on a quarterly basis, ensuring that
the approved hedging profile was being adhered to and
continued to be appropriate.
Tax risk
Following the establishment of a new Group tax policy in 2014,
the Committee carried out a review of tax risks and governance.
Looking forward, tax risk has been incorporated into the new
Enterprise Risk Management Policy and will be reported to the
Committee on a six monthly basis.
Internal Control over Financial Reporting
2015 saw Internal Control over Financial Reporting (ICFR)
moving into a maintenance phase having been implemented in
2013 and 2014. ICFR, which is a Spanish Corporate Governance
requirement, is a thorough analysis of risks in financial reporting,
the documentation of accounting processes, and testing of
internal controls. In 2015 no material weaknesses were identified.
A full description of ICFR is set out in Section F of the Spanish
Corporate Governance Report on page 200.
The Committee considers whether the Annual Report and
Accounts are fair, balanced and understandable. This review is
supported by a process whereby all sections of the Annual
Report and Accounts are allocated to senior managers and
members of the Management Committee who attest that the
sections are fair, balanced and understandable. The Committee
also reviews disclosure throughout the year through receiving
a quarterly report from the IAG Disclosure Committee outlining
all the matters they discuss.
Enterprise risk management
The Committee reviewed the effectiveness of the Group’s
Enterprise Risk Management systems, ensuring that they
met the new recommendations of the 2015 Spanish Good
Governance Code and the UK Financial Reporting Council’s
new guidance on risk management. Whilst concluding positively,
the Committee endorsed management’s plan to centralise
Enterprise Risk Management resources at the Group level and
implement a Group-wide system whereby risk owners attested
to the proper management of principal risks.
External audit
The Group’s external auditors, EY, will be appointed as auditors of
Aer Lingus for 2016 in line with the Committee’s policy of having
one auditor for the Group. The Committee works closely with EY,
with their partners attending all seven meetings during the year.
The Committee reviewed the engagement letter, fees and the
audit plan which included EY’s assessment of risk areas within the
financial statements. This risk assessment highlighted revenue
recognition, the Aer Lingus Business combination and employee
benefit schemes, as such the EY analysis was consistent with the
areas reviewed by the Committee under Accounting issues. Audit
results were reviewed during three meetings; for the half year, for
the findings from interim audits, and for the year-end matters.
In assessing the effectiveness and independence of the external
auditors, the Committee considered relevant professional and
regulatory requirements and the relationship with the auditors
as a whole. The Committee monitored the auditors’ compliance
with relevant regulatory, ethical and professional guidance on the
rotation of partners, and assessed their qualifications, expertise,
resources and the effectiveness of the audit process, including
a report from the external auditor on its own internal quality
procedures. The assessment included a detailed questionnaire
completed by key directors, managers and a sample of
accounting staff throughout the Group. The questionnaire results
demonstrated that EY’s overall performance was good and that
they are providing an effective external audit across the Group.
Having reviewed EY’s performance during 2015, the Committee
concluded that EY were independent and that it was in the
Group’s and shareholders’ interests not to tender the audit in
2016 and recommends their re-appointment.
The Group audit was last tendered on the incorporation of the
IAG in 2010. The Company intends to comply with the UK
Corporate Governance Code requirement to tender the external
audit at least every ten years and the transition arrangements
that would require the audit to be tendered for the year 2021 at
the latest. Subject to its implementation in the UK, the new EU
Regulation regarding the statutory audit of public interest entities
will require us to change auditors in 2021. EY rotate the Partners
on the engagement in line with their own independence
standards, 2015 will be the last year that Rafael Paez Martinez
opines on the IAG financial statements and we look forward to
working with Hildur Eir Jonsdottir in 2016.
Non-audit services provided by the external auditors are subject
to a Board approved policy that prohibits certain categories of
work and controls the overall level of expenditure. The
Committee reviews the nature and volume of projects
undertaken by the external auditors on a quarterly basis and
the Committee Chairman pre-approves projects over €100,000
or of an unusual nature. The overall volume of work is addressed
by a target maximum of €1.3 million with an additional allowance
of up to €1 million for large projects where EY are uniquely placed
to carry out the work. Spend in 2015 was below the target
maximum at €872,000 with an additional €557,000 relating to
the acquisition of Aer Lingus and the completion of EY projects
in place at Aer Lingus at the time of acquisition. 45 per cent of
the €872,000 spend related to recurring work on the audit of
accounts required by our Joint Business arrangements. Details
of the fees paid to the external auditors during the year can be
found in note 7 to the financial statements.
Whistleblowing
The Committee reviewed procedures whereby staff across the
Group can raise confidential concerns regarding accounting,
internal control, auditing and other matters. Third-party providers
are used to provide whistleblowing channels so that all staff
across the Group can report concerns to senior management
in their company. The Committee also reviewed the volume
and nature of cases reported and noted that there were no
significant financial or compliance issues raised.
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REPORT OF THE NOMINATIONS COMMITTEE
REPORT OF THE NOMINATIONS COMMITTEE
Dear Shareholder
I am delighted to present the Nominations Committee’s Report
for 2015.
Succession planning and the succession pipeline remained a
key agenda item for the Committee this year. Building on the
comprehensive exercise carried out last year, the Committee
continued working on succession planning for the Board;
ensuring that the Board has the right balance of diverse skills
and experience; and that refreshment and emergency plans
are also in place. As far as executive succession is concerned,
we have closely monitored the initiatives designed to develop
internal talent and also ensured that emergency succession
proposals are in place. We were pleased to see a greater focus
on values and culture in recruitment, talent assessments and
the succession planning work.
The Committee reviewed this year the change in the chair of
the Remuneration Committee, with Dame Marjorie Scardino
succeeding Baroness Kingsmill in this role. I have to say that
Marjorie and Denise managed an exemplary handover. Mentioning
this Committee, which has a 75 per cent female representation,
it gives me the opportunity to comment on the new Directors
Selection and Diversity Policy, approved by the Committee in
January 2016, which establishes a new 33 per cent commitment
for our Board in line with Lord Davies’ recommendations.
Ahead of our AGM, the independence, effectiveness and
commitment of each of the non-executive directors were
reviewed and discussed with them privately by the Chairman of
our Board, and former Chairman of this Committee. The results
were shared with the Nominations Committee and formed the
basis of our proposals for the re-election of directors.
And finally, the Committee has considered the important
changes made to key positions in our operating companies’
leadership teams. I cannot finish my report without mentioning
the retirement of Keith Williams from the Group, for whom we
have a profound professional and personal respect. As
announced at our Capital Markets Day, he is being replaced by
Alex Cruz, currently Chairman and Chief Executive of Vueling,
evidencing the value of our succession planning exercise and
the quality of our internal talent.
Sir Martin Broughton
Nominations Committee Chairman
COMMITTEE MEMBERS
COMMITTEE MEMBER SINCE
COMMITTEE MEMBERS COMMITTEE MEMBER SINCE
– Sir Martin Broughton (Chair)
• Sir Martin Broughton (Chair)
– Antonio Vázquez
• Antonio Vázquez
– César Alierta
• Baroness Kingsmill
– Baroness Kingsmill
• César Alierta
19 December 2013
19 December 2013
19 December 2013
19 December 2013
27 September 2010
27 September 2010
27 September 2010
27 September 2010
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE NOMINATIONS COMMITTEE
COMMITTEE MEMBERS
COMMITTEE MEMBER SINCE
– Sir Martin Broughton (Chair)
19 December 2013
– Antonio Vázquez
– César Alierta
– Baroness Kingsmill
27 September 2010
27 September 2010
19 December 2013
this Committee, which has a 75 per cent female representation,
Dear Shareholder
for 2015.
I am delighted to present the Nominations Committee’s Report
Succession planning and the succession pipeline remained a
key agenda item for the Committee this year. Building on the
comprehensive exercise carried out last year, the Committee
continued working on succession planning for the Board;
ensuring that the Board has the right balance of diverse skills
and experience; and that refreshment and emergency plans
are also in place. As far as executive succession is concerned,
we have closely monitored the initiatives designed to develop
internal talent and also ensured that emergency succession
proposals are in place. We were pleased to see a greater focus
on values and culture in recruitment, talent assessments and
the succession planning work.
The Committee reviewed this year the change in the chair of
the Remuneration Committee, with Dame Marjorie Scardino
succeeding Baroness Kingsmill in this role. I have to say that
Marjorie and Denise managed an exemplary handover. Mentioning
it gives me the opportunity to comment on the new Directors
Selection and Diversity Policy, approved by the Committee in
January 2016, which establishes a new 33 per cent commitment
for our Board in line with Lord Davies’ recommendations.
Ahead of our AGM, the independence, effectiveness and
commitment of each of the non-executive directors were
reviewed and discussed with them privately by the Chairman of
our Board, and former Chairman of this Committee. The results
were shared with the Nominations Committee and formed the
basis of our proposals for the re-election of directors.
And finally, the Committee has considered the important
changes made to key positions in our operating companies’
leadership teams. I cannot finish my report without mentioning
the retirement of Keith Williams from the Group, for whom we
have a profound professional and personal respect. As
announced at our Capital Markets Day, he is being replaced by
Alex Cruz, currently Chairman and Chief Executive of Vueling,
evidencing the value of our succession planning exercise and
the quality of our internal talent.
Sir Martin Broughton
Nominations Committee Chairman
The Nominations Committee
The composition, competencies and operating rules of the
Nominations Committee are regulated by article 30 of the
Board Regulations. A copy of these Regulations can be found
on the Company’s website. These Regulations state that the
Nominations Committee shall be made up of no less than three
and no more than five non-executive directors appointed by the
Board, with the dedication, capacity and experience necessary
to carry out its function. A majority of the members of the
Nominations Committee must be independent directors.
Currently, all members are non-executive directors and three
of them are considered independent.
The Nominations Committee’s responsibilities are contained
in the Board Regulations. These can be summarised as:
evaluating the competencies, knowledge and experience
necessary on the Board of Directors and reviewing the
criteria for the composition of the Board and the selection
of candidates;
submitting the appointment of Directors to the Board for
approval, and reporting on the proposed designations of the
members of the Board committees and their chairmen;
succession planning for Board members making proposals
to the Board so that such succession occurs in a planned and
orderly manner;
establishing guidelines for the appointment, recruitment,
career, promotion and dismissal of senior executives;
reporting to the Board on the appointment and removal of
senior executives;
ensuring that non-executive directors receive appropriate
induction programmes;
establishing a target for female representation on the Board
which should be pursued by the Company’s Directors
Selection and Diversity Policy; and
submitting to the Board a report on the annual evaluation
of the Board performance.
Meetings
During 2015 the Nominations Committee met five times.
Directors’ attendance at these meetings is shown on page 62.
The Committee’s activities during the year
The Committee dealt with the following significant issues
during 2015:
Board succession planning;
succession planning for the Group Chief Executive , the
IAG Management Committee and leadership teams of
the Group operating companies;
performance evaluation of the Chairman and the
Chief Executive;
annual review of the category of each director;
assessment of directors re-election;
review of investors’ feedback from the 2015
Shareholders’ Meeting;
review of appointments to the Group subsidiary boards;
2015 Spanish Good Governance Code for Listed Companies;
refresher programmes for non-executive directors; and
annual performance evaluation planning for the Board and
for the Committee.
Succession planning
Building on the exercise accomplished in 2014, the Nominations
Committee continues to review and refresh non-executive
director succession planning. During 2015, the Committee
considered the adequacy of succession arrangements at Board
level. The Committee reviewed the skills matrix, the likely pattern
of Board retirements over the coming years, as well as the
chairmanship and membership of each committee, considering
possible successor candidates for the different positions within
the Board and its committees.
The Committee also considered the adequacy of succession
arrangements for executive directors, and for key executive
positions at IAG and at the operating companies. The Group
Chief Executive led the necessary arrangements for succession
planning of the top 50 leadership positions across the Group,
including the IAG Management Committee, the operating
companies’ leadership teams and other key executive positions
at IAG. For each position, ‘ready now successors’ and ‘other
potential successors’ have been identified from within the
business, ensuring that the majority of positions have at least
two possible internal successors. For certain positions it is
recognised that the most suitable successors will be external
appointments. During the year, a number of internal candidates
were successfully promoted into top 50 leadership positions in
addition to some external appointments.
In developing the management succession plan, work has been
undertaken to identify the critical leadership capabilities that
are required amongst the top leaders of the Group and these
are being used to help assess potential successors. Other vital
considerations throughout the succession planning process
include the diversity mix across the leadership group and the
length of time spent in each role. The Committee recognises the
importance of developing internal talent at IAG, particularly with
regard to succession planning for certain key senior positions.
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REPORT OF THE NOMINATIONS COMMITTEE CONTINUED
REPORT OF THE NOMINATIONS COMMITEE CONTINUED
Board diversity
IAG approved a Diversity Policy in September 2012, which was
reviewed and updated in June 2014. All appointments to the
Board are based upon merit and suitability of the candidate to
the particular role being filled, having regard to the benefits of
diversity on the Board, including gender.
As set out in the Board’s Diversity Policy, IAG achieved the
2015 target of 25 per cent female representation on the Board.
It is the Committee’s intention to continue to focus on this
important area during 2016 taking into consideration the
recommendations of the final report of the Women on Boards
Davies review published in October 2015 in the United Kingdom.
As mentioned before, the Nominations Committee reviewed a
new Directors Selection and Diversity Policy which was
submitted for Board approval on January 28, 2016. This policy is
available on the Company’s website.
This new policy sets a different target for female representation
on IAG’s Board of 33 per cent by 2020 in line with Lord Davies’
recommendation. It is the Nominations Committee’s intention to
reconcile the achievement of this objective while preserving the
general diversity and merit based appointment principles
established in IAG’s policy.
Further details on diversity, can be found on page 63 of this
corporate governance section and page 33 in the sustainability
section of the annual report.
Board and committee changes
During the year the Committee reviewed the composition and
balance of the Board’s committees and recommended changes
to the Board for approval. As a result, on June 18, the Committee
endorsed the appointment of Sir Martin Broughton to replace
Antonio Vázquez as Chairman of the Nominations Committee.
In addition, on the Committee’s recommendation, the Board
approved the appointment of Dame Marjorie Scardino as Chair
of the Remuneration Committee, succeeding Baroness Kingsmill
who remained a committee member.
In addition to this, José Pedro Pérez-Llorca did not stand for
re-election at the Shareholders’ Meeting in June 2015. The Board
expressed its gratitude for his service during more than 14 years
to IAG and Iberia. No new directors were appointed to the Board
during the year.
Annual evaluation of performance
The Committee reviews Directors’ performance and
independence as part of the Committee’s assessment of their
eligibility for re-election. The performance, commitment, ability
and availability of each of the non-executive directors have been
reviewed and discussed with them privately by the Chairman.
The results were shared with the Nominations Committee and
the Committee recommended each director standing for re-
election at the 2015 Shareholders’ Meeting be re-elected.
The Committee’s performance was evaluated internally for the
second year following the external evaluation process carried
out in 2013. This year, in accordance with the new Spanish Good
Governance Code for Listed Companies, the Nominations
Committee also led the Board evaluation process as detailed
on page 63 of this Corporate Governance Report.
The Committee was found to be operating effectively.
Committee members are satisfied with the progress made in the
work of this Committee in its five years of existence, particularly
in relation to succession planning. As objectives for 2016, the
Committee considers strengthening succession planning for
the top leadership positions in IAG and its operating companies,
as well as the improvement in the induction programme for new
directors and Committee members.
74
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE NOMINATIONS COMMITEE CONTINUED
REPORT OF THE SAFETY COMMITTEE
REPORT OF THE SAFETY COMMITTEE
25/02/2016 14:37
Board and committee changes
Board diversity
During the year the Committee reviewed the composition and
IAG approved a Diversity Policy in September 2012, which was
balance of the Board’s committees and recommended changes
reviewed and updated in June 2014. All appointments to the
to the Board for approval. As a result, on June 18, the Committee
Board are based upon merit and suitability of the candidate to
endorsed the appointment of Sir Martin Broughton to replace
the particular role being filled, having regard to the benefits of
Antonio Vázquez as Chairman of the Nominations Committee.
diversity on the Board, including gender.
In addition, on the Committee’s recommendation, the Board
approved the appointment of Dame Marjorie Scardino as Chair
of the Remuneration Committee, succeeding Baroness Kingsmill
who remained a committee member.
As set out in the Board’s Diversity Policy, IAG achieved the
2015 target of 25 per cent female representation on the Board.
It is the Committee’s intention to continue to focus on this
important area during 2016 taking into consideration the
In addition to this, José Pedro Pérez-Llorca did not stand for
recommendations of the final report of the Women on Boards
re-election at the Shareholders’ Meeting in June 2015. The Board
Davies review published in October 2015 in the United Kingdom.
expressed its gratitude for his service during more than 14 years
to IAG and Iberia. No new directors were appointed to the Board
during the year.
Annual evaluation of performance
As mentioned before, the Nominations Committee reviewed a
new Directors Selection and Diversity Policy which was
submitted for Board approval on January 28, 2016. This policy is
available on the Company’s website.
The Committee reviews Directors’ performance and
This new policy sets a different target for female representation
independence as part of the Committee’s assessment of their
on IAG’s Board of 33 per cent by 2020 in line with Lord Davies’
eligibility for re-election. The performance, commitment, ability
recommendation. It is the Nominations Committee’s intention to
and availability of each of the non-executive directors have been
reconcile the achievement of this objective while preserving the
reviewed and discussed with them privately by the Chairman.
general diversity and merit based appointment principles
The results were shared with the Nominations Committee and
established in IAG’s policy.
the Committee recommended each director standing for re-
election at the 2015 Shareholders’ Meeting be re-elected.
Further details on diversity, can be found on page 63 of this
corporate governance section and page 33 in the sustainability
The Committee’s performance was evaluated internally for the
section of the annual report.
second year following the external evaluation process carried
out in 2013. This year, in accordance with the new Spanish Good
Governance Code for Listed Companies, the Nominations
Committee also led the Board evaluation process as detailed
on page 63 of this Corporate Governance Report.
The Committee was found to be operating effectively.
Committee members are satisfied with the progress made in the
work of this Committee in its five years of existence, particularly
in relation to succession planning. As objectives for 2016, the
Committee considers strengthening succession planning for
the top leadership positions in IAG and its operating companies,
as well as the improvement in the induction programme for new
directors and Committee members.
Dear Shareholder
The Safety Committee has continued with its regular activities
during 2015.
As a tool of support and coordination within the Group, the
Safety Committee has continued monitoring all matters relating
to the operational safety of IAG’s airline companies, as well as to
the systems and resources dedicated to safety activities across
the Group.
Taking into consideration that IAG is the parent company of
a group of airlines, the work of this Committee, beyond the
oversight of safety matters, is focused on standards within the
Group. In this sense, I am very satisfied with the progress made
to date. We are already seeing the benefits of the comparison,
the cooperation and the exchange of experience and good
practices between our airline companies.
We have welcomed this year the addition of Aer Lingus to
our Group. Its Corporate Safety & Risk Manager attended our
December Safety Committee meeting and will start reporting to
the Safety Committee as all other Group airlines do, benefiting
and contributing to this common undertaking.
Willie Walsh
Safety Committee Chairman
COMMITTEE MEMBERS
COMMITTEE MEMBERS COMMITTEE MEMBER SINCE
COMMITTEE MEMBER SINCE
• Willie Walsh (Chair)
Willie Walsh (Chair)
• Antonio Vázquez
Antonio Vázquez
• Sir Martin Broughton
Sir Martin Broughton
• Kieran Poynter
Kieran Poynter
19 October 2010
19 October 2010
19 October 2010
19 October 2010
19 October 2010
19 October 2010
19 October 2010
19 October 2010
The Safety Committee
Composition, competencies and operating rules of the
Committee are regulated by article 32 of the Board Regulations.
The Committee shall be made up of no fewer than three and
no more than five Directors appointed by the IAG Board, with
the dedication, capacity and experience necessary to carry out
their function.
In addition to Committee members, senior managers with
responsibility for safety matters are invited to attend and to
report at the Committee meetings as and when necessary.
During 2015, the British Airways Director of Safety and Security,
representatives of the Iberia and Vueling safety teams and the
Aer Lingus Corporate Safety & Risk Manager attended Safety
Committee meetings.
The Committee’s responsibilities
Responsibility for safety matters belongs to the Group’s airlines.
IAG, through its Safety Committee, will have an overall view of
each airline’s safety performance and of any important issues
that may affect the industry. The Safety Committee also has
visibility on the Group’s airlines resources and procedures.
Responsibility for performing detailed and technical assessments
remains with each Group airline, overseen by their respective
safety committees.
The Committee’s duties include:
to receive significant safety information about IAG’s
subsidiaries, franchise, codeshare or wet-lease providers
used by any member of the Group;
to exercise a high-level overview of the safety activities and
resources of IAG and its airline companies; to inform the Board
as appropriate (recognising that responsibility for resources
and safety matters falls to each Group airline);
to follow up on any safety-related matters as determined by
the Board; and
to carry out any other safety-related functions assigned
by the Board.
The Safety Committee reports any relevant information and
a summary of its activity to the IAG Board, and follows up on
any safety-related measures as determined by the IAG Board.
The Committee’s activities during the year
During 2015, the Committee held two meetings, attended by
all four Committee members. The key topics discussed included
the relevant safety events which occurred during the relevant
period, regulatory developments and initiatives from industry
associations, along with the regular safety review reports of
British Airways, Iberia and Vueling.
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REPORT OF THE REMUNERATION COMMITTEE
REPORT OF THE REMUNERATION COMMITTEE
The remuneration policy is designed to deliver total remuneration
that is competitive and with increased emphasis on “pay for
performance”. The Committee will continue to ensure that
executive remuneration is aligned with the business strategy
and is confident that the overall reward framework for 2015, 2016
and beyond is in the best interests of shareholders.
Overall summary of 2015 (and the performance period
2013 to 2015)
The performance share plan which vests during 2016 had a
three-year performance period (2013 to 2015). Performance
targets for the two measures (adjusted EPS and TSR) were set
at the beginning of 2013.
At that time, the Company reported an adjusted EPS of
negative 23.4 euro cents for 2012, and the share price during
2012 had varied between 136p and 190p. Very ambitious goals
were set, with stretch targets for 2015 adjusted EPS of 52 euro
cents, and TSR of 8 per cent per annum outperformance of an
industry index.
Over the last three years, the Company has produced an
extraordinary performance. All our airlines transformed their
profitability (led by the Iberia turnaround programme), leading
to 2015 adjusted EPS reaching 71.4 euro cents, an increase in
the share price by the end of 2015 to 611p (more than trebling in
three years, and creating an extra value to shareholders of over
£9 billion), and TSR outperforming the index by 35 per cent per
annum. This is a great success story. As a result, the performance
share plan awarded to executives in 2013 will pay out in 2015 at
its maximum level, with both adjusted EPS and TSR having
significantly exceeded the stretch target.
The financial targets for the 2015 annual incentive plan set at the
beginning of the year were very demanding (the on-target level
was increased by 68 per cent), but continued improvement
of our performance, with profitability €200 million above the
incentive plan on-target level, means that the two-thirds portion
of the scheme linked to financial performance will pay out 70 per
cent of the maximum opportunity (the final third portion being
focused on individual objectives).
Decisions during 2015
Last year’s report showed that the Committee had approved
several actions to strengthen the alignment between executives
and shareholders (which included adding a return metric and
an additional holding period to the performance share plan,
expanding the shareholding guidelines, and strengthening the
malus and clawback provisions). In the last 12 months, the
Committee has overseen the implementation of these
major decisions.
Major decisions that the Committee has taken during 2015 include:
approving the implementation plan for the malus and clawback
provisions in the Company’s incentive plans;
2016 reward strategy, including increasing the shareholding
requirement of executive directors (other than the CEO of IAG)
to 200 per cent of basic salary; and
COMMITTEE MEMBERS COMMITTEE MEMBER SINCE
COMMITTEE MEMBERS
COMMITTEE MEMBER SINCE
19 December 2013
• Dame Marjorie Scardino (Chair)
– Dame Marjorie Scardino (Chair)
19 December 2013
27 September 2010
• Baroness Kingsmill
27 September 2010
– Baroness Kingsmill
30 October 2014
• María Fernanda Mejía
30 October 2014
– María Fernanda Mejía
19 December 2013
• Alberto Terol
– Alberto Terol
19 December 2013
Dear Shareholder
As Chairman of the Remuneration Committee from September
2015, and on behalf of the Board, I am pleased to present the
Remuneration Report for 2015.
Overall strategy and link to remuneration
IAG’s strategy is to become the leading international airline
group in an increasingly consolidated industry, creating value
and delivering higher returns for our shareholders through
leadership in core markets and the realisation of cost and
revenue synergy opportunities across the group of airlines
and aviation related businesses.
The strategy is executed and sustained by consistent
improvement in financial performance and in return on
investment, in each part of the Group. This requires overseeing
transformation programmes through use of the IAG “platform”
at each of our airlines, while leveraging cost and revenue
opportunities across the Group.
IAG’s executive remuneration framework aims to underpin those
business objectives and the financial targets attached to them:
The Company’s long-term incentive plan, known as the
performance share plan (PSP), has earnings per share (EPS)
adjusted for exceptional items as its main financial measure, in
order to provide a direct link to our strategy; total shareholder
return (TSR) to ensure alignment with our shareholders and,
added in 2015, a return on invested capital (RoIC) measure to
emphasise the increased focus on how we use our capital.
The annual incentive plan focuses on improvement in financial
performance, and therefore the primary measure in the plan is
operating profit before exceptional items at the Group level.
56
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE
The remuneration policy is designed to deliver total remuneration
that is competitive and with increased emphasis on “pay for
performance”. The Committee will continue to ensure that
executive remuneration is aligned with the business strategy
and is confident that the overall reward framework for 2015, 2016
and beyond is in the best interests of shareholders.
Overall summary of 2015 (and the performance period
2013 to 2015)
The performance share plan which vests during 2016 had a
three-year performance period (2013 to 2015). Performance
targets for the two measures (adjusted EPS and TSR) were set
at the beginning of 2013.
At that time, the Company reported an adjusted EPS of
negative 23.4 euro cents for 2012, and the share price during
2012 had varied between 136p and 190p. Very ambitious goals
were set, with stretch targets for 2015 adjusted EPS of 52 euro
cents, and TSR of 8 per cent per annum outperformance of an
Over the last three years, the Company has produced an
extraordinary performance. All our airlines transformed their
profitability (led by the Iberia turnaround programme), leading
to 2015 adjusted EPS reaching 71.4 euro cents, an increase in
the share price by the end of 2015 to 611p (more than trebling in
three years, and creating an extra value to shareholders of over
£9 billion), and TSR outperforming the index by 35 per cent per
annum. This is a great success story. As a result, the performance
share plan awarded to executives in 2013 will pay out in 2015 at
its maximum level, with both adjusted EPS and TSR having
significantly exceeded the stretch target.
The financial targets for the 2015 annual incentive plan set at the
beginning of the year were very demanding (the on-target level
was increased by 68 per cent), but continued improvement
of our performance, with profitability €200 million above the
incentive plan on-target level, means that the two-thirds portion
of the scheme linked to financial performance will pay out 70 per
cent of the maximum opportunity (the final third portion being
focused on individual objectives).
Decisions during 2015
Last year’s report showed that the Committee had approved
several actions to strengthen the alignment between executives
and shareholders (which included adding a return metric and
an additional holding period to the performance share plan,
expanding the shareholding guidelines, and strengthening the
COMMITTEE MEMBERS
COMMITTEE MEMBER SINCE
industry index.
– Dame Marjorie Scardino (Chair)
19 December 2013
– Baroness Kingsmill
27 September 2010
– María Fernanda Mejía
30 October 2014
– Alberto Terol
19 December 2013
Dear Shareholder
As Chairman of the Remuneration Committee from September
2015, and on behalf of the Board, I am pleased to present the
Remuneration Report for 2015.
Overall strategy and link to remuneration
IAG’s strategy is to become the leading international airline
group in an increasingly consolidated industry, creating value
and delivering higher returns for our shareholders through
leadership in core markets and the realisation of cost and
revenue synergy opportunities across the group of airlines
and aviation related businesses.
The strategy is executed and sustained by consistent
improvement in financial performance and in return on
investment, in each part of the Group. This requires overseeing
transformation programmes through use of the IAG “platform”
at each of our airlines, while leveraging cost and revenue
opportunities across the Group.
IAG’s executive remuneration framework aims to underpin those
business objectives and the financial targets attached to them:
malus and clawback provisions). In the last 12 months, the
Committee has overseen the implementation of these
The Company’s long-term incentive plan, known as the
performance share plan (PSP), has earnings per share (EPS)
adjusted for exceptional items as its main financial measure, in
order to provide a direct link to our strategy; total shareholder
return (TSR) to ensure alignment with our shareholders and,
major decisions.
Major decisions that the Committee has taken during 2015 include:
approving the implementation plan for the malus and clawback
provisions in the Company’s incentive plans;
added in 2015, a return on invested capital (RoIC) measure to
2016 reward strategy, including increasing the shareholding
emphasise the increased focus on how we use our capital.
requirement of executive directors (other than the CEO of IAG)
to 200 per cent of basic salary; and
The annual incentive plan focuses on improvement in financial
performance, and therefore the primary measure in the plan is
operating profit before exceptional items at the Group level.
remuneration arrangements for the Aer Lingus acquisition,
including the arrangements for the CEO of Aer Lingus, and
the review of the Company’s incentive target ranges to take
into account Aer Lingus’ contribution to the Group.
Working with shareholders
Our former Chair of this Committee, Baroness Kingsmill, along
with Group Head of Investor Relations, Andrew Barker, has met
many of our largest shareholders over the last year. They have
very much valued your comments and support, as well as your
suggestions, for our remuneration policy. We noted your support
for the 2014 Remuneration Report and the Remuneration
Policy submitted for shareholders’ consideration at our annual
Shareholders’ Meeting. We did note, however, the abstentions
registered on the policy vote, which seem to be based on
certain concerns raised by investors, mainly around how much
flexibility the Company had allowed itself in some areas of the
remuneration package. Particular areas of concern were the
potential maximum package that could be offered to new
executive directors, and the potential maximum face value award
that could be offered in the PSP. We believe that we have now
addressed these issues. You will note that at the beginning of the
Policy Section, we state that in terms of application of the policy,
we will not deviate at all from our standard practice.
IAG’s regulatory framework
As a Spanish incorporated company, IAG is subject to Spanish
corporate law. The Spanish legal regime regarding directors’
remuneration was modified in late 2014 by Law 31/2014,
amending the Companies Act to improve corporate governance,
and establishing a legal framework substantially parallel to that
of the UK as far as directors´ remuneration disclosure and
approval requirements are concerned.
AT A GLANCE
AT A GLANCE
Implementation of remuneration policy in 2015
Implementation of remuneration policy in 2015
It is the Company’s intention once again to comply voluntarily
with all reporting aspects of the UK legislation of 2013 and to
follow best practice UK standards, for the benefit of our UK
shareholder base. Therefore, the Company has prepared a
Directors’ Remuneration Report in accordance with UK legislation
(the UK DRR). Additionally, the Company has prepared a Spanish
Directors’ Remuneration Report (the Spanish DRR) bearing in
mind that our annual Shareholders’ Meeting is subject to Spanish
corporate law. We have ensured that the Spanish DRR and the
UK DRR are totally consistent. The Spanish DRR, prepared in
accordance with Spanish legislation, is available on the
Company’s website.
At last year’s annual Shareholders’ Meeting, the remuneration
policy was submitted for a binding vote, and passed. As the
policy is intended to be long term (three years), it will not be
submitted for a vote at the Company’s next annual Shareholders’
Meeting. There have been a few minor adjustments to how the
policy will be applied in practice (listed below at the beginning
of the policy section), all of which are to the advantage of
shareholders, but no changes to the policy will be proposed
this year. There will be, as usual, a vote on the remuneration
implementation report at the Company’s next annual
Shareholders’ Meeting, and this will be advisory.
The Remuneration Committee has balanced carefully how the
Company pays its people and how the Company is building
up value for its shareholders. We welcome any suggestions or
questions about our conclusions.
Dame Marjorie Scardino
Chairman of the Remuneration Committee
Adjusted Earnings per Share
Share Price
THRESHOLD
MAXIMUM
30
52
January 2013
185
Target Range for
the 2013 PSP
Award
0
Actual 2015
Performance
20
30
40
50
60
€ Cents
Vesting (%)
0
20
40
60
80
100
Total Shareholder Return
THRESHOLD
MAXIMUM
Target Range for
the 2013 PSP
Award
0
Actual 2013-2015
Performance
8
71.4
70
100%
PSP Award
Date
(March 2013)
December 2015
241
611
0
100
200
300
Pence
400
500
600
IAG Operating Profit (before exeptional items)
THRESHOLD
TARGET
MAXIMUM
Target Range for
the 2015 Annual
Incentive Plan
35%
Actual 2015
Performance
0
1.8
2.1
2.6
2.3
35%
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
www.iairgroup.com
57
77
0
5
10
15
20
25
30
35
1.7
1.8
1.9
2.0 2.1
2.2
2.3
2.4
2.5
2.6 2.7
Outperformance of the Index (% p.a.)
€bn
Vesting (%)
100%
Vesting (%)
70%
0
20
40
60
80
100
0
20
40
60
80
100
www.iairgroup.comCORPORATE GOVERNANCE
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Introduction
In addition to the Remuneration Committee Chair’s
statement, this Directors’ Remuneration Report contains
two different sections:
The first section, the Directors’ Remuneration
Policy, contains details of the components of the
remuneration packages of the Company’s directors
and how they are linked to the business strategy (this
section has no changes from last year). No changes
to the policy will be proposed this year.
The second section, the Annual Remuneration Report,
covers the information on Directors’ remuneration paid
in the reported year.
The Remuneration Committee takes responsibility for the
preparation of the report, which is approved by the Board.
This Report has been prepared in accordance with the UK
Listing Rules, and, although there is no requirement for a
Spanish company to do so, the requirements of Schedule 8
to the Large and Medium-sized Companies and Groups
(Accounts and Reports) (amendment) Regulations 2013.
The Company’s policy on directors’ remuneration was
approved by shareholders at the annual Shareholders’
Meeting on June 18, 2015. No changes to the policy will
be proposed this year. However, mindful of shareholders’
views, certain aspects of how the policy operates in
practice have been discussed by the Remuneration
Committee and subsequently approved by the Board
with effect from January 1, 2016. These adjustments to
the application of policy are listed below at the beginning
of the Remuneration Policy section.
Directors’ Remuneration Policy
Key elements of pay
Executive Directors
The Company’s remuneration policy is to provide total
remuneration packages which are linked to the business
strategy, competitive, and take into account each individual’s
performance of their role in the Company’s work.
The Company’s primary comparator group is the FTSE 26
to 100 (excluding financial services), with a secondary reference
to Ibex-35 and global airline companies where appropriate.
The Committee is updated on pay and conditions of the
employees within the Group, and takes this into account when
considering executive directors’ remuneration.
The policy as shown on the following pages is unchanged
from last year, as approved by shareholders at the 2015 annual
Shareholders’ Meeting. However, listed below is how the policy
will be applied in practice in respect of certain remuneration
elements. Also, notes to clarify adjustments to the practical
application of the policy have been added to the Policy section,
in italics.
Face value awards for performance share plan awards will not
exceed 200 per cent of salary for the CEO of IAG, and not
exceed 150 per cent of salary for other executive directors.
Executive directors below the CEO of IAG (currently, this is just
the CFO of IAG) had their shareholding requirement increased
to 200 per cent of basic salary, with effect from January 1, 2016.
The maximum value of variable remuneration offered at
recruitment will be no more than that awarded to current
directors. Therefore, for a new CEO of IAG there will be a 200 per
cent maximum opportunity in the annual incentive plan and a
200 per cent maximum face value award for the performance
share plan. For any new executive director other than a new CEO
of IAG, the figures will be maxima of 150 per cent and 150 per
cent respectively. These figures exclude any buy-out amounts.
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Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Introduction
In addition to the Remuneration Committee Chair’s
statement, this Directors’ Remuneration Report contains
two different sections:
The first section, the Directors’ Remuneration
Policy, contains details of the components of the
remuneration packages of the Company’s directors
and how they are linked to the business strategy (this
section has no changes from last year). No changes
to the policy will be proposed this year.
The second section, the Annual Remuneration Report,
covers the information on Directors’ remuneration paid
in the reported year.
The Remuneration Committee takes responsibility for the
preparation of the report, which is approved by the Board.
This Report has been prepared in accordance with the UK
Listing Rules, and, although there is no requirement for a
Spanish company to do so, the requirements of Schedule 8
to the Large and Medium-sized Companies and Groups
(Accounts and Reports) (amendment) Regulations 2013.
The Company’s policy on directors’ remuneration was
approved by shareholders at the annual Shareholders’
Meeting on June 18, 2015. No changes to the policy will
be proposed this year. However, mindful of shareholders’
views, certain aspects of how the policy operates in
practice have been discussed by the Remuneration
Committee and subsequently approved by the Board
with effect from January 1, 2016. These adjustments to
of the Remuneration Policy section.
Directors’ Remuneration Policy
Key elements of pay
Executive Directors
The Company’s remuneration policy is to provide total
remuneration packages which are linked to the business
strategy, competitive, and take into account each individual’s
performance of their role in the Company’s work.
The Company’s primary comparator group is the FTSE 26
to 100 (excluding financial services), with a secondary reference
to Ibex-35 and global airline companies where appropriate.
The Committee is updated on pay and conditions of the
employees within the Group, and takes this into account when
considering executive directors’ remuneration.
The policy as shown on the following pages is unchanged
from last year, as approved by shareholders at the 2015 annual
Shareholders’ Meeting. However, listed below is how the policy
will be applied in practice in respect of certain remuneration
elements. Also, notes to clarify adjustments to the practical
application of the policy have been added to the Policy section,
in italics.
Face value awards for performance share plan awards will not
exceed 200 per cent of salary for the CEO of IAG, and not
exceed 150 per cent of salary for other executive directors.
Executive directors below the CEO of IAG (currently, this is just
the CFO of IAG) had their shareholding requirement increased
to 200 per cent of basic salary, with effect from January 1, 2016.
The maximum value of variable remuneration offered at
recruitment will be no more than that awarded to current
cent maximum opportunity in the annual incentive plan and a
200 per cent maximum face value award for the performance
share plan. For any new executive director other than a new CEO
of IAG, the figures will be maxima of 150 per cent and 150 per
cent respectively. These figures exclude any buy-out amounts.
the application of policy are listed below at the beginning
directors. Therefore, for a new CEO of IAG there will be a 200 per
The table below summarises the main elements of remuneration packages for the executive directors:
Maximum opportunity
Although there is no formal
maximum, basic salaries are
reviewed annually by the
Remuneration Committee by
taking into account the following
factors: company affordability, the
value and worth of the executive,
retention risks, and the size of
pay increases generally across the
whole group of companies.
The maximum opportunity in the
incentive plan is 200 per cent of
salary. 50 per cent of this will be
awarded for on-target performance,
and there will be no payment at all
until financial and personal
performance have reached the
threshold level of the target range.
Performance metrics
Individual and business
performance are considered
in reviewing and setting
base salary.
Two-thirds of the annual
incentive is subject to a
financial measure
(e.g. IAG operating profit),
and one-third is based on
role specific objectives.
Half of any annual incentive plan
pay-out is deferred into shares.
No other performance
conditions apply because
it is based on performance
already delivered.
Purpose and
link to strategy Operation of element of policy
Base salary
To attract
and retain
talent to help
achieve our
strategic
objectives
Takes account of role, skills and contribution.
The positioning of base salaries is set with
reference to market positioning (primarily the
FTSE 26 to 100 excluding financial services), as
well as the individual’s skills and contribution.
Basic salaries are reviewed annually, to take
effect on January 1 each year.
Annual
incentive
award
Incentivises
annual
corporate
financial
performance
and the
delivery of
role specific
objectives
Incentive
Award
Deferral Plan
(IADP)
Aligns the
interest of
executives
and
shareholders
and provides
a retention
tool
The Board, on a recommendation from the
Committee, sets the financial targets that
apply to the annual incentive award (two-
thirds of the annual incentive) at the beginning
of each year. These are set by reference to a
number of factors including the Business Plan
(as approved by the Board). For the one-third
portion based on personal objectives, the
Remuneration Committee, on the proposal of
the Chairman, will consider the Chief Executive
Officer performance against his role-specific
objectives; and the Remuneration Committee,
on the proposal of the Chief Executive Officer,
will consider the Chief Financial Officer
performance against his role-specific
objectives. Both performance evaluations
will be submitted to the Board for final approval.
The Board, on a recommendation from the
Committee, retains the discretion to prevent any
incentive award payments if, in its opinion, the
underlying financial performance of the Company
had not been satisfactory in the circumstances.
Malus and clawback provisions apply – see below.
The IADP operates over 50 per cent of the
annual incentive award. It is designed to align
the interests of executives with shareholders
by providing a proportion of the annual
incentive in deferred shares.
The shares will be subject to forfeiture if the
executive leaves during the three year deferral
period, except if the executive is granted Good
Leaver status. This is covered in the section
below on exit payment policy.
On vesting, executives will receive the benefit
of any dividends paid over the deferred period.
In line with the rules of the IADP and IAG’s
philosophy to encourage and facilitate
employee shareholding, participants may
elect to self-fund any tax due rather than sell a
portion of their share award to meet tax liabilities.
Malus provision applies – see below.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Purpose and
link to strategy
Performance
Share Plan
(PSP)
Incentivises
long-term
shareholder
value creation.
Drives and
rewards
delivery of
sustained
TSR and
financial
performance
Operation of element of policy
The PSP is a discretionary plan targeted
at key senior executives and managers of the
Group who directly influence shareholder value.
The PSP consists of an award of the Company’s
shares which vests subject to the achievement of
pre-defined performance conditions which are
designed to reflect the creation of long term
value within the business.
These performance conditions are measured
over a performance period of at least three
financial years. No payment is required from
individuals when the shares are awarded or
when they vest.
The Board, after considering the
recommendation of the Remuneration
Committee, retains the discretion to prevent
any PSP award payments if, in its opinion, the
underlying financial performance of the Company
had not been satisfactory in the circumstances.
On vesting, in line with the rules of the PSP and
IAG’s philosophy to encourage and facilitate
employee shareholding, participants may elect to
self-fund any tax due rather than sell a portion of
their share award to meet tax liabilities.
Following the performance period, there is an
additional holding period of two years.
Malus and clawback provisions apply – see below.
Maximum opportunity
The face value of awards
will not normally exceed
200 per cent of salary in
respect of any financial
year of the Company
(with the Board having the
discretion to award up to
300 per cent of salary in
exceptional circumstances).
Note: this discretion will not
be used.
At the threshold level of the
performance target range,
either 10 per cent or 25 per
cent will vest depending
on which performance
measure is being tested.
Performance metrics
Any PSP award made will
be measured over at least
three years.
Each year, the Board,
following the advice of the
Committee, will determine
appropriate performance
conditions, with appropriate
and stretching target ranges.
These will take into account
market conditions and also
ensure alignment with
shareholder interests.
At least one condition is
likely to be a measure of
Group share performance
compared with an index of
other companies who are
subject to external
influences impacting share
price similar to those of
the Group.
One or more measures
will provide a strong
measure of the underlying
financial performance
of the business.
Taxable
Benefits
Ensures total
package is
competitive
Life insurance, personal travel and where
applicable, a company car, fuel, occasional
chauffeur services, and private health insurance.
Where appropriate, benefits may include
relocation and international assignment costs.
Pension
Provides
post-retirement
remuneration
and ensures
total package
is competitive
The Company operates a defined contribution
scheme as a percentage of salary.
Executives can opt instead to receive a salary
supplement in lieu of a pension.
The Chief Executive Officer of IAG and the Chief
Financial Officer of IAG are eligible for membership
of the pension scheme.
Although there is no formal
maximum, the Company
determines benefits policy by
taking into account company
affordability, and with reference
to the external market.
The level of employer
contribution is 25 per cent
of basic salary.
Shareholding Requirements
In order to increase alignment with shareholders, executives are required to build up a minimum personal shareholding equal to a set
percentage of base salary. The CEO of IAG is required to build up and maintain a shareholding of 250 per cent of basic salary, and
other executive directors are required to build up and maintain a shareholding of 150 per cent of basic salary (note: with effect from
January 1, 2016, executive directors other than the CEO of IAG are required to build up and maintain a shareholding of 200 per cent
of basic salary).
Executives will be required to retain the entire 100 per cent of shares (net of tax) which vest from share plans until their respective
shareholding requirement is attained.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Purpose and
link to strategy
Performance
Share Plan
(PSP)
Incentivises
long-term
shareholder
value creation.
Drives and
rewards
delivery of
sustained
TSR and
financial
performance
Operation of element of policy
Maximum opportunity
Performance metrics
The PSP is a discretionary plan targeted
at key senior executives and managers of the
Group who directly influence shareholder value.
The PSP consists of an award of the Company’s
The face value of awards
will not normally exceed
200 per cent of salary in
respect of any financial
shares which vests subject to the achievement of
year of the Company
pre-defined performance conditions which are
designed to reflect the creation of long term
value within the business.
These performance conditions are measured
over a performance period of at least three
financial years. No payment is required from
individuals when the shares are awarded or
when they vest.
The Board, after considering the
recommendation of the Remuneration
Committee, retains the discretion to prevent
any PSP award payments if, in its opinion, the
underlying financial performance of the Company
had not been satisfactory in the circumstances.
On vesting, in line with the rules of the PSP and
IAG’s philosophy to encourage and facilitate
employee shareholding, participants may elect to
self-fund any tax due rather than sell a portion of
their share award to meet tax liabilities.
Following the performance period, there is an
additional holding period of two years.
Malus and clawback provisions apply – see below.
(with the Board having the
discretion to award up to
300 per cent of salary in
exceptional circumstances).
Note: this discretion will not
be used.
At the threshold level of the
ensure alignment with
performance target range,
shareholder interests.
either 10 per cent or 25 per
At least one condition is
cent will vest depending
on which performance
measure is being tested.
Any PSP award made will
be measured over at least
three years.
Each year, the Board,
following the advice of the
Committee, will determine
appropriate performance
conditions, with appropriate
and stretching target ranges.
These will take into account
market conditions and also
likely to be a measure of
Group share performance
compared with an index of
other companies who are
subject to external
influences impacting share
price similar to those of
the Group.
One or more measures
will provide a strong
measure of the underlying
financial performance
of the business.
Taxable
Benefits
Ensures total
package is
competitive
Life insurance, personal travel and where
applicable, a company car, fuel, occasional
chauffeur services, and private health insurance.
Where appropriate, benefits may include
relocation and international assignment costs.
Although there is no formal
maximum, the Company
determines benefits policy by
taking into account company
affordability, and with reference
to the external market.
The Company operates a defined contribution
The level of employer
contribution is 25 per cent
of basic salary.
Pension
Provides
post-retirement
remuneration
and ensures
total package
is competitive
scheme as a percentage of salary.
Executives can opt instead to receive a salary
supplement in lieu of a pension.
The Chief Executive Officer of IAG and the Chief
Financial Officer of IAG are eligible for membership
of the pension scheme.
Shareholding Requirements
In order to increase alignment with shareholders, executives are required to build up a minimum personal shareholding equal to a set
percentage of base salary. The CEO of IAG is required to build up and maintain a shareholding of 250 per cent of basic salary, and
other executive directors are required to build up and maintain a shareholding of 150 per cent of basic salary (note: with effect from
January 1, 2016, executive directors other than the CEO of IAG are required to build up and maintain a shareholding of 200 per cent
of basic salary).
shareholding requirement is attained.
Executives will be required to retain the entire 100 per cent of shares (net of tax) which vest from share plans until their respective
Malus and Clawback Provisions
The Board, following the advice of the Committee, has authority under the malus provisions of the Performance Share Plan and the
Incentive Award Deferral Plan to reduce or cancel awards before they vest, and authority under the clawback provisions of the
Performance Share Plan to recover payments during the additional holding period, if special circumstances exist. These special
circumstances include fraud; material breach of any law, regulation or code of practice; misstatement of results; misconduct; failure
of risk management; or any other circumstances in which the Board considers it to be in the interests of shareholders for the award
to lapse or be adjusted.
For the PSP, clawback provisions apply during the two years’ additional holding period. For the IADP, there will be three years
from the date of award in which shares can be withheld, i.e. the entire period from the date of the award until vesting. For the cash
element of the annual incentive plan, clawback provisions apply for three years from the date of payment. The proportion of an
award to be withheld or recovered will be at the discretion of the Board, upon consideration of the Committee, taking into account
all relevant matters.
Non-Executive Directors
The table below summarises the main elements of remuneration for non-executive directors:
Purpose and link
to strategy
Basic Fees
Fees are set
to take into
account
the level of
responsibility,
experience,
abilities and
dedication
required.
Operation of element of policy
Fees are set with reference to market positioning (primarily the
IBEX 35 and the FTSE 26 to 100, excluding financial services).
To acknowledge certain key roles at Board level, fees are set
separately for the Non-Executive Chairman, and the Non-Executive
Deputy Chairman. There is also an additional fee paid to any
non-executive director for holding a Committee Chairmanship.
There is no additional fee for Committee membership.
Non-executive director fees will take into account external market
conditions to ensure it is possible to attract and retain the necessary
talent. There is no specific review date set, but it is the Company’s
intention to review fees from time to time. There has been no
change to fee levels since IAG came into existence in 2011.
Maximum opportunity
The maximum annual aggregate gross
remuneration (including annual basic fees
and benefits, including travel benefits)
payable to directors shall not exceed
€3,500,000 as approved by the
Shareholders’ Meeting on October 19,
2010, in accordance with article 37.3
of the Company’s Bylaws.
Taxable
Benefits
Non-executive directors (including the Chairman and Deputy Chairman)
are entitled to use air tickets of the airlines of the Company or related to
the Company in accordance with the applicable travel scheme.
As foreseen under article 37.8 of the Company’s Bylaws this benefit
may also be provided to non-executive directors after they have
vacated office in accordance with the applicable travel scheme.
The maximum total annual gross amount
of the personal travel benefit is €500,000
for all non-executive directors taken
together (including any former non-
executive director who may enjoy this
benefit at any given time).
Remuneration Policy below Director Level
IAG employees at all levels participate in the discretionary Annual Incentive Plan. Both the size of award and weighting of
performance conditions vary by level, with some business unit specific measures incorporated where relevant. The financial targets
are the aggregate of the financial targets of the Group’s companies, ensuring alignment between the Group’s head office and the
Group’s companies.
All senior managers across the Group participate in the IADP (currently 50 per cent of any annual incentive payment deferred in IAG
shares for three years) and certain selected senior managers in the PSP in line with the executive directors. Employees below senior
manager level do not participate in either.
The same performance conditions and weightings apply to all participants of the PSP. The size of award varies by performance and
level in the business.
Managers at the airlines in the Group participate in their own airline short-term incentive plans. These all have performance measures
specific to their airline, and are typically financial, operational, and customer service measures. Most companies within the Group have
profit share schemes, designed to give employees below manager level an opportunity to share in the success of their company
within the Group.
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INTERNATIONAL AIRLINES GROUP
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www.iairgroup.comCORPORATE GOVERNANCE
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Notes on the above forward-looking policy tables
Notwithstanding the forward-looking policy detailed herein, and always in compliance with applicable law, the Company will make
any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with
such payments) where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the
relevant individual was not a director of the Company and, in the opinion of the Board, the payment was not in consideration for
the individual becoming a director of the Company. For these purposes “payments” includes the Committee satisfying awards
of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is
granted which may include different performance measures to those outlined in the forward-looking policy table above.
Remuneration scenarios
A significant portion of the Company’s total remuneration package is variable, with emphasis placed on longer-term reward to
align closely executive directors’ and senior managers’ interests with shareholder interests. The charts below show, for 2016 and for
each executive director, the minimum remuneration receivable, the remuneration receivable if the director performs in line with the
Company’s expectations, and the maximum remuneration receivable. Share price variation during the performance period is not
taken into consideration in these scenarios.
Chief Executive Officer of IAG
Fixed remuneration is basic salary (2016 level of €1,168,000),
plus taxable benefits (2015 actual of €37,000) plus pension
related benefits (2015 actual of €293,000).
The annual incentive amount is zero at the minimum
remuneration level, €1,168,000 at the on-target level
(50 per cent of the maximum opportunity of 200 per cent of
salary), and €2,336,000 at maximum (200 per cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €1,168,000 at the on-target level
(50 per cent of the face value award of 200 per cent of salary)
and €2,336,000 at maximum (200 per cent of salary).
All amounts are actually paid in sterling, and are shown here
in euro at the €:£ exchange rate of 1.3742
Chief Financial Officer of IAG
Fixed remuneration is basic salary (2016 level of €736,000),
plus taxable benefits (2015 actual of €26,000) plus pension
related benefits (2015 actual of €180,000).
The annual incentive amount is zero at the minimum
remuneration level, €552,000 at the on-target level (50 per cent
of the maximum opportunity of 150 per cent of salary), and
€1,104,000 at maximum (150 per cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €552,000 at the on-target level (50 per cent
of the face value award of 150 per cent of salary) and €1,104,000
at maximum (150 per cent of salary).
All amounts are actually paid in sterling, and are shown here
in euro at the €:£ exchange rate of 1.3742
€000
Maximum
1,498
(24%)
2,336
(38%)
2,336
(38%)
6,170
On-target
1,498
(40%)
1,168
(30%)
1,168
(30%)
3,834
1,498
Minimum
€000
Maximum
On-target
Minimum
942
(30%)
1,104
(35%)
1,104
(35%)
3,150
942
(46%)
552
(27%)
552
(27%)
2,046
942
0
1,000 2,000 3,000 4,000 5,000 6,000 7,000
0
500
1,000 1,500 2,000 2,500 3,000 3,500
Fixed Remuneration
Annual Incentive
Long Term Incentive
Fixed Remuneration
Annual Incentive
Long Term Incentive
62
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Notes on the above forward-looking policy tables
Notwithstanding the forward-looking policy detailed herein, and always in compliance with applicable law, the Company will make
any remuneration payments and payments for loss of office (including exercising any discretions available to it in connection with
such payments) where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the
relevant individual was not a director of the Company and, in the opinion of the Board, the payment was not in consideration for
the individual becoming a director of the Company. For these purposes “payments” includes the Committee satisfying awards
of variable remuneration and, in relation to an award over shares, the terms of the payment are “agreed” at the time the award is
granted which may include different performance measures to those outlined in the forward-looking policy table above.
Remuneration scenarios
A significant portion of the Company’s total remuneration package is variable, with emphasis placed on longer-term reward to
align closely executive directors’ and senior managers’ interests with shareholder interests. The charts below show, for 2016 and for
each executive director, the minimum remuneration receivable, the remuneration receivable if the director performs in line with the
Company’s expectations, and the maximum remuneration receivable. Share price variation during the performance period is not
taken into consideration in these scenarios.
Chief Executive Officer of IAG
Chief Financial Officer of IAG
Fixed remuneration is basic salary (2016 level of €1,168,000),
plus taxable benefits (2015 actual of €37,000) plus pension
related benefits (2015 actual of €293,000).
The annual incentive amount is zero at the minimum
remuneration level, €1,168,000 at the on-target level
(50 per cent of the maximum opportunity of 200 per cent of
salary), and €2,336,000 at maximum (200 per cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €1,168,000 at the on-target level
(50 per cent of the face value award of 200 per cent of salary)
and €2,336,000 at maximum (200 per cent of salary).
All amounts are actually paid in sterling, and are shown here
in euro at the €:£ exchange rate of 1.3742
Fixed remuneration is basic salary (2016 level of €736,000),
plus taxable benefits (2015 actual of €26,000) plus pension
related benefits (2015 actual of €180,000).
The annual incentive amount is zero at the minimum
remuneration level, €552,000 at the on-target level (50 per cent
of the maximum opportunity of 150 per cent of salary), and
€1,104,000 at maximum (150 per cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €552,000 at the on-target level (50 per cent
of the face value award of 150 per cent of salary) and €1,104,000
at maximum (150 per cent of salary).
All amounts are actually paid in sterling, and are shown here
in euro at the €:£ exchange rate of 1.3742
Service contracts and exit payments policy
Executive Directors
The following is a description of the key terms of the service
contracts of executive directors.
The contracts of executive directors are for an indefinite period.
There are no express provisions in executives' service contracts
with the Company for compensation payable upon termination
of those contracts, other than for payments in lieu of notice.
Executive Director
Date of contract
Notice period
Willie Walsh
January 21, 2011
12 months
Enrique Dupuy
de Lôme
January 21, 2011
12 months
The period of notice required from the executive is six months; the
period of notice required from the Company is 12 months. Where
the Company makes a payment in lieu of notice, a lump sum in
lieu of the first six months base salary is payable within 28 days
of the date of termination of employment. A payment in respect
of base salary for the second six month period only becomes
payable if, in the Company’s opinion, the executive has taken
reasonable steps to find alternative paid work and then only in
six monthly instalments. The Company may reduce the sum
payable in respect of any month by any amount earned by
the executive (including salary and benefits) referable to work
done in that month.
In the event of an executive's redundancy, compensation, whether
in respect of a statutory redundancy payment or a payment in
lieu of notice or damages for loss of office is capped at an amount
equal to 12 months base salary. The Company will honour the
contractual entitlements of a terminated director; however, the
Company may terminate an executive's service contract with
immediate effect and without compensation on a number of
grounds including where the executive is incapacitated for 130
days in any 12 month period, becomes bankrupt, fails to perform
his duties to a reasonable standard, acts dishonestly, is guilty
of misconduct or persistent breach of his duties, brings the
Company into disrepute, is convicted of a criminal offence, is
disqualified as a director, refuses to agree to the transfer of his
service contract where there is a transfer of the business in which
he is working or ceases to be eligible to work in Spain or the UK
(as applicable).
Under the PSP and IADP, if a director leaves, the Board, after
considering the recommendation of the Remuneration Committee,
may exercise their discretion (within the rules of the two schemes)
to grant Good Leaver status. This can be granted in certain
circumstances including for example (list not exhaustive) the
director leaving for reasons of ill-health, redundancy, retirement,
or death. Executive directors leaving with Good Leaver status
will receive shares awarded to them under the IADP scheme, and
a pro-rata amount of their PSP shares subject to the company
performance conditions being met. The pro-ration is calculated
according to what proportion of the performance period the
executive director spent in company service. If Good Leaver
status is not granted to an executive director, all outstanding
awards made to them under the PSP and IADP will lapse.
In the event of an executive director’s termination from the
Company, they must not be employed by, or provide services
to, a Restricted Business (i.e. an airline or travel business that
competes with the Company) for a period of six months.
Non-Executive Directors
Non-executive directors (including the Chairman and Deputy
Chairman) do not have service contracts. Their appointment is
subject to the Board regulations and the Company’s Bylaws.
They do not have the right to any compensation in the event of
termination as directors. Board members shall hold office for a
period of one (1) year. The dates of the Chairman’s and current
non-executive directors’ appointments are as follows:
Non-Executive Director
Antonio Vázquez
Sir Martin Broughton
César Alierta
Patrick Cescau
Baroness Kingsmill
James Lawrence
Kieran Poynter
Alberto Terol
Dame Marjorie Scardino
María Fernanda Mejía
Date of the first appointment
May 25, 2010
Date of last re-election
June 18, 2015
May 25, 2010
September 27, 2010
September 27, 2010
September 27, 2010
September 27, 2010
September 27, 2010
June 20, 2013
December 19, 2013
February 27, 2014
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
June 18, 2015
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Consideration of employment conditions elsewhere
in the Group
The pay of employees across all companies in IAG is taken
into account when determining the level of any increase in the
annual salary review of directors. This takes place each year at
the January Committee meeting.
When determining the PSP awards for executive directors, the
Committee takes note of the eligibility criteria and the potential
size of awards for executives below director level in all companies
within IAG.
At the operating company level, the company consults with
employee representative bodies, including trade unions and
works councils. This will include consultation on company
strategy, the competitive environment, and employee terms
and conditions. In addition, some of the operating companies
run employee opinion surveys in order to take into consideration
employee views on a variety of subjects, including leadership,
management, and pay and benefits.
Consideration of shareholder views
The Committee discusses at its October meeting each year
the issues and outcomes from the annual Shareholders’ Meeting
held in June, and determines any appropriate action required
as a result.
The Company consults regularly with its major investors on all
matters relating to executive remuneration. The Company will
engage in an extensive investor consultation exercise whenever
there are any significant changes to remuneration policy.
External Non-Executive Directorship
The Company’s consent is required before an executive can
accept an external non-executive appointment and permission
is only given in appropriate circumstances.
Approach to recruitment remuneration
The remuneration for new executive directors will be in line with
the policy for current executive directors as far as possible, as
expressed in the policy table earlier in this report.
On appointment, new executive directors will have their basic
salary set by taking into account the external market, their
peers, and their level of experience. New executive directors
will participate in the annual and long-term incentives on the
same basis as existing directors.
The Board, after considering the recommendation of the
Remuneration Committee, retains the discretion to deviate
from the stated remuneration policy as necessary to ensure the
hiring of candidates of the appropriate calibre with due regard
to the best interests of shareholders. For example, to facilitate
recruitment, the Board, after considering the recommendation
of the Committee, may make one-off awards to “buy out”
variable pay or contractual rights forfeited on leaving a previous
employer. Generally, such buy-out awards will be made on a
comparable basis to those forfeited giving due regard to all
relevant factors (including value, performance targets, the
likelihood of those targets being met and vesting periods).
In such circumstances, shareholders will be provided with full
details and rationale in the next published remuneration report.
Excluding the value of any potential buy-out, the maximum
value of variable remuneration offered at recruitment to any
new executive director will be 500 per cent of base salary,
in line with the stated policy. Note: the maximum value of
variable remuneration will be no more than that awarded to
current directors.
In the case of an internal promotion to executive director, the
Company will continue to honour any commitments made
before promotion. Other than that, the remuneration
arrangements on recruitment will be as above.
Non-executive directors will be recruited in line with the
Company’s remuneration policy principles outlined before.
64
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
External Non-Executive Directorship
Consideration of employment conditions elsewhere
The Company’s consent is required before an executive can
in the Group
accept an external non-executive appointment and permission
The pay of employees across all companies in IAG is taken
is only given in appropriate circumstances.
into account when determining the level of any increase in the
annual salary review of directors. This takes place each year at
Approach to recruitment remuneration
the January Committee meeting.
The remuneration for new executive directors will be in line with
the policy for current executive directors as far as possible, as
expressed in the policy table earlier in this report.
On appointment, new executive directors will have their basic
salary set by taking into account the external market, their
peers, and their level of experience. New executive directors
will participate in the annual and long-term incentives on the
same basis as existing directors.
The Board, after considering the recommendation of the
Remuneration Committee, retains the discretion to deviate
from the stated remuneration policy as necessary to ensure the
hiring of candidates of the appropriate calibre with due regard
to the best interests of shareholders. For example, to facilitate
recruitment, the Board, after considering the recommendation
When determining the PSP awards for executive directors, the
Committee takes note of the eligibility criteria and the potential
size of awards for executives below director level in all companies
within IAG.
At the operating company level, the company consults with
employee representative bodies, including trade unions and
works councils. This will include consultation on company
strategy, the competitive environment, and employee terms
and conditions. In addition, some of the operating companies
run employee opinion surveys in order to take into consideration
employee views on a variety of subjects, including leadership,
management, and pay and benefits.
Consideration of shareholder views
of the Committee, may make one-off awards to “buy out”
The Committee discusses at its October meeting each year
variable pay or contractual rights forfeited on leaving a previous
the issues and outcomes from the annual Shareholders’ Meeting
employer. Generally, such buy-out awards will be made on a
held in June, and determines any appropriate action required
comparable basis to those forfeited giving due regard to all
as a result.
The Company consults regularly with its major investors on all
matters relating to executive remuneration. The Company will
engage in an extensive investor consultation exercise whenever
there are any significant changes to remuneration policy.
relevant factors (including value, performance targets, the
likelihood of those targets being met and vesting periods).
In such circumstances, shareholders will be provided with full
details and rationale in the next published remuneration report.
Excluding the value of any potential buy-out, the maximum
value of variable remuneration offered at recruitment to any
new executive director will be 500 per cent of base salary,
in line with the stated policy. Note: the maximum value of
variable remuneration will be no more than that awarded to
current directors.
In the case of an internal promotion to executive director, the
Company will continue to honour any commitments made
before promotion. Other than that, the remuneration
arrangements on recruitment will be as above.
Non-executive directors will be recruited in line with the
Company’s remuneration policy principles outlined before.
Annual Remuneration Report
The Remuneration Committee
The Committee’s composition, competencies and operating rules
are regulated by article 31 of the IAG Board Regulations. A copy
of these Regulations is available on the Company’s website.
Beyond executive directors, the Committee oversees the general
application of the remuneration policy to the IAG Management
Committee (and also remuneration matters of senior managers
generally across the Group).
According to article 31 of the Board Regulations the Remuneration
Committee shall be made up of no less than three and no more
than five non-executive directors appointed by the Board, with
the dedication, capacity and experience necessary to carry out
their function. A majority of the members of the Remuneration
Committee shall be Independent directors. Baroness Kingsmill was
Chair of the Committee until September 24, 2015. Dame Marjorie
Scardino was appointed as Chair of the Committee from that
date by the Board upon a recommendation of the Nominations
Committee. For the reporting period all members were considered
Independent non-executive directors of the Company and none
of the members has any personal financial interest, other than as
a shareholder, in the matters to be decided.
The Committee’s activities during the year
In 2015, the Committee met four times and discussed, amongst others, the following matters:
Meeting
Agenda items discussed
January
February
April
October
Review of IAG Executive Committee members’ basic salaries
Implementation arrangements for the strengthened malus and clawback provisions
2014 annual incentive plan payments to IAG Executive Committee members
Vesting outcome of the Performance Share Plan 2012 award
Final review of 2014 Directors’ Remuneration Report
Preparation for the 2015 annual Shareholders’ Meeting
Spain and UK executive remuneration market update, including new Spanish corporate governance
code recommendations
Remuneration strategy for 2016
First update on the 2015 Directors’ Remuneration Report
Remuneration arrangements arising as a result of the Aer Lingus acquisition
Advisers to the Committee
The Committee appointed Towers Watson as its external advisers in 2014, following a tender process. Towers Watson report directly
to the Committee. The fees paid to Towers Watson for advice provided to the Remuneration Committee were €57,716 for 2015.
Towers Watson is a signatory to the voluntary UK Code of Conduct for executive remuneration consultants. Towers Watson also
provide other services to the Company in terms of the valuation of awards under the PSP for accounting purposes.
The Company obtained high level headline remuneration survey data from a variety of sources. During the year, the CEO of IAG
provided regular briefings to the Committee apart from when his own remuneration was being discussed.
64
INTERNATIONAL AIRLINES GROUP
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www.iairgroup.com
65
85
www.iairgroup.comCORPORATE GOVERNANCE
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Single total figure of remuneration for each director
Subject to full audit
Non-Executive Directors
Director
(€’000)
Antonio Vázquez1
Sir Martin Broughton
César Alierta
Patrick Cescau
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
José Pedro Pérez-Llorca2
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Total (€’000)
Fees
484
350
120
120
135
140
120
60
120
125
120
1,894
Taxable
benefits
Total for year to
December 31, 2015
19
56
-
34
25
37
8
6
29
72
26
312
503
406
120
154
160
177
128
66
149
197
146
2,206
Fees
484
350
120
120
140
123
100
120
137
120
120
1,934
Taxable
benefits
Total for year to
December 31, 2014
19
44
–
20
22
23
4
3
14
38
29
216
503
394
120
140
162
146
104
123
151
158
149
2,150
1 Antonio Vázquez took a voluntary 25 per cent reduction in his fee, effective December 1, 2012.
2 José Pedro Pérez-Llorca was no longer a director from June 18, 2015.
Additional explanations in respect of the single total figure table
Each director has confirmed in writing that they have not received any other items in the nature of remuneration other than those already disclosed in the table above.
Fees
Fees paid in the year for non-executive directors.
Taxable benefits
Taxable benefits including personal travel.
For the year to December 31, 2015, €:£ exchange rate applied is 1.3742
For the year to December 31, 2014, €:£ exchange rate applied is 1.2356
Executive Directors
The table below sets out the single total figure and breakdown for each executive director. An explanation of how the figures
are calculated follows the table. The remuneration for each executive director reflects the performance of the Company and the
contribution each individual has made to the ongoing success of the Company.
2015
Director (’000)
Executive Directors
Willie Walsh (GBP) 1
Willie Walsh (euro)
Enrique Dupuy de Lôme (GBP) 1
Enrique Dupuy de Lôme (euro)
Total (€’000)
Base salary
Taxable
benefits
Pension
related
benefits
Annual
incentive
award
Long-term
incentive
vesting
Total for year to
December 31 2015
850
1,168
525
721
1,889
27
37
19
26
63
213
293
131
180
473
1,360
1,869
483
664
2,533
4,005
5,504
1,456
2,001
7,505
6,455
8,871
2,614
3,592
12,463
66
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Single total figure of remuneration for each director
Subject to full audit
Non-Executive Directors
Director
(€’000)
Antonio Vázquez1
Sir Martin Broughton
César Alierta
Patrick Cescau
Baroness Kingsmill
James Lawrence
María Fernanda Mejía
José Pedro Pérez-Llorca2
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Total (€’000)
Taxable
Total for year to
benefits
December 31, 2015
Taxable
Total for year to
benefits
December 31, 2014
Fees
484
350
120
120
135
140
120
60
120
125
120
1,894
19
56
-
34
25
37
8
6
29
72
26
312
503
406
120
154
160
177
128
66
149
197
146
Fees
484
350
120
120
140
123
100
120
137
120
120
2,206
1,934
19
44
–
20
22
23
4
3
14
38
29
216
503
394
120
140
162
146
104
123
151
158
149
2,150
1 Antonio Vázquez took a voluntary 25 per cent reduction in his fee, effective December 1, 2012.
2 José Pedro Pérez-Llorca was no longer a director from June 18, 2015.
Additional explanations in respect of the single total figure table
Each director has confirmed in writing that they have not received any other items in the nature of remuneration other than those already disclosed in the table above.
Fees
Fees paid in the year for non-executive directors.
Taxable benefits
Taxable benefits including personal travel.
For the year to December 31, 2015, €:£ exchange rate applied is 1.3742
For the year to December 31, 2014, €:£ exchange rate applied is 1.2356
Executive Directors
The table below sets out the single total figure and breakdown for each executive director. An explanation of how the figures
are calculated follows the table. The remuneration for each executive director reflects the performance of the Company and the
contribution each individual has made to the ongoing success of the Company.
2015
Director (’000)
Executive Directors
Willie Walsh (GBP) 1
Willie Walsh (euro)
Enrique Dupuy de Lôme (GBP) 1
Enrique Dupuy de Lôme (euro)
Total (€’000)
Base salary
Taxable
benefits
Pension
related
benefits
Annual
Long-term
incentive
award
incentive
vesting
Total for year to
December 31 2015
850
1,168
525
721
1,889
27
37
19
26
63
213
293
131
180
473
1,360
1,869
483
664
2,533
4,005
5,504
1,456
2,001
7,505
6,455
8,871
2,614
3,592
12,463
2014
Director
(’000)
Executive Directors
Willie Walsh (GBP)1
Willie Walsh (euro)
Enrique Dupuy de Lôme (GBP)1
Enrique Dupuy de Lôme (euro)
Total (€’000)
Base salary
Taxable
benefits
Pension
related
benefits
Annual
incentive
award
Long-term
incentive
vesting
Total for year to
December 31, 2014
850
1,050
515
636
1,686
26
32
22
27
59
212
262
129
159
421
1,662
2,054
553
683
2,737
3,640
4,498
1,324
1,636
6,134
6,390
7,896
2,543
3,141
11,037
1 Willie Walsh and Enrique Dupuy de Lôme remuneration is paid in sterling and expressed in euro for information purposes only.
Additional explanations in respect of the single total figure table for 2015
Each director has confirmed in writing that they have not received any other items in the nature of remuneration other than those already disclosed in the table above.
Base salary
Salary paid in year for executive directors.
Taxable benefits
Taxable benefits including personal travel and, where applicable, a company car, fuel, occasional chauffeur services and private health insurance.
Pension related benefits
Employer contribution to pension scheme, and/or cash in lieu of pension contribution.
Annual incentive plan
Annual incentive award for the period ended December 31, 2015 (accrued at December 31, 2015, but cash payments (50 per cent of the award) not paid until March 2016). The outcomes of
the performance conditions which determined the award are described in the next section. Half of the annual incentive award is deferred into shares for three years (Incentive Award Deferral
Plan (IADP)). For the 2015 annual incentive plan, these will vest in March 2019.
Long-term incentive vesting
This relates to the IAG PSP 2013 award based on performance measured to December 31, 2015, although the shares vested will not be delivered until March 2016. For the purposes of this
table, the award has been valued using the average share price in the three months to December 31, 2015 of 585.0 pence. 59 per cent of the value of awards vesting under the 2013 PSP cycle
was the result of share price appreciation, reflecting the significant increase in shareholder value created over the period. The outcomes of the performance conditions which determined
vesting are described below.
For the year to December 31, 2015, €:£ exchange rate applied is 1.3742
For the year to December 31, 2014, €:£ exchange rate applied is 1.2356
Life Insurance
The Company provides life insurance for all executive directors. For the year to December 31, 2015 the Company paid contributions
of €28,230 (2014: €15,648).
Variable pay outcomes
Subject to audit
2015 Annual Incentive Plan
At the beginning of 2015, the Board, upon a recommendation by the Committee, set IAG operating profit as the financial target to
be applied to the two-thirds of the Annual Incentive Plan for that year. Operating profit was considered to be the most appropriate
financial measure in aligning shareholder interests with the Company and individual performance. For the one-third portion based
on role-specific objectives, the Remuneration Committee, on the proposal of the Chairman, considered the Chief Executive Officer’s
performance against his objectives; and the Remuneration Committee, on the proposal of the Chief Executive Officer, considered
the Chief Financial Officer’s performance against his objectives. Both performance evaluations were submitted to the Board for final
approval on February 25, 2016.
The maximum award for the Chief Executive Officer of IAG was 200 per cent of salary (100 per cent of salary for on-target
performance), and for the Chief Financial Officer of IAG 120 per cent of salary (60 per cent of salary for on-target performance).
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
The outcomes of the performance conditions were as follows:
Measure
IAG Operating Profit
(before exceptional
items)
(67 per cent)
Role-specific
objectives
(33 per cent)
Details of any
discretion exercised
Overall outcome
Chief Executive Officer of IAG
Chief Financial Officer of IAG
Payout
€1,090,199
£793,333
€404,246
£294,168
per cent of
maximum awarded
Outcomes versus
targets
per cent of
maximum awarded
70 per cent
Please see below for details of the
performance target ranges
€778,713
£566,667
Please see below for details of the extent
of the achievement of objectives.
100 per cent
70 per cent
Please see below for details of the
performance target ranges
€259,872
£189,108
Please see below for details of the extent
of the achievement of objectives.
90 per cent
€1,868,912
£1,360,000
€664,118
£483,276
Half of the overall outcome of the annual incentive detailed above is payable in deferred shares in the Company vesting after
three years (under the Incentive Award Deferral Plan). IAG operating profit (before exceptional items) for 2015 (two-thirds of the
annual incentive) has resulted in 70 per cent of the maximum paying out for this element of the incentive (2014: 97 per cent). This is
between the on-target level and the stretch target level of the target range. The target range for 2015 was as follows: the threshold
level at which payments would begin was €1,800 million, the on-target level at which 50 per cent of the maximum would pay out
was €2,100 million, and the stretch target level at which the maximum would pay out was €2,600 million. There was a straight line
sliding scale between the threshold level and the on-target level, and between the on-target level and the stretch target level. The
figure used for IAG operating profit for 2015 excludes Aer Lingus’ contribution to the Company.
Performance against role-specific objectives: Chief Executive Officer of IAG
The Chief Executive Officer of IAG’s main objective is to manage the successful implementation of the Group’s strategy. His specific
achievements in 2015 against his objectives were:
the delivery of the business plan
ensuring a sustained improvement in financial performance;
improvements in return on investment at each operating company;
successful supervision of the transformation programmes at the airlines in the Group; and
leading the successful acquisition of Aer Lingus.
The Chief Executive Officer of IAG has continued to supervise the synergy programme, and synergy outperformance has continued -
the 2015 delivery plan has been exceeded by €120 million. The merger synergy programme, initiated in 2011 at the outset of the
Group, is now complete, with the target exceeded. He has overseen the creation of the ‘IAG Platform’, which will produce the "next
generation synergies", and significant progress has been made on these. As a result of all these achievements, the Company was able
to announce to its investors in November 2015 a considerable upgrade to our long-term return and equity cash flow objectives. At the
same time, the Company announced its first dividend, with an aim of generating much more cash for shareholders.
Performance against role-specific objectives: Chief Financial Officer of IAG
The Chief Financial Officer of IAG’s role-specific objectives for 2015 were:
to ensure the achievement of cost savings targets;
to monitor and challenge operating companies’ financial performance;
the delivery of the financial elements of the synergies objectives;
the development of the business plan;
ensuring the effectiveness of the Enterprise Risk Management system; and
managing the efficient financing for the acquisition of Aer Lingus.
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Chief Executive Officer of IAG
Chief Financial Officer of IAG
maximum awarded
Please see below for details of the
performance target ranges
Please see below for details of the
performance target ranges
Please see below for details of the extent
Please see below for details of the extent
of the achievement of objectives.
of the achievement of objectives.
The outcomes of the performance conditions were as follows:
Measure
items)
IAG Operating Profit
Payout
(before exceptional
€1,090,199
£793,333
(67 per cent)
per cent of
70 per cent
Role-specific
objectives
(33 per cent)
Outcomes versus
targets
€778,713
£566,667
Details of any
discretion exercised
Overall outcome
per cent of
100 per cent
maximum awarded
€1,868,912
£1,360,000
€404,246
£294,168
70 per cent
€259,872
£189,108
90 per cent
€664,118
£483,276
Half of the overall outcome of the annual incentive detailed above is payable in deferred shares in the Company vesting after
three years (under the Incentive Award Deferral Plan). IAG operating profit (before exceptional items) for 2015 (two-thirds of the
annual incentive) has resulted in 70 per cent of the maximum paying out for this element of the incentive (2014: 97 per cent). This is
between the on-target level and the stretch target level of the target range. The target range for 2015 was as follows: the threshold
level at which payments would begin was €1,800 million, the on-target level at which 50 per cent of the maximum would pay out
was €2,100 million, and the stretch target level at which the maximum would pay out was €2,600 million. There was a straight line
sliding scale between the threshold level and the on-target level, and between the on-target level and the stretch target level. The
figure used for IAG operating profit for 2015 excludes Aer Lingus’ contribution to the Company.
Performance against role-specific objectives: Chief Executive Officer of IAG
The Chief Executive Officer of IAG’s main objective is to manage the successful implementation of the Group’s strategy. His specific
achievements in 2015 against his objectives were:
the delivery of the business plan
ensuring a sustained improvement in financial performance;
improvements in return on investment at each operating company;
successful supervision of the transformation programmes at the airlines in the Group; and
leading the successful acquisition of Aer Lingus.
The Chief Executive Officer of IAG has continued to supervise the synergy programme, and synergy outperformance has continued -
the 2015 delivery plan has been exceeded by €120 million. The merger synergy programme, initiated in 2011 at the outset of the
Group, is now complete, with the target exceeded. He has overseen the creation of the ‘IAG Platform’, which will produce the "next
generation synergies", and significant progress has been made on these. As a result of all these achievements, the Company was able
to announce to its investors in November 2015 a considerable upgrade to our long-term return and equity cash flow objectives. At the
same time, the Company announced its first dividend, with an aim of generating much more cash for shareholders.
Performance against role-specific objectives: Chief Financial Officer of IAG
The Chief Financial Officer of IAG’s role-specific objectives for 2015 were:
to ensure the achievement of cost savings targets;
to monitor and challenge operating companies’ financial performance;
the delivery of the financial elements of the synergies objectives;
the development of the business plan;
ensuring the effectiveness of the Enterprise Risk Management system; and
managing the efficient financing for the acquisition of Aer Lingus.
During 2015, he has ensured a rigorous cost focus in all operating company activity, and ensured that growth has been disciplined
and on improved margins. The improvement in return on invested capital has exceeded the business plan. Continued progress in
efficiency programmes at all operating companies have beaten synergy targets. The Enterprise Risk Management system has allowed
timely and effective Management Committee interventions on principal risks. Aer Lingus acquisition bridge financing and the
November 2015 convertible bond issue were both executed at efficient rates.
IAG PSP Award 2013
The IAG PSP award granted on March 6, 2013 was tested at the end of the performance period which began on January 1, 2013 and
ended on December 31, 2015. The awards were equivalent to 200 per cent of salary for the Chief Executive Officer of IAG and 120 per
cent of salary for the Chief Financial Officer of IAG.
50 per cent of the award was subject to achievement of the Company’s adjusted EPS targets and 50 per cent subject to a TSR
performance condition measured against an index. The vesting of any award was subject to the Board being satisfied that the
Group’s underlying financial performance was satisfactory in the circumstances prevailing over the three year period.
The outcome of the performance condition was as follows:
Measure
Threshold
Maximum
TSR performance compared to the
TSR performance of the MSCI European
Transportation (large and mid-cap)
index (50 per cent)
Adjusted Earnings per Share (EPS)
(50 per cent)
IAG’s TSR performance
equal to the index (25
per cent of award vests)
2015 EPS of 30 €cents
(10 per cent of
award vests)
IAG’s TSR performance
exceeds index by 8 per
cent p.a. (100 per cent
of award vests)
2015 EPS of 52 €cents
(100 per cent of
award vests)
Outcome
Performance
exceeded
index by 35
per cent p.a.
71.4 €cents
Details of any discretion exercised
Overall outcome
Vesting (as per cent
award granted in 2013)
100 per cent
100 per cent
100 per cent
IAG PSP Award 2012
The IAG PSP award granted on August 3, 2012 was tested at the end of the performance period which began on January 1, 2012 and
ended on December 31, 2014. The awards were equivalent to 200 per cent of salary for the Chief Executive Officer of IAG and 120 per
cent of salary for the Chief Financial Officer of IAG.
50 per cent of the award was subject to achievement of the Company’s adjusted EPS targets and 50 per cent subject to a TSR
performance condition measured against an index. The vesting of any award was subject to the Board being satisfied that the
Group’s underlying financial performance was satisfactory in the circumstances prevailing over the three year period.
The outcome of the performance condition was as follows:
Measure
Threshold
Maximum
TSR performance compared to the
TSR performance of the MSCI
European Transportation (large
and mid-cap) index (50 per cent)
Adjusted Earnings per Share (EPS)
(50 per cent)
Details of any discretion exercised
Overall outcome
IAG’s TSR performance
equal to the index (25
per cent of award vests)
2014 EPS of 20 €cents
(10 per cent of
award vests)
IAG’s TSR performance
exceeds index by 8 per
cent p.a. (100 per cent
of award vests)
2014 EPS of 50 €cents
(100 per cent of
award vests)
Outcome
Performance
exceeded
index by 20
per cent p.a.
2014 EPS
40.2 €cents
Vesting (as per cent
award granted in 2012)
100 per cent
70.6 per cent
85.3 per cent
Scheme interests awarded during the financial year
Subject to Audit
The IAG Performance Share Plan (PSP) is a discretionary plan targeted at key senior Group executives and managers who directly
influence shareholder value. The Company granted an award under the PSP on May 28, 2015. The table in this section sets out the
key details of the award.
The Committee believes that comparing the Company’s TSR to that of European transportation companies, including airlines, is
appropriate, given that these companies are subject to external influences impacting share price performance similar to those of
the Group. This comparison therefore provides a good reference point for management outperformance and value creation.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
The Committee believes that EPS performance provides a strong measure of the underlying financial performance of the business.
Return on Invested Capital (RoIC) is a financial measure that quantifies how well a company generates cash flow relative to the
capital it has invested in its business. The Committee believes that it also provides a strong measure of the underlying financial
performance of the business. It is one of the main areas that the Company wishes to focus on improving for the long-term.
PSP 2015 – eligibility, metrics, and targets
Type of award
Shares
Awards only made to those executives who are consistently high-performing, and/or are in key roles,
and/or whom the Company wishes to retain in the long term.
CEO of IAG – 200 per cent
Other executive directors – 120 per cent
Basis of determination
of the size of award
Face value awarded
(per cent of salary)
Grant price
Performance period
Performance conditions
Weighting
Threshold
Target
£5.50
January 1, 2015 to December 31, 2017
EPS performance targets
RoIC performance targets
One-third
2017 EPS of 70 €cents
10 per cent vests
One-third
2017 RoIC of 12 per cent
10 per cent vests
2017 EPS between 70 €cents
and 100 €cents
(straight line vesting between
threshold and maximum)
2017 RoIC between 12 per cent
and 15 per cent
(straight line vesting between
threshold and maximum)
TSR performance compared to
the TSR performance of the MSCI
European Transportation (large and
mid-cap) index
One-third
IAG’s TSR performance equal
to the index
25 per cent vests
IAG’s TSR performance between
index return and 8 per cent p.a.
outperformance
(straight line vesting between
threshold and maximum)
IAG’s TSR performance exceeds
index by 8 per cent p.a.
100 per cent vests
Maximum
2017 EPS of 100 €cents
100 per cent vests
2017 RoIC of 15 per cent
100 per cent vests
Holding period
Additional period of two years after the performance period
EPS measure is adjusted for exceptional items. The Board, after considering the recommendation of the Remuneration Committee,
retains the discretion to review and, if appropriate, revise the EPS targets and/or definition in the context of any corporate
transactions, provided that, in its view, any revised targets are no more or less challenging than the original targets. To the extent that
any such adjustments are made, the Committee will disclose the basis for any adjustments and the rationale in subsequent reports.
Total pension entitlements
Subject to Audit
The Company operates a defined contribution scheme in which the executive directors are entitled to receive a contribution of
25 per cent of base salary. Executives may opt to receive a salary supplement in lieu of such contributions.
Willie Walsh is a member of the Company’s pension scheme and the Company paid contributions during the reporting period of
£39,950 (2014: £42,460), plus cash in lieu of contributions of £172,550 (2014: £170,037).
Enrique Dupuy de Lôme is no longer a member of the Company’s pension scheme, and the Company therefore did not pay any
contributions during the reporting period (2014: £12,359, when he was a member of the Company’s pension scheme for part of the
year). He received cash in lieu of contributions of £131,325 (2014: £116,392).
Payments for loss of office
No executive directors have left office during 2015. There were no payments made to non-executive directors after they left office
during 2015.
Payments to past directors
Rafael Sánchez-Lozano stood down from the Board of Directors on March 27, 2013. During the reporting period he received 20,616
deferred shares in August 2015 from the 2012 IADP award (relating to performance in the 2011 Annual Incentive Plan).
José Pedro Pérez-Llorca received travel benefits worth €404 during 2015 after he had left the Company.
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The Committee believes that EPS performance provides a strong measure of the underlying financial performance of the business.
Return on Invested Capital (RoIC) is a financial measure that quantifies how well a company generates cash flow relative to the
capital it has invested in its business. The Committee believes that it also provides a strong measure of the underlying financial
performance of the business. It is one of the main areas that the Company wishes to focus on improving for the long-term.
PSP 2015 – eligibility, metrics, and targets
Type of award
Shares
Face value awarded
(per cent of salary)
Grant price
£5.50
Basis of determination
Awards only made to those executives who are consistently high-performing, and/or are in key roles,
of the size of award
and/or whom the Company wishes to retain in the long term.
CEO of IAG – 200 per cent
Other executive directors – 120 per cent
Performance period
January 1, 2015 to December 31, 2017
Performance conditions
EPS performance targets
RoIC performance targets
TSR performance compared to
Weighting
Threshold
Target
One-third
One-third
2017 EPS of 70 €cents
2017 RoIC of 12 per cent
IAG’s TSR performance equal
10 per cent vests
10 per cent vests
2017 EPS between 70 €cents
2017 RoIC between 12 per cent
IAG’s TSR performance between
and 100 €cents
and 15 per cent
index return and 8 per cent p.a.
(straight line vesting between
(straight line vesting between
outperformance
threshold and maximum)
threshold and maximum)
(straight line vesting between
the TSR performance of the MSCI
European Transportation (large and
mid-cap) index
One-third
to the index
25 per cent vests
Maximum
2017 EPS of 100 €cents
2017 RoIC of 15 per cent
IAG’s TSR performance exceeds
100 per cent vests
100 per cent vests
threshold and maximum)
index by 8 per cent p.a.
100 per cent vests
Holding period
Additional period of two years after the performance period
EPS measure is adjusted for exceptional items. The Board, after considering the recommendation of the Remuneration Committee,
retains the discretion to review and, if appropriate, revise the EPS targets and/or definition in the context of any corporate
transactions, provided that, in its view, any revised targets are no more or less challenging than the original targets. To the extent that
any such adjustments are made, the Committee will disclose the basis for any adjustments and the rationale in subsequent reports.
Total pension entitlements
Subject to Audit
The Company operates a defined contribution scheme in which the executive directors are entitled to receive a contribution of
25 per cent of base salary. Executives may opt to receive a salary supplement in lieu of such contributions.
Willie Walsh is a member of the Company’s pension scheme and the Company paid contributions during the reporting period of
£39,950 (2014: £42,460), plus cash in lieu of contributions of £172,550 (2014: £170,037).
Enrique Dupuy de Lôme is no longer a member of the Company’s pension scheme, and the Company therefore did not pay any
contributions during the reporting period (2014: £12,359, when he was a member of the Company’s pension scheme for part of the
year). He received cash in lieu of contributions of £131,325 (2014: £116,392).
No executive directors have left office during 2015. There were no payments made to non-executive directors after they left office
Payments for loss of office
during 2015.
Payments to past directors
Rafael Sánchez-Lozano stood down from the Board of Directors on March 27, 2013. During the reporting period he received 20,616
deferred shares in August 2015 from the 2012 IADP award (relating to performance in the 2011 Annual Incentive Plan).
José Pedro Pérez-Llorca received travel benefits worth €404 during 2015 after he had left the Company.
Statement of Voting
The table below shows the consultative vote on the 2014 annual Directors’ Remuneration Report and the binding vote on the
directors’ remuneration policy at the 2015 annual Shareholders’ Meeting:
2014 Annual Directors’
Remuneration Report
Directors’ Remuneration
Policy
Number of votes cast
1,313,200,803
1,313,200,803
For
Against
Abstentions
1,242,765,311
(94.637 per cent)
973,503,807
(74.132 per cent)
14,857,525
(1.131 per cent)
49,560,764
(3.774 per cent)
54,710,853
(4.166 per cent)
289,280,495
(22.029 per cent)
Statement of Directors’ Shareholding and Share Interests
Subject to Audit
In order that their interests are aligned with those of shareholders, each executive director is required to build up and maintain a
minimum personal shareholding in the Company.
Under the Group’s shareholding guidelines, the CEO of IAG is required to build up and maintain a shareholding of 250 per cent
of salary. Other executive directors are required to build up and maintain shareholdings of 200 per cent of salary. In addition,
they are required to retain the entire 100 per cent of shares (net of tax) which vest from share plans until their respective shareholding
requirement is attained. The Committee has reviewed executive directors’ progress against the requirements and notes that both
executive directors are well above the shareholding requirement. There has been a significant improvement in shareholding for
the executive directors over the past two years, as a result of PSP awards vesting, and deferred shares awards from annual
incentive plans.
Shares which count towards the guideline include shares already held by the executive, vested and exercised shares, vested and
unexercised shares, and unvested deferred annual incentive shares. The table below summarises current executive directors’ interests
as of December 31, 2015:
Executive Director
Willie Walsh
Enrique Dupuy de Lôme
Shareholding
requirement
Shares
owned
Shares already
vested from
performance
share plans
Shares already
vested from
deferred annual
incentive plans
Unvested shares
from deferred
annual
incentive plans
250 per cent
of salary
200 per cent
of salary
22,000
1,094,465
126,754
159,246
100
282,017
19,752
79,697
Total qualifying
shareholding
1,402,465
(712 per cent of salary)
381,566
(332 per cent of salary)
External Non-Executive Directorship
The Company’s consent is required before an executive director can accept an external non-executive appointment and permission
is only given in appropriate circumstances. During the reporting period in question no executive director held a directorship from
which they retained a fee.
Willie Walsh is a non-executive director of the Irish National Treasury Management Agency, for which he has declined a fee.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Non-Executive Directors
Non-executive directors are paid a flat fee each year. The Non-Executive Chairman’s fee is €645,000, voluntarily reduced by 25 per
cent to €483,750 with effect from December 1, 2012 until further notice. The Non-Executive Deputy Chairman has a fee of €350,000.
Other non-executive directors have a fee of €120,000. The additional fee for holding a Committee Chairmanship is €20,000.
In relation to the Chairman, as set out in the British Airways/Iberia merger documentation, the conditions of the service contract
with Iberia were taken into account at the time of the merger. This means that he will therefore continue to be entitled to a lump-sum
retirement benefit in an amount of €2,800,000. The fund balance under the policy (including accrued interest) will be paid upon exit
from the Company for any reason.
Directors’ interests in shares
Subject to audit
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy de Lôme
Baroness Kingsmill
James Lawrence1
María Fernanda Mejía
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Total
Total shares and
voting rights
Percentage
of capital
512,291
174,910
1,243,219
1,000,000
0
301,869
2,000
326,500
100
0
100
9,200
3,570,189
0.025
0.009
0.061
0.049
0.000
0.015
0.000
0.016
0.000
0.000
0.000
0.000
0.175
1 Held as IAG ADRs (one IAG ADR equals five IAG shares).
There have been no changes to the shareholdings set out above between December 31, 2015 and the date of this report.
Share scheme dilution limits
The Investment Association sets guidelines that restrict the issue of new shares under all the Company’s share schemes in any ten
year period to 10 per cent of the issued ordinary share capital and restrict the issues under the Company’s discretionary schemes to
5 per cent in any ten year period. At the annual Shareholders’ Meeting on June 18, 2015 the Company was given authority to allocate
up to 67,500,000 shares (3.31 per cent of the share capital) in 2015, 2016, 2017 and 2018. Of this a maximum of 7,650,000 shares could
be allocated to executive directors under all IAG share plans for awards made during 2015, 2016, 2017 and 2018. At December 31, 2015,
2.40 per cent of the share capital had been allocated under the IAG share plans.
The highest and lowest closing prices of the Company’s shares during the period and the share price at December 31, 2015 were:
At December 31 2015
Highest in the period
Lowest in the period
611p
617p
465p
72
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
from the Company for any reason.
Directors’ interests in shares
Subject to audit
Antonio Vázquez
Sir Martin Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy de Lôme
Baroness Kingsmill
James Lawrence1
María Fernanda Mejía
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Total
Total shares and
voting rights
Percentage
of capital
512,291
174,910
1,243,219
1,000,000
0
301,869
2,000
326,500
100
0
100
9,200
3,570,189
0.025
0.009
0.061
0.049
0.000
0.015
0.000
0.016
0.000
0.000
0.000
0.000
0.175
611p
617p
465p
There have been no changes to the shareholdings set out above between December 31, 2015 and the date of this report.
1 Held as IAG ADRs (one IAG ADR equals five IAG shares).
Share scheme dilution limits
The Investment Association sets guidelines that restrict the issue of new shares under all the Company’s share schemes in any ten
year period to 10 per cent of the issued ordinary share capital and restrict the issues under the Company’s discretionary schemes to
5 per cent in any ten year period. At the annual Shareholders’ Meeting on June 18, 2015 the Company was given authority to allocate
up to 67,500,000 shares (3.31 per cent of the share capital) in 2015, 2016, 2017 and 2018. Of this a maximum of 7,650,000 shares could
be allocated to executive directors under all IAG share plans for awards made during 2015, 2016, 2017 and 2018. At December 31, 2015,
2.40 per cent of the share capital had been allocated under the IAG share plans.
The highest and lowest closing prices of the Company’s shares during the period and the share price at December 31, 2015 were:
At December 31 2015
Highest in the period
Lowest in the period
Non-Executive Directors
Non-executive directors are paid a flat fee each year. The Non-Executive Chairman’s fee is €645,000, voluntarily reduced by 25 per
cent to €483,750 with effect from December 1, 2012 until further notice. The Non-Executive Deputy Chairman has a fee of €350,000.
Other non-executive directors have a fee of €120,000. The additional fee for holding a Committee Chairmanship is €20,000.
In relation to the Chairman, as set out in the British Airways/Iberia merger documentation, the conditions of the service contract
with Iberia were taken into account at the time of the merger. This means that he will therefore continue to be entitled to a lump-sum
retirement benefit in an amount of €2,800,000. The fund balance under the policy (including accrued interest) will be paid upon exit
Company performance graph and Chief Executive Officer
of IAG ‘single figure’ table
The chart shows the value by December 31 2015 of a
hypothetical £100 invested on listing compared with the value
of £100 invested in the FTSE 100 index over the same period.
A spot share price has been taken on the date of listing, and a
three month average has been taken prior to the year ends.
The FTSE 100 was selected because it is a broad equity index
of which the Company is a constituent, and the index is
widely recognised.
IAG’s total shareholder return (TSR) performance compared
to the FTSE 100
250
200
150
100
50
The table below shows the CEO ‘single total figure’ of remuneration for each year since the creation of IAG in January 2011:
Jan 11
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
IAG
FTSE 100
CEO of IAG –
‘total single
figure’ of
remuneration
Annual
incentive
Long-term
incentive
Notes
2011
2012
2013
2014
2015
£1,550,000
£1,083,000
£4,971,000
£6,390,000
£6,455,000
The above ‘total
single figure’
includes £302,000
annual incentive
(18 per cent of
maximum).
The above ‘total
single figure’
includes £251,594
value of long-term
incentives vesting
(35 per cent of
maximum).
The above ‘total
single figure’
includes 20 days
of remuneration
(in January 2011)
paid by British
Airways.
No annual incentive
payment.
Includes annual
incentive payment
of £1,299,375
(78.75 per cent
of maximum).
Includes annual
incentive payment
of £1,662,222
(97.78 per cent
of maximum).
Includes annual
incentive payment
of £1,360,000
(80.00 per cent
of maximum).
The above ‘total
single figure’
includes £2,593,569
value of long-term
incentives vesting
(100 per cent of
maximum).
70 per cent of the
value of awards
vesting under the
2011 PSP was the
result of share
price appreciation,
reflecting the
significant increase
in shareholder
value created
over the period.
The above ‘total
single figure’
includes £3,640,135
value of long-term
incentives vesting
(85 per cent of
maximum).
61 per cent of the
value of awards
vesting under the
2012 PSP was the
result of share price
appreciation,
reflecting the
significant increase
in shareholder value
created over
the period.
The above ‘total
single figure’ includes
£4,005,185 value of
long-term incentives
vesting (100 per cent
of maximum).
59 per cent of the
value of awards
vesting under the
2013 PSP was the
result of share price
appreciation,
reflecting the
significant increase
in shareholder value
created over the
period.
Zero vesting of long-
term incentives.
Whilst the
performance
of the CEO of IAG
would in the opinion
of the Board have
justified the payment
of the annual incentive,
after considering
the financial
performance of the
Group, the Board
decided to exercise its
discretion to withhold
the payment of the
annual incentive.
Single total figure of remuneration includes basic salary, taxable benefits, pension related benefits, annual incentive award, and long-
term incentive vesting.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Percentage change in remuneration of the Chief Executive Officer of IAG compared to employees
The table below shows how the remuneration of the Chief Executive Officer of IAG has changed for 2015 compared to 2014.
This is then compared to a group of appropriate employees. It has been determined that the most appropriate group of employees
are all UK employees in the Group, comprising around 40,000 employees in total. To make the comparison between the CEO of IAG
and employees as meaningful as possible, it was determined that as large a group as possible of employees should be chosen.
The selection of all UK employees in the Group (roughly two-thirds of the entire Group’s employees) meets these criteria. The majority
of the 40,000 UK employees in the Group are employed by BA, but there are also a number of employees from all other companies
in the Group based in the UK. It was determined that employees outside the UK would not be considered for the comparison, as very
different employment market conditions exist in other countries.
Chief Executive Officer of IAG
UK employees
Basic salary
No basic salary increase for 2015.
Annual incentive
Taxable benefits
Decrease from £1,662,222 in March 2015
(covering the 2014 performance period) to
£1,360,000 in March 2016 (covering the 2015
performance period). This represents a
18 per cent decrease.
No change in benefits policy.
Actual payments increased to £27,000 in
2015 from £26,000 in 2014.
Basic salary awards in 2015 at UK companies in the
Group averaged around 2 per cent.
Changes in overall annual incentive payments for
2015 vs. 2014 varied considerably around the Group,
depending on the incentive design, financial
performance, and non-financial performance at each
individual company.
No change in benefits policy.
Overall costs 2015 vs. 2014 increased very slightly
in line with inflation.
Relative importance of spend on pay
The table below shows, for 2015 and 2014, total remuneration costs, operating profit, and dividends for the Company.
2015
2014
Total employee costs, IAG
Total remuneration, directors (including non-executive directors)
IAG Operating Profit (before exceptional items)
Dividend declared
Dividend proposed
€14,669,000
€4,905,000,000 €4,325,000,000
€13,187,000
€2,300,000,000 €1,390,000,000
–
–
€203,000,000
€204,000,000
The figure used for IAG operating profit for 2015 excludes Aer Lingus’ contribution to the Company.
Implementation of remuneration policy for 2016
Basic Salary
Basic salaries for executive directors are reviewed from January 1 each year. After careful consideration of Company affordability, the
worth of each executive, retention risks, and the size of pay increases generally across the Group for 2016 (which varied across the Group
from 2 per cent to 3 per cent), the Board, following the recommendation of the Remuneration Committee, approved the following:
Executive Director
Basic salary review
Chief Executive Officer of IAG
Chief Financial Officer of IAG
£850,000 (€1,168,000) (no increase from 2015).
£535,800 (€736,000) (in UK sterling terms, an increase of 2.0% from 2015).
The Remuneration Committee agreed to offer the Chief Executive Officer a salary increase in line with that applied to other
executives, however it was respectfully declined by him.
2016 annual incentive plan
The Board, after considering the recommendation of the Committee, has approved a stretching target range for IAG operating profit
for 2016 at the threshold, on-target and maximum levels. At threshold, there will be a zero pay-out, 50 per cent of the maximum will
pay out at the on-target level, and 100 per cent of the maximum will only pay out once the stretch target has been achieved. There
will be a straight line sliding scale between threshold and on-target, and on-target and the stretch target. For commercial reasons, the
target range will not be disclosed until after the end of the performance year. It will be disclosed in next year’s Remuneration Report.
For 2016, the maximum award for the Chief Executive Officer of IAG will be 200 per cent of salary and for the Chief Financial Officer
of IAG 150 per cent of salary.
74
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Percentage change in remuneration of the Chief Executive Officer of IAG compared to employees
The table below shows how the remuneration of the Chief Executive Officer of IAG has changed for 2015 compared to 2014.
This is then compared to a group of appropriate employees. It has been determined that the most appropriate group of employees
are all UK employees in the Group, comprising around 40,000 employees in total. To make the comparison between the CEO of IAG
and employees as meaningful as possible, it was determined that as large a group as possible of employees should be chosen.
The selection of all UK employees in the Group (roughly two-thirds of the entire Group’s employees) meets these criteria. The majority
of the 40,000 UK employees in the Group are employed by BA, but there are also a number of employees from all other companies
in the Group based in the UK. It was determined that employees outside the UK would not be considered for the comparison, as very
different employment market conditions exist in other countries.
Basic salary
No basic salary increase for 2015.
Basic salary awards in 2015 at UK companies in the
Chief Executive Officer of IAG
UK employees
Annual incentive
Decrease from £1,662,222 in March 2015
(covering the 2014 performance period) to
£1,360,000 in March 2016 (covering the 2015
performance period). This represents a
18 per cent decrease.
Taxable benefits
No change in benefits policy.
Group averaged around 2 per cent.
Changes in overall annual incentive payments for
2015 vs. 2014 varied considerably around the Group,
depending on the incentive design, financial
performance, and non-financial performance at each
individual company.
No change in benefits policy.
Actual payments increased to £27,000 in
Overall costs 2015 vs. 2014 increased very slightly
2015 from £26,000 in 2014.
in line with inflation.
Relative importance of spend on pay
The table below shows, for 2015 and 2014, total remuneration costs, operating profit, and dividends for the Company.
Total employee costs, IAG
Total remuneration, directors (including non-executive directors)
IAG Operating Profit (before exceptional items)
Dividend declared
Dividend proposed
2015
2014
€4,905,000,000 €4,325,000,000
€14,669,000
€13,187,000
€2,300,000,000 €1,390,000,000
€203,000,000
€204,000,000
–
–
The figure used for IAG operating profit for 2015 excludes Aer Lingus’ contribution to the Company.
Implementation of remuneration policy for 2016
Basic Salary
Basic salaries for executive directors are reviewed from January 1 each year. After careful consideration of Company affordability, the
worth of each executive, retention risks, and the size of pay increases generally across the Group for 2016 (which varied across the Group
from 2 per cent to 3 per cent), the Board, following the recommendation of the Remuneration Committee, approved the following:
Executive Director
Basic salary review
Chief Executive Officer of IAG
£850,000 (€1,168,000) (no increase from 2015).
Chief Financial Officer of IAG
£535,800 (€736,000) (in UK sterling terms, an increase of 2.0% from 2015).
The Remuneration Committee agreed to offer the Chief Executive Officer a salary increase in line with that applied to other
executives, however it was respectfully declined by him.
2016 annual incentive plan
The Board, after considering the recommendation of the Committee, has approved a stretching target range for IAG operating profit
for 2016 at the threshold, on-target and maximum levels. At threshold, there will be a zero pay-out, 50 per cent of the maximum will
pay out at the on-target level, and 100 per cent of the maximum will only pay out once the stretch target has been achieved. There
will be a straight line sliding scale between threshold and on-target, and on-target and the stretch target. For commercial reasons, the
target range will not be disclosed until after the end of the performance year. It will be disclosed in next year’s Remuneration Report.
For 2016, the maximum award for the Chief Executive Officer of IAG will be 200 per cent of salary and for the Chief Financial Officer
of IAG 150 per cent of salary.
2016 Performance Share Plan award
The Board, on the Committee’s recommendation, has approved a PSP award for 2016, with a performance period of January 1, 2016
to December 31, 2018.
For 2016, the face value of awards for the Chief Executive Officer will be 200 per cent of salary and for the Chief Financial Officer
150 per cent of salary.
The Board has approved the use of three performance conditions, each with a one-third weighting. These are the same three
performance conditions that were used in 2015 (each had a one-third weighting in 2015).
The first is based on IAG TSR performance relative to the MSCI European Transportation Index. This condition is considered
appropriate because the companies in the index are subject to external influences impacting share price similar to those of the
Group. The target range is identical to 2015, and is outlined earlier in this report.
The second performance condition is based on adjusted EPS. This condition is considered appropriate because it provides a strong
measure of the underlying financial performance of the business. The Board and the Committee have agreed that the earnings
per share (EPS) target range for the 2016 PSP award should be increased. This reflects the continued improvement in the financial
performance of the Group, and ensures that the target remains appropriately stretching. The adjusted EPS measure will be as follows:
Weighting
Threshold
Target (straight line vesting between threshold and maximum)
Maximum
One-third
2018 adjusted EPS of 105 €cents
10 per cent vests
2018 adjusted EPS between 105 €cents and 145 €cents
2018 adjusted EPS of 145 €cents
100 per cent vests
The third performance condition is Return on Invested Capital (RoIC). This is a financial measure that quantifies how well a company
generates cash flow relative to the capital it has invested in its business, and is considered an appropriate measure because it also
provides a strong measure of the underlying financial performance of the business. The RoIC measure will be as follows:
Weighting
Threshold
Target (straight line vesting between threshold and maximum)
Maximum
One-third
2018 RoIC of 12 per cent
10 per cent vests
2018 RoIC between 12 per cent and 15 per cent
2018 RoIC of 15 per cent
100 per cent vests
There will be an additional holding period of two years. This means that executives will be required to retain the shares for a minimum
of two years following the end of the performance period. This is to strengthen the alignment between executives and shareholders.
Taxable benefits and pension related benefits
Taxable benefits and pension related benefits (as a percentage of basic salary) remain unchanged for 2016.
Non-Executive Director Fees
Non-executive director fees remain unchanged for 2016. The fees have remained unchanged since 2011.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Supplementary Information
Directors’ conditional awards
The following directors held conditional awards over ordinary shares of the Company granted under the IAG PSP.
Director
Plan
Date of
award
Number
of awards at
January 1, 2015
Awards
vested during
the year
Awards
lapsed during
the year
Awards
made during
the year
Number of
awards at
December 31, 2015
Executive Directors
Willie Walsh
Total
Enrique Dupuy de Lôme
Total
IAG PSP August 3, 2012
IAG PSP March 6, 2013
IAG PSP March 6, 2014
IAG PSP August 3, 2012
IAG PSP March 6, 2013
IAG PSP March 6, 2014
1,024,844
684,647
379,310
2,088,801
372,670
248,963
137,931
759,564
874,191
–
–
874,191
317,887
–
–
317,887
150,653
–
–
150,653
–
54,783
–
–
54,783
–
–
–
–
–
–
–
–
–
684,647
379,310
1,063,957
–
248,963
137,931
386,894
The performance conditions for the 2013 PSP award above were tested by the Remuneration Committee, and reported to the
Board, in their meetings held in February 2016. The performance conditions for the 2014 PSP award above will be tested to determine
the level of vesting. For this award, 50 per cent of the award is subject to TSR performance measured against an index, and 50 per
cent is subject to adjusted EPS performance. The performance conditions will be measured over a single three year performance
period.
The award granted on August 3, 2012 was tested at the end of the performance period, and as a result 85.3 per cent of the award
vested, as detailed earlier in this report in the section on Variable Pay Outcomes.
The values attributed to the Company’s ordinary shares in accordance with the plan rules on the dates of the PSP awards were as
follows: 2014: 435 pence; 2013: 241 pence; and 2012: 161 pence.
Directors’ share options
The following directors held nil-cost options over ordinary shares of the Company granted under the IAG PSP.
Director
Date of grant
Executive Directors
Number of
options at
January 1,
2015
Options
exercised
during
the year
Options
lapsed
during the
year
Options
granted
during the
year
Exercise
price
Willie Walsh
Total
Enrique Dupuy de Lôme
Total
May 28,
2015
May 28,
2015
–
-
–
–
–
-
–
–
–
-
–
–
–
-
–
–
309,091
309,091
112,364
112,364
Exercisable
from
Expiry date
January 1,
2020
December 31,
2024
January 1,
2020
December 31,
2024
Number of
options at
December 31,
2015
309,091
309,091
112,364
112,364
The performance conditions for the 2015 PSP award above will be tested to determine the level of vesting. For this award, one-third
of the award is subject to TSR performance measured against an index, one-third is subject to adjusted Earnings per Share (EPS)
performance, and one-third is subject to Return on Invested Capital (RoIC) performance. The performance conditions will be
measured over a single three year performance period. For the 2015 PSP award, following the performance period there is an
additional holding period of two years.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2015 PSP award was
550 pence.
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REPORT OF THE REMUNERATION COMMITTEE CONTINUED
Supplementary Information
Directors’ conditional awards
Director
Plan
Executive Directors
Willie Walsh
The following directors held conditional awards over ordinary shares of the Company granted under the IAG PSP.
Date of
award
Number
of awards at
January 1, 2015
Awards
Awards
Awards
vested during
lapsed during
made during
Number of
awards at
the year
the year
the year
December 31, 2015
IAG PSP August 3, 2012
1,024,844
874,191
150,653
IAG PSP March 6, 2013
IAG PSP March 6, 2014
684,647
379,310
2,088,801
874,191
150,653
–
–
–
–
–
–
–
–
–
317,887
54,783
–
–
–
–
–
–
–
–
684,647
379,310
1,063,957
–
–
248,963
137,931
386,894
Enrique Dupuy de Lôme
IAG PSP August 3, 2012
317,887
54,783
IAG PSP March 6, 2013
IAG PSP March 6, 2014
372,670
248,963
137,931
759,564
The performance conditions for the 2013 PSP award above were tested by the Remuneration Committee, and reported to the
Board, in their meetings held in February 2016. The performance conditions for the 2014 PSP award above will be tested to determine
the level of vesting. For this award, 50 per cent of the award is subject to TSR performance measured against an index, and 50 per
cent is subject to adjusted EPS performance. The performance conditions will be measured over a single three year performance
Total
Total
period.
The award granted on August 3, 2012 was tested at the end of the performance period, and as a result 85.3 per cent of the award
vested, as detailed earlier in this report in the section on Variable Pay Outcomes.
The values attributed to the Company’s ordinary shares in accordance with the plan rules on the dates of the PSP awards were as
follows: 2014: 435 pence; 2013: 241 pence; and 2012: 161 pence.
Directors’ share options
The following directors held nil-cost options over ordinary shares of the Company granted under the IAG PSP.
Director
Date of grant
2015
price
the year
year
year
from
Expiry date
Number of
options at
January 1,
Options
exercised
Options
lapsed
Options
granted
Exercise
during
during the
during the
Exercisable
Number of
options at
December 31,
2015
Executive Directors
Willie Walsh
Total
Enrique Dupuy de Lôme
Total
May 28,
2015
May 28,
2015
–
-
–
–
–
-
–
–
–
-
–
–
–
-
–
–
309,091
January 1,
December 31,
309,091
2020
2024
309,091
309,091
112,364
January 1,
December 31,
112,364
2020
2024
112,364
112,364
The performance conditions for the 2015 PSP award above will be tested to determine the level of vesting. For this award, one-third
of the award is subject to TSR performance measured against an index, one-third is subject to adjusted Earnings per Share (EPS)
performance, and one-third is subject to Return on Invested Capital (RoIC) performance. The performance conditions will be
measured over a single three year performance period. For the 2015 PSP award, following the performance period there is an
additional holding period of two years.
550 pence.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2015 PSP award was
Incentive Award Deferral Plan
The following directors held conditional awards over ordinary shares of the Company granted under the IAG IADP (awarded as
a result of IAG performance for the periods that ended December 31, 2012; December 31, 2013 and December 31, 2014).
Director
Executive
Directors
Willie Walsh
Total
Enrique Dupuy
de Lôme
Total
Relates to
incentive award
earned in respect
of performance
Number of
awards at
January 1,
2015
Awards
released
during the
year
Date of
award
Awards
lapsing
during the
year
Date of
vesting
Awards made
during the
year
Number of awards
at December 31,
2015
2011 August 3, 2012
2013 March 6, 2014
2014 May 28, 2015
93,773
149,353
–
93,773 August 3, 2015
– March 6, 2017
– March 8, 2018
243,126
93,773
2011 August 3, 2012
2012 March 6, 2013
2013 March 6, 2014
2014 May 28, 2015
37,267
62,241
50,862
–
150,370
37,267 August 3, 2015
– March 6, 2016
– March 6, 2017
– March 8, 2018
37,267
–
–
–
–
–
–
–
–
–
–
–
151,111
-
149,353
151,111
151,111
300,464
–
–
–
50,252
50,252
–
62,241
50,862
50,252
163,355
There are no performance conditions to be tested before vesting for the IADP, except that the director must still be employed by
the Company at the time of vesting.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2015 IADP award was
550 pence (2014: 435 pence; 2013: 241 pence; 2012: 161 pence).
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2012 IADP award was
161 pence. The share price on the date of the vesting of this award (August 3, 2015) was 551 pence. The money value of the shares
received was the share price on the date of the vesting multiplied by the number of shares in respect of the award vested, as shown
in the table above.
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FINANCIAL
STATEMENTS
The Group’s consolidated statements which follow have been
prepared in accordance with the International Financial
Reporting Standards as endorsed by the European Union.
This section also includes the Report of Spanish Corporate
Governance filed with the Comisión Nacional del Mercado
de Valores to comply with the statutory requirements for
companies listed on the Spanish market.
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Annual Report and Accounts 2015
FINANCIAL STATEMENTS
99 Consolidated income statement
100
Consolidated statement of
other comprehensive income
101 Consolidated balance sheet
102 Consolidated cash flow statement
103
105
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
162 Spanish Corporate governance report
224
Group investments
Statement of Directors’ Responsibilities
Independent Auditors’ Report
CONSOLIDATED INCOME STATEMENT
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Employee costs
Fuel, oil costs and emissions charges
Handling, catering and other operating costs
Landing fees and en-route charges
Engineering and other aircraft costs
Property, IT and other costs
Selling costs
Depreciation, amortisation and impairment
Aircraft operating lease costs
Currency differences
Total expenditure on operations
Operating profit
Finance costs
Finance income
Net currency retranslation charges
Losses on derivatives not qualifying for
hedge accounting
Net gain related to available-for-sale
financial assets
Share of profits in investments accounted
for using the equity method
Loss on sale of property, plant and equipment
and investments
Net financing charge relating to pensions
Profit before tax
Tax
Profit after tax for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
Basic earnings per share (€ cents)
Diluted earnings per share (€ cents)
Before
exceptional
items
2015
Note
Exceptional
items
(51)
68
17
(17)
(17)
(6)
(23)
20,350
1,024
1,484
22,858
4,905
6,082
2,371
1,882
1,395
965
912
1,307
659
45
20,523
2,335
(294)
42
(56)
(170)
5
6
(38)
(12)
1,818
(279)
1,539
1,518
21
1,539
74.6
71.4
4
8
6
6
4
9
9
18
17
9
10
11
11
Year to December 31
Before
exceptional
items
2014
Exceptional
items
Total
2015
20,350
1,024
1,484
22,858
4,905
6,031
2,371
1,882
1,395
1,033
912
1,307
659
45
20,540
2,318
17,825
992
1,353
20,170
4,325
5,987
2,063
1,555
1,276
927
859
1,196
551
41
18,780
1,390
(294)
42
(56)
(237)
32
(27)
(170)
(49)
5
6
(38)
(12)
1,801
(285)
1,516
1,495
21
1,516
73.5
70.4
10
2
(11)
(4)
1,106
(238)
868
847
21
868
41.6
40.2
260
(79)
180
361
(361)
83
(278)
413
135
Total
2014
17,825
992
1,353
20,170
4,585
5,987
2,063
1,555
1,276
927
859
1,117
551
221
19,141
1,029
(237)
32
(27)
(49)
93
2
(11)
(4)
828
175
1,003
982
21
1,003
48.2
46.4
99
FINANCIAL STATEMENTS www.iairgroup.com CONSOLIDATED STATEMENT
OF OTHER COMPREHENSIVE INCOME
€ million
Items that may be reclassified subsequently to net profit
Cash flow hedges:
Fair value movements in equity
Reclassified and reported in net profit
Available-for-sale financial assets:
Fair value movements in equity
Reclassified and reported in net profit
Currency translation differences
Items that will not be reclassified to net profit
Remeasurements of post-employment benefit obligations
Total other comprehensive income for the year, net of tax
Profit after tax for the year
Total comprehensive income for the year
Total comprehensive income is attributable to:
Equity holders of the parent
Non-controlling interest
Items in the consolidated Statement of comprehensive income above are disclosed net of tax.
Year to December 31
Note
2015
2014
31
31
31
31
31
31
31
(1,104)
1,290
(9)
(5)
181
156
509
1,516
2,025
2,004
21
2,025
(1,235)
357
29
(359)
168
(394)
(1,434)
1,003
(431)
(452)
21
(431)
100
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 CONSOLIDATED BALANCE SHEET
€ million
Non-current assets
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Available-for-sale financial assets
Employee benefit assets
Derivative financial instruments
Deferred tax assets
Other non-current assets
Current assets
Non-current assets held for sale
Inventories
Trade receivables
Other current assets
Current tax receivable
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
Total assets
Shareholders’ equity
Issued share capital
Share premium
Treasury shares
Other reserves
Total shareholders’ equity
Non-controlling interest
Total equity
Non-current liabilities
Interest-bearing long-term borrowings
Employee benefit obligations
Deferred tax liability
Provisions for liabilities and charges
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Deferred revenue on ticket sales
Derivative financial instruments
Current tax payable
Provisions for liabilities and charges
Total liabilities
Total equity and liabilities
Note
December 31
2015
December 31
2014
13
16
17
18
32
27
10
19
15
19
19
27
20
20
28
28
29
31
31
23
32
10
25
27
22
23
21
27
25
13,672
3,246
41
74
957
62
723
365
19,140
5
520
1,196
1,235
79
198
2,947
2,909
9,089
28,229
1,020
5,867
(113)
(1,548)
5,226
308
5,534
7,498
858
419
2,049
282
223
11,329
1,132
3,803
4,374
1,328
124
605
11,366
22,695
28,229
11,784
2,438
27
84
855
80
769
188
16,225
18
424
1,252
602
9
178
3,416
1,528
7,427
23,652
1,020
5,867
(6)
(3,396)
3,485
308
3,793
5,904
1,324
278
1,967
359
226
10,058
713
3,281
3,933
1,313
57
504
9,801
19,859
23,652
101
FINANCIAL STATEMENTS www.iairgroup.com CONSOLIDATED CASH FLOW STATEMENT
€ million
Cash flows from operating activities
Operating profit
Depreciation, amortisation and impairment
Movement in working capital and other non-cash movements
Payments related to restructuring (net of provision)
Employer contributions to pension schemes
Pension scheme service costs
Interest paid
Taxation
Net cash flows from operating activities from continuing operations
Net cash flows used in operating activities from discontinued operations
Net cash flows from operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets
Sale of property, plant and equipment and intangible assets
Net proceeds from sale of investments
Acquisition of subsidiary (net of cash acquired)
Interest received
Decrease/(increase) in other current interest-bearing deposits
Dividends received
Other investing movements
Net cash flows from investing activities
Cash flows from financing activities
Net proceeds from long-term borrowings
Net proceeds from equity portion of convertible bond issued
Repayment of borrowings
Repayment of finance leases
Acquisition of treasury shares
Distributions made to holders of perpetual securities and other
Dividend paid
Net cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at 1 January
Cash and cash equivalents at year end
Interest-bearing deposits maturing after more than three months
Cash, cash equivalents and other interest-bearing deposits
Year to December 31
Note
2015
2014
2,318
1,307
(627)
(154)
(699)
265
(197)
(245)
1,968
–
1,968
(2,040)
273
6
(1,146)
48
1,436
9
30
(1,384)
2,757
101
(954)
(837)
(163)
(21)
(163)
720
1,304
77
1,528
2,909
1,029
1,117
205
212
(612)
203
(159)
(118)
1,877
(15)
1,862
(2,622)
404
589
–
37
(1,352)
2
12
(2,930)
2,009
–
(223)
(786)
(23)
(20)
–
957
(111)
98
1,541
1,528
2,947
3,416
5,856
4,944
32
32
20
20
20
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.
102
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2015
Issued share
capital
Share
premium
Treasury
shares
(note 29)
Other
reserves
Retained
earnings
Total
shareholders’
equity
Non-
controlling
interest
(note 31)
1,020
5,867
(6)
(3,162)
(234)
3,485
308
Total
equity
3,793
–
1,495
1,495
21
1,516
€ million
January 1, 2015
Profit for the year
Other comprehensive income
for the year:
Cash flow hedges reclassified
and reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Investments
Net change in fair value
of cash flow hedges
Available-for-sale assets
reclassified and reported
in net profit
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-
employment benefit obligations
Cost of share-based payments
Vesting of share-based payment
schemes
Equity portion of convertible
bond issued
Acquisition of treasury shares
Dividend
Dividend of a subsidiary
Distributions made to holders
of perpetual securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56
–
(163)
–
–
–
14
1,474
(202)
4
(1,104)
(5)
(9)
181
–
–
–
101
–
–
–
–
–
–
–
–
–
–
–
–
156
45
14
1,474
(202)
4
(1,104)
(5)
(9)
181
156
45
(99)
(43)
–
–
(203)
–
–
101
(163)
(203)
–
–
5,226
December 31, 2015
1,020
5,867
(113)
(2,708)
1,160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
14
1,474
(202)
4
(1,104)
(5)
(9)
181
156
45
(43)
101
(163)
(203)
(1)
(20)
308
(20)
5,534
103
FINANCIAL STATEMENTS www.iairgroup.com CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year to December 31, 2014
€ million
January 1, 2014
Profit for the year
Other comprehensive income
for the year:
Cash flow hedges reclassified
and reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Investments
Net change in fair value
of cash flow hedges
Available-for-sale assets
reclassified and reported
in net profit
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-
employment benefit obligations
Cost of share-based payments
Vesting of share-based
payment schemes
Acquisition of treasury shares
Distributions made to holders
of perpetual securities
December 31, 2014
Issued share
capital
Share
premium
Treasury
shares
(note 29)
Other
reserves
Retained
earnings
Total
shareholders’
equity
Non-
controlling
interest
(note 31)
1,020
5,867
(42)
(2,122)
(814)
3,909
307
Total
equity
4,216
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,020
–
5,867
–
–
–
–
–
–
–
–
–
–
–
59
(23)
–
(6)
–
982
982
21
1,003
5
47
34
271
(1,235)
(359)
29
168
–
–
–
–
–
–
–
–
–
–
–
–
5
47
34
271
(1,235)
(359)
29
168
(394)
(394)
38
(46)
–
38
13
(23)
–
–
–
–
–
–
–
–
–
–
–
–
5
47
34
271
(1,235)
(359)
29
168
(394)
38
13
(23)
–
(3,162)
–
(234)
–
3,485
(20)
308
(20)
3,793
104
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Background and general information
International Consolidated Airlines Group S.A. (hereinafter ‘International Airlines Group’, ‘IAG’ or the ‘Group’) is a leading
European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in
Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A.
Operadora (hereinafter ‘British Airways’ and ‘Iberia’ respectively) completed a merger transaction becoming the first two airlines
of the Group. Vueling Airlines S.A. (‘Vueling’) was acquired on April 26, 2013, and Aer Lingus Group Plc (‘Aer Lingus’) on August
18, 2015.
IAG shares are traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of
Madrid, Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock Exchanges Interconnection
System (Mercado Continuo Español).
2 Summary of significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by the EU). The consolidated financial statements are
presented in euros, rounded to the nearest million unless otherwise stated. These financial statements have been prepared on
a historical cost convention except for certain financial assets and liabilities, including derivative financial instruments and
available-for-sale financial assets that are measured at fair value. The carrying value of recognised assets and liabilities that are
subject to fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged.
The financial statements for the prior year include reclassifications that were made to conform to the current year presentation.
The amendments have no material impact on the financial statements.
The Group’s financial statements for the year to December 31, 2015 were authorised for issue, and approved by the Board of
Directors on February 25, 2016.
The Directors have considered the business activities as set out on pages 10 to 19, the Group’s principal risks and uncertainties
as set out on pages 47 to 54, and the Group’s financial position, including cash flows, liquidity position and available committed
facilities. The Directors consider that the Group has adequate resources to remain in operation for the foreseeable future and
have therefore continued to adopt the going concern basis in preparing the financial statements.
Consolidation
The Group financial statements include the financial statements of the Company and its subsidiaries, each made up to
December 31, together with the attributable share of results and reserves of associates, adjusted where appropriate to conform
to the Group’s accounting policies.
Subsidiaries are consolidated from the date of their acquisition, which is the date on which the Group obtains control and
continue to be consolidated until the date that such control ceases. Control exists when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group applies the acquisition method to account for business combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired and liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests
represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented separately
within equity in the consolidated Balance sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest
in the acquiree is remeasured to fair value at the acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities assumed.
All intra-group account balances, including intra-group profits, are eliminated in preparing the consolidated financial statements.
Segmental reporting
Operating segments are reported in a manner consistent with how resource allocation decisions are made by the chief operating
decision-maker. The chief operating decision-maker, who is responsible for resource allocation and assessing performance of the
operating segments, has been identified as the IAG Management Committee.
105
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Summary of significant accounting policies continued
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the functional currency, being
the currency of the primary economic environment in which the entity operates. The Group’s consolidated financial statements
are presented in euros, which is the Group’s presentation currency.
b Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing on the
date of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates ruling at
the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the Income statement, except where hedge accounting is applied.
c Group companies
The net assets of foreign operations are translated into euros at the rate of exchange ruling at the balance sheet date. Profits
and losses of such operations are translated into euros at average rates of exchange during the year. The resulting exchange
differences are taken directly to a separate component of equity until all or part of the interest is sold, when the relevant
portion of the cumulative exchange difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a policy of not revaluing property, plant and equipment.
Depreciation is calculated to write off the cost less the estimated residual value on a straight-line basis, over the economic life
of the asset. Residual values, where applicable, are reviewed annually against prevailing market values for equivalently aged
assets and depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account
of aircraft and other qualifying assets under construction are capitalised and added to the cost of the asset concerned.
All other borrowing costs are recognised in the Income statement in the year in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets
owned or held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual value at
the end of their planned operational lives on a straight-line basis.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five
years and the remaining life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately,
are carried as property, plant and equipment and generally depreciate in line with the fleet to which they relate.
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets
(including maintenance provided under ‘pay-as-you-go’ contracts) are charged to the Income statement on consumption or
as incurred respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land, is
depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the
duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 4 to 20 years.
d Leased assets
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are
transferred to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost
of property, plant and equipment represents the aggregate of the capital elements payable during the lease term. The
corresponding obligation, reduced by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the
Income statement.
106
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged
to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease
arrangements allow the Group to terminate the leases after a limited initial period, without further material financial obligations.
In certain cases the Group is entitled to extend the initial lease period on predetermined terms; such leases are described as
extendable operating leases.
Intangible assets
a Goodwill
Goodwill arises on the acquisition of subsidiaries, associates and joint ventures and represents the excess of the consideration
paid over the net fair value of the identifiable assets and liabilities of the acquiree. Where the net fair value of the identifiable
assets and liabilities of the acquiree is in excess of the consideration paid, a gain on bargain purchase is recognised immediately
in the Income statement.
For the purposes of assessing impairment, goodwill is grouped at the lowest levels for which there are separately identifiable
cash flows (cash-generating units). Goodwill is tested for impairment annually and whenever indicators exist that the carrying
value may not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. Long established
brands that are expected to be used indefinitely are not amortised but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition
date. A customer loyalty programme with an expected useful life is amortised over the expected remaining useful life. Customer
loyalty programmes with an indefinite life are not amortised but assessed annually for impairment.
d Landing rights
Landing rights acquired in a business combination are recognised at fair value at the acquisition date. Landing rights acquired
from other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on a straight-line basis over a period not exceeding 20 years.
Capitalised landing rights based within the EU are not amortised, as regulations provide that these landing rights are perpetual.
e Contract based-intangibles
Contract based intangibles acquired in a business combination are recognised initially at fair value at the acquisition date and
amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised separately
and amortised on a straight-line basis over a period not exceeding five years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions allowances are not revalued or amortised but are tested for
impairment whenever indicators exist that the carrying value may not be recoverable.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the value by which the asset’s carrying value exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in use. Non-financial
assets other than goodwill that were subject to an impairment are reviewed for possible reversal of the impairment at each
reporting date.
a Property, plant and equipment
The carrying value is reviewed for impairment when events or changes in circumstances indicate the carrying value may not
be recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of property, plant and
equipment.
Intangible assets
b
Intangible assets are held at cost and are either amortised on a straight-line basis over their economic life, or they are deemed
to have an indefinite economic life and are not amortised. Indefinite life intangible assets are tested annually for impairment or
more frequently if events or changes in circumstances indicate the carrying value may not be recoverable.
107
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Summary of significant accounting policies continued
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a long-term equity interest and over which it has the power to exercise
significant influence. Where the Group cannot exercise control over an entity in which it has a shareholding greater than 51 per
cent, the equity interest is treated as an associated undertaking.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the
net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made
in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The
Group has assessed the nature of its joint arrangement and determined it to be a joint venture.
Investments in associates and joint ventures are accounted for using the equity method, and initially recognised at cost. The
Group’s interest in the net assets of associates and joint ventures is included in Investments accounted for using the equity
method in the Balance sheet and its interest in their results is included in the Income statement, below operating result. The
attributable results of those companies acquired or disposed of during the year are included for the periods of ownership.
Financial instruments
a Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets not classified as loans and receivables and include listed and
unlisted investments, excluding interests in associates. After initial recognition, available-for-sale financial assets are measured
at fair value, with changes in fair value recognised in Other comprehensive income until the investment is sold or becomes
impaired, at which time the cumulative gain or loss previously reported in equity is recognised in the Income statement.
The fair value of quoted investments is determined by reference to bid prices at the close of business on the balance sheet
date. Where there is no active market, fair value is determined using valuation techniques. Where fair value cannot be reliably
estimated, assets are carried at cost.
b Trade and other receivables
Trade and other receivables are stated at cost less allowances made for doubtful receivables, which approximates fair value
given the short dated nature of these assets. A provision for impairment of trade receivables (allowance for doubtful receivables)
is established when there is objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivable. Loans to third parties are initially measured at the fair value of the consideration given plus
any directly attributable transaction costs, and measured thereafter at amortised cost.
c Other current interest-bearing deposits
Other current interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried
at amortised cost using the effective interest method.
d Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss arising from
revaluation depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged (as detailed below under cash flow hedges). The gains or losses related to derivatives not used as effective hedging
instruments are recognised in the Income statement.
Exchange gains and losses on monetary investments are taken to the Income statement unless the item has been designated
and is assessed as an effective hedging instrument. Exchange gains and losses on non-monetary investments are reflected in
equity until the investment is sold when the cumulative amount recognised in equity is recognised in the Income statement.
Long-term borrowings are recorded at amortised cost, including leases which contain interest rate swaps that are closely related
to the underlying financing and as such are not accounted for as an embedded derivative.
e Cash flow hedges
Changes in the fair value of derivative financial instruments are reported through operating income or financing according to
the nature of the instrument, unless the derivative financial instrument has been designated as a hedge of a highly probable
expected future cash flow. Gains and losses on derivative financial instruments designated as cash flow hedges and assessed
as effective for the year, are recorded in equity. Gains and losses recorded in equity are reflected in the Income statement when
either the hedged cash flow impacts income or the hedged item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euro and Japanese yen are designated as cash flow hedges of
highly probable future foreign currency revenues. Exchange differences arising from the translation of these loan repayment
instalments are recorded in equity and subsequently reflected in the Income statement when either the future revenue impacts
income or its occurrence is no longer expected to occur.
108
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 f Convertible debt
Convertible bonds are classified as compound instruments, consisting of a liability and an equity component. At the date of
issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible
debt, and is subsequently recorded at an amortised cost basis using the effective interest method until extinguished on
conversion or maturity of the bonds, and is recognised within Interest-bearing borrowings. The difference between the
proceeds of issue of the convertible bond and the fair value assigned to the liability component, representing the embedded
option to convert the liability into equity of the Group, is included in Equity portion of convertible bond in Other reserves and
is not subsequently remeasured.
Issue costs are apportioned between the liability and equity components of the convertible bonds where appropriate based on
their relative carrying values at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the effective interest rate for similar non-convertible
debt to the liability component of the instrument. The difference between this value and the interest paid is added to the
carrying amount of the liability.
Impairment of financial assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial
asset is considered impaired if objective evidence indicates that one or more events that have occurred since the initial
recognition of the asset have had a negative impact on the estimated future cash flows of that asset. In the case of equity
securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
considered an indicator that the security is impaired. If any such evidence exists for available-for-sale financial assets, the
cumulative gain or loss previously reported in Other comprehensive income is included in the Income statement.
An impairment loss in respect of a financial asset carried at amortised cost is calculated as the difference between its carrying
value and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.
Derecognition of financial assets and liabilities
A financial asset or liability is generally derecognised when the contract that gives rise to it has been settled, sold, cancelled
or has expired.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and
the recognition of a new liability, such that the difference in the respective carrying amounts are recognised in the Income statement.
Employee benefit plans
a Pension obligations
The Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the
current and prior years.
Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior years. The benefit is
discounted to determine its present value, and the fair value of any plan assets are deducted. The discount rate is the yield at
the balance sheet date on AA-rated corporate bonds of the appropriate currency that have durations approximating those of
the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the
net obligation calculation results in an asset for the Group, the recognition of an asset is limited to the present value of any
future refunds from the plan or reductions in future contributions to the plan (‘the asset ceiling’). The fair value of the plan
assets is based on market price information and, in the case of quoted securities, is the published bid price.
Current service costs are recognised within operating expenses in the year in which they arise. Past service costs are recognised
at the earlier of the plan amendment or curtailment occurring, and when the Group recognises the related restructuring costs or
termination benefits. The net interest is calculated by applying the discount rate used to measure the defined benefit obligation
at the beginning of the period to the net defined benefit liability or asset, taking into account any changes in the net defined
benefit liability or asset during the period as a result of contributions and benefit payments. Net interest and other expenses
related to the defined benefit plans are recognised in the Income statement. Remeasurements, comprising actuarial gains and
losses, the effect of the asset ceiling (excluding interest) and the return on plan assets (excluding interest), are recognised
immediately in Other comprehensive income. Remeasurements are not reclassified to the Income statement in
subsequent periods.
109
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Summary of significant accounting policies continued
b Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever
an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when
it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan
without realistic possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage
voluntary redundancy.
Other employee benefits are recognised when there is deemed to be a present obligation.
Taxation
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities,
based on tax rates and laws that are enacted or substantively enacted at the balance sheet date.
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements, with the following exceptions:
• Where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is
not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
• In respect of taxable temporary differences associated with investments in subsidiaries or associates, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the
foreseeable future; and
• Deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply
when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the
balance sheet date.
Income tax is charged or credited directly to equity if it relates to items that are credited or charged to equity. Otherwise income
tax is recognised in the Income statement.
Non-current assets held for sale
Non-current assets are classified as held for sale when their carrying value is to be recovered principally through sale as opposed
to continuing use. The sale must be considered to be highly probable and to be achieved within 12 months. Held for sale assets
are carried at the lower of carrying value and fair value less costs to sell. Property, plant and equipment and intangible assets
once classified as held for sale are not depreciated or amortised.
Inventories
Inventories, including aircraft expendables, are valued at the lower of cost and net realisable value. Such cost is determined
by the weighted average cost method. Inventories include mainly aircraft spare parts, repairable aircraft engine parts and fuel.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand and deposits with any qualifying financial institution repayable on demand
or maturing within three months of the date of acquisition and which are subject to an insignificant risk of change in value.
Treasury shares
Shares in the Company purchased and held directly by the Company are classified as Treasury shares, and shown as deductions
from Shareholders’ equity at cost. Shares in the Company held by the British Airways Plc Employee Share Ownership Trust are
classified as Investments in own shares, and shown as deductions from Shareholders’ equity at cost.
Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from
the sale and the original cost being taken to reserves. No gain or loss is recognised in the Income statement on the purchase,
sale, issue or cancellation of equity shares.
Share-based payments
The Group operates a number of equity-settled, share-based payment plans, under which the Group awards equity instruments
of the Group for services rendered by employees. The fair value of the share-based payment plans is measured at the date of
grant using an appropriate valuation model. The resulting cost, as adjusted for the expected and actual level of vesting of the
plan, is charged to the Income statement over the period in which the options vest. At each balance sheet date before vesting,
the cumulative expense is calculated, representing the extent to which the vesting period has expired and management’s best
estimate of the achievement or otherwise of non-market conditions, of the number of equity instruments that will ultimately vest.
The movement in the cumulative expense since the previous balance sheet date is recognised in the Income statement with a
corresponding entry in equity.
110
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Dividends
Dividend distributions are recognised as a liability in the year in which the dividends are approved by the company’s
shareholders. Interim dividends are recognised when they are paid; final dividends when authorised in general meetings
by shareholders.
Provisions
Provisions are made when a future obligation exists for a present liability in respect of a past event and where the amount
of the obligation can be reliably estimated.
Employee leaving indemnities and other employee provisions are recorded for flight crew who, meeting certain conditions,
have the option of being placed on reserve or of taking early retirement. The Group is obligated to remunerate these employees
until they reach the statutory retirement age. The calculation is performed by independent actuaries using the projected unit
credit method.
Other employee related provisions are recognised for direct expenditures of business reorganisation (restructuring provisions)
where plans are sufficiently detailed and well advanced, and where appropriate communication to those affected has been
undertaken at the balance sheet date.
If the effect is material, expected future cash flows are discounted using a rate that reflects, where appropriate, the risks
specific to the provision. Where discounting is used, the increase in the provision due to unwinding the discount is recognised
as a finance cost.
Revenue recognition
Passenger and cargo revenue is recognised when the transportation service has been provided. Passenger tickets net of
discounts are recorded as current liabilities as deferred revenue on ticket sales until the customer has flown. Unused tickets
are recognised as revenue using estimates regarding the timing of recognition based on the terms and conditions of the ticket
and statistical analysis of historical trends.
Other revenue including maintenance, handling, hotel and holiday and commissions is recognised at the time the service is
provided in accordance with the invoice or contract.
Customer loyalty programmes
The Group operates five loyalty programmes: Executive Club, Iberia Plus, Avios, Punto and Gold Circle Club. The principal
customer loyalty programmes award travellers Avios points to redeem for various rewards primarily redemption travel, including
flights, hotels and car hire. In accordance with IFRIC 13 ‘Customer loyalty programmes’, the fair value attributed to the awarded
Avios points is deferred as a liability and recognised as revenue on redemption of the points and provision of service to the
participants to whom the Avios points are issued.
In addition, Avios points are sold to commercial partners to use in loyalty activity. The fair value of the Avios points sold is
deferred and recognised as revenue on redemption of the Avios points by the participants to whom the Avios points are issued.
The cost of the redemption of the Avios points is recognised when the Avios points are redeemed.
The Group estimates the fair value of Avios points by reference to the fair value of the awards for which they could be redeemed
and is reduced to take into account the proportion of award credits that are not expected to be redeemed based on the results
of statistical modelling. The fair value of the Avios point reflects the fair value of the range of available awards.
Exceptional items
Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size or incidence.
The exceptional items recorded in the Income statement include items such as significant restructuring; the impact of business
combination transactions that do not contribute to the ongoing results of the Group; and the impact of the sale, disposal or
impairment of an investment in a business.
Business combination transactions include cash items such as the costs incurred to effect the transaction and non-cash items
such as accounting gains or losses recognised through the Income statement, such as bargain purchase gains and step
acquisition losses.
111
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Summary of significant accounting policies continued
Critical accounting estimates and assumptions
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income and expenses. These estimates and associated
assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances.
Actual results in the future may differ from estimates upon which financial information has been prepared. These underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of the revision and future periods if these are also
affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are discussed as follows.
a Employee benefit obligations, employee leaving indemnities, other employee related provisions and restructuring
The cost of employee benefit obligations, employee leaving indemnities and other employee related provisions is determined
using actuarial valuations. Actuarial valuations involve making assumptions about discount rates, expected rates of return on
assets, future inflation rates, future salary increases, mortality rates and future pension increases. Due to the long-term nature
of these schemes, such estimates are subject to significant uncertainty. The assumptions relating to these schemes are disclosed
in notes 32 and 25. The Group exercises its judgement in determining the assumptions to be adopted, in discussion with its
independent external actuaries.
Restructuring provisions are estimates of future obligations. The Group exercises judgement in determining the expected direct
expenditures of reorganisation based on plans which are sufficiently detailed and advanced.
b Revenue recognition
Passenger revenue is recognised when the transportation is provided. Ticket sales that are not expected to be used for
transportation (‘unused tickets’) are recognised as revenue using estimates regarding the timing of recognition based on the
terms and conditions of the ticket and historical trends.
In respect of customer loyalty programmes the fair value attributed to awarded points is deferred as a liability and is recognised as
revenue on redemption of the points and provision of service to the participants to whom the points are issued. The fair value of
the award credits is estimated by reference to the fair value of the awards for which the points could be redeemed and is reduced
to take into account the proportion of award credits that are not expected to be redeemed by customers. The Group exercises
its judgement in determining the assumptions to be adopted in respect of the number of points not expected to be redeemed
through the use of statistical modelling and historical trends and in determining the mix and fair value of the award credits.
Income taxes
c
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide
provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain.
The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due.
Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will
impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
The Group recognises deferred income tax assets only to the extent that it is probable that the taxable profit will be available
against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Management
consider the operating performance in the current year and the future projections of performance laid out in the approved
business plan in order to assess the probability of recoverability. The Business plan relies on the use of assumptions, estimates
and judgements in respect of future performance and economics.
Impairment of non-financial assets
d
The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Goodwill
and intangible assets with indefinite economic lives are tested for impairment annually and at other times when such indicators
exist. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These
calculations require the use of estimates as disclosed in note 16.
Other non-financial assets are tested for impairment annually or when there are indicators that the carrying amounts may not
be recoverable.
e Residual values and useful lives of assets
The Group exercises judgement to determine useful lives and residual values of property and plant and equipment. The assets are
depreciated to their residual values over their estimated useful lives. At the beginning of the year, the Group revised its estimates
for certain fleet. As a result of this review, changes in estimated useful lives and residual values were applied prospectively from
January 1, 2015.
112
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 f Foreign currency – transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing on the
date of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates ruling at the
balance sheet date.
Where more than one exchange rate for a particular currency exists, judgement is required in order to determine which rate
should be used based on entity specific facts and circumstances. Consideration is given to the Group’s intention and ability to
use specific mechanisms and whether that use is probable. Where exchangeability is lacking across mechanisms the published
legally available rate that best reflects the economics of the Group’s activities is considered.
g Lease classification
A lease is classified as a finance lease when substantially all the risks and rewards of ownership are transferred to the Group.
In determining the appropriate classification, the substance of the transaction rather than the form is considered. Factors
considered include but are not limited to the following: whether the lease transfers ownership of the asset to the lessee by the
end of the lease term; the lessee has the option to purchase the asset at the price that is sufficiently lower than the fair value on
exercise date; the lease term is for the major part of the economic life of the asset; and the present value of the minimum lease
payments amounts to at least substantially all of the fair value of the leased asset.
h Maintenance provision
The Group has a number of maintenance contracts with service providers to repair or replace engine parts. These agreements
are complex and the Group exercises judgement in determining the assumptions used to match the consumption of
replacement spares and other costs associated with fleet maintenance with the appropriate income statement charge.
Changes in accounting policy and disclosures
a New and amended standards adopted by the Group
The Group has adopted the following interpretation 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 or to standards did not have any impact on the accounting policies,
financial position or performance of the Group.
b New standards, amendments and interpretations not yet effective
The IASB and IFRIC issued the following standards, amendments and interpretations with an effective date after the year end
of these financial statements which management believe could impact the Group in future periods. Unless otherwise stated,
the Group plans to adopt the following standards, interpretations and amendments:
IFRS 15 ‘Revenue from contracts with customers’ (not yet endorsed by the EU); effective for periods beginning on or after
January 1, 2018. The standard establishes a new five-step model that will apply to revenue arising from contracts with customers.
Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
those goods or services. The principles in IFRS 15 provide a more structured approach to measuring and recognising revenue.
This is a converged standard on revenue recognition which replaces IAS 18 ‘Revenue’, IAS 11 ‘Construction contracts’ and related
interpretations. The Group is currently assessing the impact of the new standard.
IFRS 9 ‘Financial instruments’ (not yet endorsed by the EU); effective for periods beginning on or after January 1, 2018. The
standard removes the multiple classification and measurement models for financial assets required by IAS 39 and introduces
a model that has only two classification categories: amortised cost and fair value. Classification is driven by the business model
for managing the financial assets and the contractual cash flow characteristics of the financial assets. The accounting and
presentation for financial liabilities and for derecognising financial instruments is relocated from IAS 39 without any significant
changes. IFRS 9 (2010) introduces additional changes relating to financial liabilities. IFRS 9 adds new requirements to address
the impairment of financial assets and hedge accounting. The Group is currently assessing the impact of the new standard.
IFRS 16 ‘Leases’ (not yet endorsed by the EU); effective for periods beginning on or after January 1 2019. Under IFRS 16, a
contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. The new standard eliminates the classification of leases as either operating leases or finance leases
and instead introduces a single lessee accounting model. Applying this model, lessees are required to recognise a lease liability
reflecting the obligation to make future lease payments and a ‘right-of-use’ asset for virtually all lease contracts. IFRS 16 includes
an optional exemption for certain short-term leases and leases of low-value assets. The Group is currently assessing the impact
of the new standard.
113
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Summary of significant accounting policies continued
IAS 19 (Amendment) ‘Employee benefits’; effective for periods beginning on or after February 1, 2015 in the European Union.
The amendment applies to contributions from employees or third parties to defined benefit plans and clarifies the treatment of
such contributions. The amendment distinguishes between contributions that are linked to service only in the period in which
they arise and those linked to service in more than one period. The objective of the amendment is to simplify the accounting for
contributions that are independent of the number of years of employee service, for example employee contributions that are
calculated according to a fixed percentage of salary. Entities with plans that require contributions that vary with service will be
required to recognise the benefit of those contributions over employee’s working lives. It is anticipated that the application of
this amendment will have no significant impact on the Group’s net profit or net assets.
There are no other standards, amendments or interpretations in issue but not yet adopted that the Directors anticipate will have
a material effect on the reported income, net assets or disclosures of the Group.
The Group has not early adopted any standard, amendment or interpretation 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 after exceptional items. 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
Property, plant and equipment
Intangible assets
Brand
Landing rights1
Other
Other non-current assets
Cash and cash equivalents
Other current interest-bearing deposits
Trade receivables2
Other current assets
Interest-bearing borrowings
Trade and other payables
Provision for liabilities and charges
Employee benefit obligations
Deferred tax liability
Net identifiable assets acquired
1 For indefinite lived landing rights, see note 16.
2 The gross contractual amount for trade receivables is €55 million, 98 per cent which is expected to be collected.
114
Fair value
721
110
172
40
164
205
708
54
66
(406)
(604)
(158)
(9)
(35)
1,028
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 The goodwill is recognised as follows:
€ million
Cash consideration1
Provisional fair value of identifiable net assets
Provisional goodwill
1 There is no deferred or contingent consideration.
1,351
1,028
323
None of the goodwill recognised is expected to be deductible for tax purposes.
4 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
€ million
Revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
15,862
53
15,915
2015
Iberia
Vueling
Aer Lingus
Other Group
companies
4,412
352
4,764
1,962
–
1,962
622
–
622
–
145
145
Total
22,858
550
23,408
Depreciation, amortisation and impairment
(1,053)
(206)
(13)
(27)
(8)
(1,307)
Operating profit/(loss) before exceptional items
Exceptional items (note 5)
Operating profit after exceptional items
Net non-operating costs
Profit before tax
1,914
(35)
1,879
247
–
247
160
–
160
35
(3)
32
(21)
21
–
2,335
(17)
2,318
(517)
1,801
115
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4 Segment information continued
a Business segments
For the year to December 31, 2014
€ million
Revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
14,456
37
14,493
2014
Iberia
Vueling
Other Group
companies
3,989
279
4,268
1,725
–
1,725
–
107
107
Total
20,170
423
20,593
Depreciation, amortisation and impairment
(1,027)
(76)
(11)
(3)
(1,117)
Operating profit/(loss) before exceptional items
Exceptional items (note 5)
Operating profit/(loss) after exceptional items
Net non-operating costs
Profit before tax
b Geographical analysis
Revenue by area of original sale
€ million
UK
Spain
USA
Rest of world
Assets by area
December 31, 2015
€ million
UK
Spain
USA
Rest of world
December 31, 2014
€ million
UK
Spain
USA
Rest of world
116
1,215
–
1,215
50
(361)
(311)
141
–
141
(16)
–
(16)
2015
8,256
3,462
3,447
7,693
22,858
1,390
(361)
1,029
(201)
828
2014
6,931
3,203
2,893
7,143
20,170
Property,
plant and
equipment
Intangible
assets
11,112
1,798
26
736
13,672
1,346
1,852
14
34
3,246
Property,
plant and
equipment
Intangible
assets
10,131
1,624
24
5
11,784
1,184
1,218
12
24
2,438
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 5 Exceptional items
€ million
Business combination costs1
Pre-acquisition cash flow hedge impact2
Litigation provision3
Foreign currency loss4
Restructuring costs – employee5
Reversal of Iberia brand impairment6
Recognised in expenditure on operations
Gain on sale of investment7
Total exceptional charge before tax
Tax on exceptional items
Net deferred tax credit8
Total exceptional charge/(credit) after tax
2015
33
(51)
35
–
–
–
17
–
17
6
–
23
2014
–
–
–
180
260
(79)
361
(83)
278
(144)
(269)
(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 33 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.
117
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5 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 16). 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.
6 Expenses by nature
Operating profit is arrived at after charging
Depreciation, amortisation and impairment of non-current assets:
€ million
Owned assets
Finance leased aircraft
Other leasehold interests
Impairment charge on property, plant and equipment
Amortisation of intangible assets
Impairment reversal on intangible assets
Operating lease costs:
€ million
Minimum lease rentals
Sub-lease rentals received
Cost of inventories:
€ million
– aircraft
– property and equipment
Cost of inventories recognised as an expense, mainly fuel
118
2015
834
346
47
5
75
–
1,307
2015
659
195
(46)
808
2014
810
277
57
8
44
(79)
1,117
2014
551
187
(54)
684
2015
4,899
2014
5,377
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 7 Auditors’ remuneration
The fees for audit and non-audit services provided by the auditor of the Group’s consolidated financial statements and of
certain individual financial statements of the consolidated companies, Ernst & Young S.L., and by companies belonging to
Ernst & Young’s network, as well as fees for services billed to Aer Lingus by PricewaterhouseCoopers LLP (‘PwC’) and by
companies belonging to PwC’s network, were as follows:
€’000
Fees payable for the audit of the Group and individual accounts
Fees payable for other services:
Audit of the Group’s subsidiaries pursuant to legislation
Other services pursuant to legislation
Other services relating to taxation
Other assurance services
Services relating to information technology
Services relating to corporate finance transactions1
All other services
2015
Ernst &
Young
3,552
Other
auditor
40
2014
Ernst &
Young
2,806
571
389
57
552
34
610
85
5,850
388
4
–
–
–
–
–
432
535
349
269
359
30
–
–
4,348
Other
auditor
–
–
–
–
–
–
–
–
–
–
1 This mainly included services in relation to the Aer Lingus acquisition.
The audit fees payable are approved by the Audit and Compliance Committee and have been reviewed in the context of other
companies for cost effectiveness. A description of the work of the Audit and Compliance Committee is set out in the Report
of the Audit and Compliance Committee on page 69 and includes an explanation of how objectivity and independence is
safeguarded when non-audit services are provided.
8 Employee costs and numbers
a Employee costs
€ million
Wages and salaries
Social security costs
Costs related to pension scheme benefits
Cost of share-based payments
Other employee costs1
1 Other employee costs include allowances and accommodation for crew.
The average number of employees during the year was as follows:
Senior executives
Ground employees:
Managerial
Non-managerial
Technical crew:
Managerial
Non-managerial
2015
3,277
485
372
35
736
4,905
2014
3,194
447
285
29
630
4,585
2015
2014
Average
number of
employees
Percentage
of women
Average
number of
employees
Percentage
of women
214
24%
219
23%
2,385
32,835
5,906
19,522
60,862
41%
36%
10%
67%
2,379
32,527
5,694
18,665
59,484
40%
36%
10%
67%
119
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8 Employee costs and numbers continued
b Directors’ remuneration
€ million
Board of Directors’ remuneration
Management Committee remuneration
2015
15
22
2014
13
18
There were three female Directors at December 31, 2015 (2014: three).
The Report of the Remuneration Committee discloses further details of Directors’ remuneration.
The Group provides life insurance for the Executive Directors of the Board, and for the year to December 31, 2015 the Group’s
obligation was €28,000 (2014: €16,000). At December 31, 2015 none of the Executive Directors were members of defined
benefit pension schemes.
In relation to Article 229 of the Spanish Companies Act, all IAG Directors have confirmed that they have no conflict with the
Company’s interests.
2015
2014
(23)
(138)
(21)
(115)
2
1
–
(294)
2015
42
2015
(12)
(26)
(111)
(39)
(74)
2
(5)
16
(237)
2014
32
2014
(4)
9 Finance costs and income
a Finance costs
€ million
Interest expense on:
Bank borrowings
Finance leases
Provisions: unwinding of discount
Other borrowings
Capitalised interest on progress payments
Change in fair value of cross currency swaps
Currency charges on financial fixed assets
b Finance income
€ million
Interest on other interest-bearing deposits
c Net financing charge relating to pensions
€ million
Net financing charge relating to pensions
120
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 10 Tax
a Tax on profit on ordinary activities
Tax charge/(credit) in the Income statement
€ million
Current tax
Tax on profits
Adjustments in respect of prior years
Total current tax charge
Deferred tax arising on the differences between the accounting and tax treatment of:
Property, plant and equipment
Employee leaving indemnities and other employee related provisions
Tax losses utilised
Employee benefit plans
Tax credits
Foreign exchange
Fuel derivative losses
Unremitted earnings of associate companies
Deferred revenue in relation to customer loyalty programmes
Adjustments in respect of prior years
Effect of tax rate changes
Other items
Advance corporation tax
Available-for-sale financial assets
Previously unrecognised tax assets
Total deferred tax credit
Total tax charge/(credit) in the Income statement
2015
2014
337
5
342
10
13
42
(2)
1
(20)
(12)
3
16
(32)
(84)
8
–
–
–
(57)
285
228
19
247
(7)
(14)
47
(49)
(27)
(2)
(10)
–
(12)
(36)
41
–
99
(146)
(306)
(422)
(175)
121
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10 Tax continued
Tax charged/(credited) directly to Other comprehensive income and Statement of changes in equity
€ million
Current tax relating to items charged directly to Other comprehensive income
Employee benefit plans
2015
2014
(76)
(79)
Deferred tax relating to items charged directly to Other comprehensive income
Cash flow hedges
Employee benefit plans
Adjustments in respect of prior years
Available-for-sale financial assets
Effect of tax rate changes
Current tax relating to items charged directly to Statement of changes in equity
Share-based payment schemes
Deferred tax relating to items charged directly to Statement of changes in equity
Share-based payments schemes
Total tax charge/(credit) relating to items included in Other comprehensive income and equity
53
128
(1)
–
–
180
(14)
4
94
(237)
(111)
–
(163)
46
(465)
(8)
(6)
(558)
In 2015 the effect of tax rate changes on items that will not be reclassified to the Income statement was nil (2014: €7 million
charge), and the effect on items that may be reclassified to the Income statement was nil (2014: €39 million charge).
b Reconciliation of the total tax charge/(credit)
The tax charge/(credit) is calculated at the domestic rates applicable to profits or losses in the main countries of operation.
The tax charge (2014: credit) on the profit for the year to December 31, 2015 and 2014 is lower than the notional tax charge.
The differences are explained below:
€ million
Accounting profit before tax
Tax calculated at 28 per cent in Spain (2014: 30 per cent) and 20.25 per cent in the UK
(2014: 21.5 per cent) and 12.5 per cent in Ireland
Effects of:
Non-deductible expenses – transaction related
Non-deductible expenses – recurring items
Employee benefit plan accounting
Euro preferred securities accounted for as non-controlling interests
Tax on unremitted earnings
Current year tax assets not recognised
Adjustments in respect of prior years
Effect of tax rate changes
Other items
Disposal and write down of investments
Investment credit
Previously unrecognised tax assets
Tax charge/(credit) in the Income statement
2015
1,801
381
11
6
(8)
(4)
3
3
(27)
(84)
4
–
–
–
285
2014
828
162
–
–
(5)
(5)
–
9
(17)
42
8
(2)
(61)
(306)
(175)
122
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 c Net deferred tax asset
The net deferred tax asset included in the Balance sheet is as follows:
€ million
Difference between the accounting and tax treatment of:
Property, plant and equipment
Employee leaving indemnities and other employee related provisions
Tax losses carried forward
Fair value losses recognised on cash flow hedges
Employee benefit plans
Tax assets in relation to tax credits and deductions
Share-based payments schemes
Foreign exchange
Deferred revenue in relation to customer loyalty programmes
Other items
Net deferred tax asset
Movement in provision
€ million
Net deferred tax asset/(liability) at the beginning of the year
Acquired through Business combination
Deferred tax (charge)/credit relating to Income statement
Deferred tax (charge)/credit taken to Statement of other comprehensive income
Deferred tax (charge)/credit taken to Statement of changes in equity
Adjustments in respect of prior years
Effects of tax rate changes
Exchange movements
Net deferred tax asset at the end of the year
2015
2014
(1,201)
472
410
298
168
78
22
8
1
48
304
2015
491
(35)
(59)
(180)
(4)
33
84
(26)
304
(1,126)
492
396
330
248
89
22
(16)
17
39
491
2014
(383)
–
427
511
6
36
(87)
(19)
491
d Other taxes
The Group also contributed tax and related revenues through payment of transaction and payroll related taxes and charges.
A breakdown of these other taxes paid during 2015 is as follows:
€ million
Payroll related taxes
UK Air Passenger Duty
Other ticket taxes and charges
2015
455
923
1,583
2,961
2014
423
813
1,290
2,526
123
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10 Tax continued
e Factors that may affect future tax charges
Unrecognised temporary differences – losses
€ million
Spanish corporate income tax losses
UK capital losses arising before the change in ownership of the UK Group in 2011
UK capital losses arising after the change in ownership of the Group in 2011
UK capital losses arising on properties that were eligible for Industrial Buildings Allowances
Corporate income tax losses outside of the countries of main operation
2015
35
101
10
350
154
2014
27
127
9
324
147
Unrecognised temporary differences – investment in subsidiaries and associates
No deferred tax liability has been recognised in respect of €795 million (2014: €75 million) of temporary differences relating
to subsidiaries and associates. The Group either controls the reversal of these temporary differences and it is probable that
they will not reverse in the foreseeable future or no tax consequences would arise from their reversal.
Tax rate changes
Reductions in the UK corporation tax rate were substantively enacted in the year. The main rate of corporation tax was reduced
from 20 per cent to 19 per cent effective from April 1, 2017 and from 19 per cent to 18 per cent effective from April 1, 2020. The
deferred tax on temporary differences and tax losses as at December 31, 2015 was calculated at the rate applicable to the year
in which the temporary differences and tax losses are expected to reverse.
11 Earnings per share
€ million
Earnings attributable to equity holders of the parent for basic earnings
Interest expense on convertible bonds
Diluted earnings attributable to equity holders of the parent and diluted earnings per share
Weighted average number of ordinary shares in issue
Assumed conversion on €390 million convertible bond
Assumed conversion on two tranches of €500 million convertible bonds
Dilutive employee share schemes outstanding
Weighted average number of ordinary shares in issue for diluted earnings per share
Basic earnings per share (€ cents)
Diluted earnings per share (€ cents)
12 Dividends
€ million
Cash dividends on ordinary shares declared
Interim dividend of 10 € cents per share
Proposed cash dividends
Final dividend of 10 € cents per share
2015
1,495
25
1,520
Number
’000
2,034,197
91,758
9,722
24,260
2,159,937
2015
73.5
70.4
2014
982
21
1,003
Number
’000
2,036,121
91,758
–
33,883
2,161,762
2014
48.2
46.4
2015
2014
(203)
(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.
124
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 13 Property, plant and equipment
€ million
Cost
Balance at January 1, 2014
Additions
Disposals
Exchange movements
Balance at December 31, 2014
Additions
Acquired through Business combination
Disposals
Reclassifications
Exchange movements
December 31, 2015
Depreciation and impairment
Balance at January 1, 2014
Charge for the year
Impairment charge recognised during the year1
Disposals
Exchange movements
Balance at December 31, 2014
Charge for the year
Disposals
Reclassifications
Exchange movements
December 31, 2015
Net book values
December 31, 2015
December 31, 2014
Analysis at December 31, 2015
Owned
Finance leased
Progress payments
Property, plant and equipment
Analysis at December 31, 2014
Owned
Finance leased
Progress payments
Property, plant and equipment
Fleet
Property
Equipment
Total
17,673
2,316
(888)
1,125
20,226
1,774
693
(1,180)
(184)
1,488
22,817
9,158
984
8
(492)
594
10,252
1,066
(954)
(99)
793
11,058
2,085
57
(3)
120
2,259
51
16
(3)
3
155
2,481
867
77
–
(2)
57
999
70
(3)
2
75
1,344
126
(22)
67
1,515
112
12
(56)
(22)
90
21,102
2,499
(913)
1,312
24,000
1,937
721
(1,239)
(203)
1,733
1,651
26,949
849
83
–
(15)
48
965
91
(34)
(10)
64
10,874
1,144
8
(509)
699
12,216
1,227
(991)
(107)
932
1,143
1,076
13,277
11,759
9,974
1,338
1,260
575
550
13,672
11,784
4,726
6,364
669
11,759
4,290
5,398
286
9,974
1,289
16
33
1,338
1,173
5
82
1,260
460
33
82
575
411
32
107
550
6,475
6,413
784
13,672
5,874
5,435
475
11,784
1 The 2014 impairment charge of €8 million relates to one Airbus A340 aircraft written down to its net realisable value.
125
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
13 Property, plant and equipment continued
The net book value of property comprises:
€ million
Freehold
Long leasehold improvements
Short leasehold improvements1
Property
2015
561
387
390
2014
542
359
359
1,338
1,260
1 Short leasehold improvements relate to leasehold interests with duration of less than 50 years.
At December 31, 2015, bank and other loans of the Group are secured on fleet assets with a cost of €1,466 million (2014: €1,169
million) and letters of credit of €278 million in favour of the British Airways Pension Trustees are secured on certain aircraft
(2014: €292 million).
14 Capital expenditure commitments
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.
The outstanding commitments include €15,971 million for the acquisition of 100 Airbus A320s (from 2016 to 2022), 18 Airbus
A321s (from 2016 to 2019), 14 Airbus A330s (from 2016 to 2018), 43 Airbus A350s (from 2018 to 2021), 2 Airbus A380s (in 2016)
and 29 Boeing 787s (from 2016 to 2021).
15 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.
126
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 16 Intangible assets and impairment review
a Intangible assets
€ million
Cost
Balance at January 1, 2014
Additions
Exchange movements
Balance at December 31, 2014
Additions
Additions due to Business combination
Disposals
Reclassifications
Exchange movements
December 31, 2015
Amortisation and impairment
Balance at January 1, 2014
Charge for the year
Impairment reversal
Exchange movements
Balance at December 31, 2014
Charge for the year
Disposals
Reclassifications
Exchange movements
December 31, 2015
Net book values
December 31, 2015
December 31, 2014
Goodwill
Brand
Customer
loyalty
programmes
Landing
rights1
Other2
Total
325
–
3
328
–
323
–
–
5
656
249
–
–
–
249
–
–
–
–
249
407
79
341
–
–
341
–
110
–
–
–
451
79
–
(79)
–
–
–
–
–
–
–
451
341
253
–
–
253
–
–
–
–
–
253
–
–
–
–
–
–
–
–
–
–
1,387
1
54
1,442
–
172
–
–
70
583
137
29
749
168
40
(114)
20
42
2,889
138
86
3,113
168
645
(114)
20
117
1,684
905
3,949
72
1
–
4
77
3
–
–
6
86
293
43
–
13
349
72
(78)
8
17
368
693
44
(79)
17
675
75
(78)
8
23
703
253
253
1,598
1,365
537
400
3,246
2,438
1 The net book value includes non-EU based landing rights of €123 million (2014: €13 million) that have a definite life, of which €110 million were acquired through Business
combination.
2 Other intangible assets consist primarily of software with a net book value of €487 million (2014: €353 million), and also include purchased emissions allowances.
127
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Impairment review
16 Intangible assets and impairment review continued
b
The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the
Group are:
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
–
–
–
51
5
56
28
–
323
323
–
–
–
423
–
423
840
61
901
89
–
62
62
–
–
–
306
–
306
253
(253)
–
–
–
–
35
–
110
110
–
–
–
–
–
–
–
–
–
–
–
253
253
Total
982
(253)
729
891
66
957
152
–
495
495
–
253
253
407
1,475
451
253
2,586
€ million
2015
Iberia
January 1, 2015
Transfer to Avios
December 31, 2015
British Airways
January 1, 2015
Exchange movements
December 31, 2015
Vueling
January 1 and December 31, 2015
Aer Lingus
January 1, 2015
Additions due to Business combination
December 31, 2015
Avios
January 1, 2015
Transfer from Iberia
December 31, 2015
December 31, 2015
128
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 € million
2014
Iberia
January 1, 2014
Impairment losses reversed
December 31, 2014
British Airways
January 1, 2014
Additions
Exchange movements
December 31, 2014
Vueling
January 1 and December 31, 2014
December 31, 2014
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
–
–
–
48
–
3
51
28
79
423
–
423
789
1
50
840
89
1,352
227
79
306
–
–
–
–
35
341
Total
903
79
982
837
1
53
891
152
253
–
253
–
–
–
–
–
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:
Per cent
Lease adjusted operating margin
Average ASK growth per annum
Long-term growth rate
Pre-tax discount rate
Per cent
Long-term growth rate
Pre-tax discount rate
British
Airways
12–15
2–3
2.5
8.6
British
Airways
2.5
10.0
2015
Iberia
Vueling
8–14
7
2.0
9.7
12–15
10
2.0
10.3
2014
Iberia
2.2
10.2
Vueling
2.2
12.5
129
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 Intangible assets and impairment review continued
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 as 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.
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.
17 Investments
a Investments in subsidiaries
The Group’s principal subsidiaries at December 31, 2015 are listed in the Group investments section.
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings
held directly do not differ from the proportion of ordinary shares held. There have been no significant changes in ownership
interests of subsidiaries during the year.
The total non-controlling interest at December 31, 2015 is €308 million which largely comprises €300 million of 6.75 per cent
fixed coupon euro perpetual preferred securities issued by British Airways Finance (Jersey) L.P. (note 31).
British Airways Employee Benefit Trustee (Jersey) Limited, a wholly-owned subsidiary of British Airways, governs the British
Airways Plc Employee Share Ownership Trust (the Trust). The Trust is not a legal subsidiary of IAG; however, it is consolidated
within the Group results.
130
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 b Investments in associates and joint ventures
The share of the assets, liabilities, revenue and profit of the Group’s associates, which are included in the Group’s financial
statements, are as follows:
€ million
Total assets
Total liabilities
Revenue
Profit for the year
The detail of the movement in Investment in associates is shown as follows:
€ million
At beginning of year
Share of retained profits
Acquired through Business combination
Disposals
Exchange movements
Dividends received
2015
100
(64)
75
6
2014
79
(53)
96
2
2015
2014
27
6
17
(1)
1
(9)
41
25
2
–
–
2
(2)
27
During the year the Group acquired a 33.33 per cent equity interest in the share capital of Propius Holdings Limited through
the Business combination. At December 31, 2015 there are no restrictions on the ability of associates or joint ventures to transfer
funds to the parent and there are no related contingent liabilities.
At December 31, 2015 the investment in Handling Guinea Ecuatorial, S.A. exceeded 50 per cent ownership by the Group
(51 per cent) and is treated as an associate as the local partner controls its activities. The Group disposed of its investment
in Iber-América Aerospace, LLC (65.33 per cent) during the year.
18 Available-for-sale financial assets
In 2014, Iberia entered into an agreement to settle its hedging transaction over its ownership interest in Amadeus and sell
its entire shareholding. The derivative transaction comprised a collar arrangement on Iberia’s Amadeus shareholding of
33,562,331 ordinary shares.
The settlement of the derivative contract commenced in August 2014 and the Group’s shareholding in Amadeus has been
sold 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 gain related to available-for-sale financial assets line. The remaining
0.075 per cent investment in Amadeus was settled in January 2015.
Available-for-sale financial assets include the following:
€ million
Listed securities
Comair Limited
Unlisted securities
2015
2014
9
65
74
19
65
84
The net gain relating to available-for-sale financial assets was €5 million (2014: net gain of €93 million which related mainly to the
Amadeus settlement transaction).
131
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19 Trade receivables and other assets
€ million
Amounts falling due within one year
Trade receivables
Provision for doubtful receivables
Net trade receivables
Prepayments and accrued income
Other non-trade debtors
Amounts falling due after one year
Prepayments and accrued income
Other interest-bearing deposits (greater than one year)
Other non-trade debtors
Movements in the provision for doubtful trade receivables were as follows:
€ million
At beginning of year
Provision for doubtful receivables
Unused amounts reversed
Receivables written off during the year
Exchange movements
The ageing analysis of net trade receivables is as follows:
€ million
Neither past due date nor impaired
< 30 days
30 – 60 days
> 60 days
Net trade receivables
Trade receivables are generally non-interest-bearing and on 30 day terms (2014: 30 day terms).
20 Cash, cash equivalents and other current interest-bearing deposits
€ million
Cash at bank and in hand
Short-term deposits falling due within three months
Cash and cash equivalents
Other current interest-bearing deposits maturing after three months
Cash, cash equivalents and other interest bearing deposits
2015
2014
1,280
(84)
1,196
925
310
2,431
173
104
88
365
2015
97
8
(3)
(20)
2
84
2015
986
117
77
16
1,196
2015
2,230
679
2,909
2,947
5,856
1,349
(97)
1,252
441
161
1,854
119
–
69
188
2014
89
47
(21)
(18)
–
97
2014
939
205
69
39
1,252
2014
1,223
305
1,528
3,416
4,944
Cash at bank is primarily held in AAA money market funds and bank deposits. Short-term deposits are made for periods up
to three months depending on the cash requirements of the Group and earn interest based on the floating deposit rates.
At December 31, 2015 the Group had no outstanding bank overdrafts (2014: nil).
Other current interest-bearing deposits are made for periods in excess of three months with maturity typically within 12 months
and earn interest based on the market rates available at the time the deposit was made.
132
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 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.
In 2014 the Group had unrepatriated funds recognised by Venezuela’s Central Bank which related to sales made in Venezuela
from 2013 and 2014. A charge of €180 million against the balance was recorded in 2014 (note 5).
21 Trade and other payables
€ million
Trade creditors
Other creditors
Other taxation and social security
Accruals and deferred income
Average payment days to suppliers – Spanish Group companies
Days
Average days for payment to suppliers
Ratio of transactions paid
Ratio of transactions outstanding for payment
€‘000
Total payments made
Total payments outstanding
22 Other long-term liabilities
€ million
Non-current trade creditors
Accruals and deferred income
23 Long-term borrowings
a Current
€ million
Bank and other loans
Finance leases
b Non-current
€ million
Bank and other loans
Finance leases
2015
2,043
1,031
186
543
3,803
2015
5
218
223
2015
576
556
1,132
2015
2,176
5,322
7,498
Bank and other loans are repayable up to the year 2027. Bank and other loans of the Group amounting to €813 million
(2014: €541 million) are secured on aircraft. Finance leases are all secured on aircraft or property, plant and equipment.
2014
1,869
927
129
356
3,281
2015
17
17
18
2015
4,220,000
81,000
2014
2
224
226
2014
164
549
713
2014
1,069
4,835
5,904
133
FINANCIAL STATEMENTS www.iairgroup.com
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23 Long-term borrowings continued
c Bank and other loans
Bank and other loans comprise the following:
€ million
€500 million fixed rate 0.25 per cent convertible bond 20201
€500 million fixed rate 0.625 per cent convertible bond 20222
€390 million fixed rate 1.75 per cent convertible bond 20183
£250 million fixed rate 8.75 per cent unsecured Eurobonds 20164
Floating rate euro mortgage loans secured on specific aircraft5
Floating rate euro syndicate loan secured on investments6
Fixed rate US dollar mortgage loans secured on specific aircraft7
Fixed rate pound sterling mortgage loans secured on specific aircraft8
Fixed rate Chinese yuan mortgage loans secured on aircraft9
€147 million fixed rate unsecured bond10
Floating rate pound sterling mortgage loans secured on specific aircraft11
Floating rate US dollar mortgage loans secured on specific aircraft12
Fixed rate unsecured euro loans with the Spanish State (Department of Industry)13
European Investment Bank pound sterling loans secured on certain property14
Floating rate unsecured euro loan15
Less: current instalments due on bank loans
2015
454
431
350
343
328
192
174
102
102
147
55
52
15
7
–
2,752
(576)
2,176
2014
–
–
335
316
60
–
173
116
–
–
125
67
20
10
11
1,233
(164)
1,069
1 €500 million fixed rate 0.25 per cent senior unsecured bond convertible into ordinary shares of IAG issued by the Group in November 2015, raising net proceeds of €494 million
and due in 2020. The conversion price 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 the
convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to the final maturity date. The equity portion of the convertible bond
issue of €39 million is included in Other reserves (note 31). The bonds contain dividend protection, and a total of 36,208,923 options related to the bond were outstanding
from settlement and at December 31, 2015.
2 €500 million fixed rate 0.625 per cent senior unsecured bond convertible into ordinary shares of IAG issued by the Group in November 2015, raising net proceeds of €494
million and due in 2022. The conversion price 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
the convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to the final maturity date. The equity portion of the convertible bond
issue of €62 million is included in Other reserves (note 31). The bonds contain dividend protection, and a total of 36,208,923 options related to the bond were outstanding from
settlement and at December 31, 2015.
3 €390 million fixed rate 1.75 per cent convertible bond issued by the Group, in May 2013, raising net proceeds of €386 million, convertible into ordinary shares at the option of
the holder before or upon maturity in May 2018. The conversion price was set at a premium of 35 per cent on the Group’s share price on the date of issuance. The Group holds
an option to redeem the convertible bond at its principal amount, together with accrued interest, upon fulfilment of certain pre-determined criteria. The equity portion of the
convertible bond issue of €72 million is included in Other reserves (note 31). A total of 91,758,228 options were outstanding from issuance and at December 31, 2015.
4 £250 million fixed rate 8.75 per cent unsecured Eurobonds 2016 are repayable in one instalment in August 2016.
5 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.43 per cent and 1.50 per cent. The loans are repayable
between 2024 and 2027.
6 Floating rate euro syndicate loan secured on specific investment assets of the Group and bears interest of 1.375 per cent above 6 month EURIBOR. The loan is repayable in
2020.
7 Fixed rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 3.81 per cent and 4.76 per cent. The loans are repayable
between 2021 and 2026.
8 Fixed rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 6.14 per cent and 6.3 per cent. The loans are
repayable between 2016 and 2018.
9 Fixed rate Chinese yuan mortgage loans are secured on specific aircraft assets of the Group and bears interest of 5.20 per cent. The loans are repayable in 2022.
10 Total of €147 million fixed rate unsecured bonds between 2.5 to 3.75 per cent coupon repayable between 2018 and 2025.
11 Floating rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 1.10 per cent and 1.27 per cent. The loans are
repayable between 2016 and 2019.
12 Floating rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 1.31 per cent and 2.99 per cent. The loans are repayable
between 2016 and 2017.
13 Fixed rate unsecured euro loans with the Spanish State (Department of Industry) bear an interest of between nil and 5.68 per cent and are repayable between 2016 and 2026.
14 European Investment Bank pound sterling loan is secured on certain property assets of the Group and bears interest of 0.71 per cent. The loan is repayable in 2017.
15 Floating rate unsecured euro loan had interest of 0.0225 per cent above EURIBOR; it was repaid in 2015.
134
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 d Total loans and finance leases
Million
Loans
Bank:
US dollar
Euro
Pound sterling
Chinese yuan
Fixed rate bonds:
Euro
Pound sterling
Finance leases
US dollar
Euro
Japanese yen
Pound sterling
2015
2014
$246
€536
£119
CNY 716
€1,027
€1,381
£250
€1,725
$295
€90
£198
CNY –
€581
€335
£249
€652
$3,464
€1,458
¥44,599
£656
€5,878
$3,772
€1,084
¥37,105
£771
€5,384
€8,630
€6,617
e Obligations under finance leases
The Group uses finance leases principally to acquire aircraft. These leases have both renewal options and purchase options,
at the option of the Group. Future minimum lease payments under finance leases are as follows:
€ million
Future minimum payments due:
Within one year
After more than one year but within five years
In five years or more
Less: Finance charges
Present value of minimum lease payments
The present value of minimum lease payments is analysed as follows:
Within one year
After more than one year but within five years
In five years or more
The Group is no longer subject to financial covenants on the finance lease of one Airbus A340-600.
2015
2014
692
3,084
2,769
6,545
(667)
5,878
556
2,723
2,599
5,878
676
2,463
3,100
6,239
(855)
5,384
549
2,079
2,756
5,384
135
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24 Operating lease commitments
The Group has entered into commercial leases on certain properties, equipment and aircraft. These leases have durations
ranging from less than one year for aircraft to 130 years for ground leases. Certain leases contain options for renewal.
The aggregate payments, for which there are commitments under operating leases, fall due as follows:
€ million
Within one year
Between one and five years
Over five years
2015
Property,
plant and
equipment
179
384
2,456
3,019
Fleet
778
2,184
1,206
4,168
Total
957
2,568
3,662
7,187
2014
Property,
plant and
equipment
171
325
2,027
2,523
Fleet
712
1,580
934
3,226
Total
883
1,905
2,961
5,749
Sub-leasing
Subleases entered into by the Group relate to surplus rental properties and aircraft assets held under non-cancellable leases
to third parties. These leases have remaining terms of one to 22 years and the assets are surplus to the Group’s requirements.
Future minimum rentals receivable under non-cancellable operating leases are as follows:
€ million
Within one year
Between one and five years
Over five years
2015
Property,
plant and
equipment
8
5
2
15
Fleet
1
–
–
1
2014
Property,
plant and
equipment
12
6
2
20
Total
Fleet
9
5
2
16
2
–
–
2
Total
14
6
2
22
The Group is no longer subject to financial covenants on the operating leases of three Airbus A340-600s.
25 Provisions for liabilities and charges
€ million
Net book value January 1, 2015
Provisions recorded during the year
Acquired through Business combination
Utilised during the year
Release of unused amounts
Unwinding of discount
Exchange differences
Net book value December 31, 2015
Analysis:
Current
Non-current
Restoration
and
handback
provisions Restructuring
Employee
leaving
indemnities
and other
employee
related
provisions
Legal claims
provisions
Other
provisions
771
286
73
(182)
(30)
4
91
1,013
174
839
1,013
895
93
7
(237)
(22)
5
3
744
198
546
744
552
25
67
(24)
(51)
10
–
579
69
510
579
135
147
8
(36)
(19)
1
(1)
235
118
117
235
118
56
3
(77)
(23)
1
5
83
46
37
83
Total
2,471
607
158
(556)
(145)
21
98
2,654
605
2,049
2,654
Restoration and handback provisions
The provision for restoration and handback costs is maintained to meet the contractual return conditions on aircraft held
under operating leases. The provision also included an amount relating to leased land and buildings where restoration costs
are contractually required at the end of the lease. Where such costs arise as a result of capital expenditure on the leased asset,
the restoration costs are capitalised. The provision is a long term provision, typically covering the aircraft lease term.
136
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Restructuring
The Group recognises a provision for targeted voluntary severance schemes previously announced. Part of this provision relates to
a collective redundancy programme, which provides for payments to affected employees until they reach the statutory retirement
age. The amount provided for has been determined by an actuarial valuation made by independent actuaries, and was based on
the same assumptions as those made to determine the provisions for obligations to flight crew below, with the exception of the
discount rate, which in this case was 0.47 per cent. The payments related to this provision will continue over ten years.
In 2014 the Group recognised an additional provision in relation to the restructuring plans at Iberia (note 5). The payments
related to this provision will continue over nine years.
Employee leaving indemnities and other employee related provisions
This provision includes employees leaving indemnities relating to staff under various contractual arrangements.
The Group recognises a provision relating to flight crew who meet certain conditions and therefore have the option of being
placed on reserve and retaining their employment relationship until reaching the statutory retirement age, or taking early
retirement. The Group is required to remunerate these employees until they reach the statutory retirement age, and an initial
provision was recognised based on an actuarial valuation. The provision was reviewed at December 31, 2015 with the use of
independent actuaries using the projected unit credit method, based on a discount rate of 2.08 per cent and a 2 per cent annual
increase in the Consumer Price Index (CPI). This is mainly a long-term provision.
Legal claims provisions
This provision primarily relates to multi-party claims from groups or employees on a number of matters related to its operations,
including claims for additional holiday pay and for age discrimination. Also included are provisions related to investigations by
a number of competition authorities in connection with alleged anti-competitive concerning the Group’s passenger and cargo
businesses and provisions related to tax assessment. The final amount required to pay the remaining claims and fines is subject
to uncertainty.
Following an appeal to the General Court of the European Union, the 2010 European Commission decision on alleged cartel
activity was partially annulled and British Airways was advised that the €104 million fine would be refunded in full. The refund
was received in February 2016. It is not yet clear what the European Commission’s next steps will be. At December 31, 2015, the
Group recognised an asset included in Other current assets and an equal provision, as it is not possible to predict the outcome
of the proceedings.
During the year the Group has recognised a litigation provision of €35 million, which was subsequently paid (note 5).
Other provisions
Other provisions includes:
• Amounts for passengers whose flights were significantly delayed and are entitled to receive compensation. This provision is
largely a current provision and is expected to have amounts both utilised and provided for each year. This provision has been
reassessed based on the historic level of claims;
• A provision for the Emissions Trading Scheme is also included that represents the excess of CO2 emitted on flights within the
EU in excess of the EU Emission Allowances granted; and
• A provision related to unfavourable fleet contracts.
26 Financial risk management objectives and policies
The Group is exposed to a variety of financial risks: market risk (including fuel price risk, foreign currency risk and interest rate
risk), counterparty risk, liquidity risk and capital risk. The Group’s Financial Risk Management programme focuses on the
unpredictability of financial markets and defines the amount of risk that the Group is prepared to retain.
Financial Risk is managed in two tiers under the oversight of the Group treasury department. The first tier comprises fuel price
fluctuations, euro-US dollar volatility and sterling-US dollar volatility which represent the largest financial risks facing the Group.
The Board approves the level of risk retention. The IAG Management Committee approves the hedging levels and the degree
of flexibility in applying the levels that are delegated to the Group Treasury Committee. The Group Treasury Committee meets
monthly and includes representatives from Group treasury, British Airways, Iberia, Vueling and Aer Lingus. The Committee
approves a mandate for British Airways, Iberia, Vueling and Aer Lingus treasury teams to place hedging cover in the market for
their respective companies, the mandate includes the instruments to be used. Second tier risks such as interest rate movements,
emissions and minor currency pairs are managed separately by British Airways, Iberia, Vueling and Aer Lingus under authority
delegated by their Boards to their treasury departments.
137
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Financial risk management objectives and policies continued
a Fuel price risk
The Group is exposed to fuel price risk. The Group’s fuel price risk management strategy aims to provide the Group with
protection against sudden and significant increases in oil prices while ensuring that the Group is not competitively
disadvantaged in the event of a substantial fall in the price of fuel. The current Group strategy, as approved by the IAG
Management Committee, is to hedge:
• between 60 per cent and 100 per cent of fuel consumption for the next quarter;
• an average of 45 per cent between quarters two and five (with an average flexibility of plus 15 per cent/minus 10 per cent);
• up to 30 per cent between quarters six and eight; and
• flexibility to hedge up to 20 per cent in quarters nine to twelve.
The Group Treasury Committee provides a quarterly report on the hedging position to the IAG Management Committee and
the Audit and Compliance Committee. The Board reviews the strategy, including the risk retained, once a year.
Within the strategy, the Financial Risk Management programme allows for the use of a number of derivatives available on
over-the-counter (OTC) markets with approved counterparties.
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in fuel prices, with all
other variables held constant, on the result before tax and equity:
Increase/(decrease)
Effect on result
2015
in fuel price
per cent
30
(30)
before tax
€ million
70
(49)
Effect on
equity
€ million
656
(731)
Increase/(decrease)
Effect on result
2014
in fuel price
per cent
30
(30)
before tax
€ million
(8)
9
Effect on
equity
€ million
972
(989)
b Foreign currency risk
The Group presents its consolidated financial statements in euros, has functional entities in euro and sterling, and conducts
business in a number of different countries. Consequently the Group is exposed to currency risk on revenue, purchases and
borrowings that are denominated in a currency other than the functional currency of the entity. The currencies, in which these
transactions are primarily denominated are euro, US dollar, pound sterling and Japanese yen. The Group generates a surplus
in most currencies in which it does business. The US dollar is an exception as capital expenditure, debt repayments and fuel
purchases denominated in US dollars typically create a deficit.
The Group has a number of strategies to hedge foreign currency risks. The operational US dollar short position is subject to the
same governance structure as the fuel hedging strategy set out above. The current Group strategy, as approved by the IAG
Management Committee, is to hedge between 60 and 80 per cent of the first year’s US dollar short position; between 40 and
60 per cent of the second year’s exposure and up to 30 per cent of the third year’s exposure. The Group Treasury Committee
targets to operate within plus or minus 20 per cent of the policy in years one and two and provides a quarterly report on the
hedging position to the IAG Management Committee and Audit and Compliance Committee. The Board reviews the strategy,
including the risk retained, once a year. Foreign exchange swaps and options are used to implement the strategy.
Operational cash flows in minor currency pairs are hedged by British Airways, Iberia, Vueling and Aer Lingus under the control
of their Boards.
Aircraft operating leases denominated in US dollars are either treated as part of the operational US dollar short position or are
subject to separate cross currency swaps, individually approved by the IAG Management Committee, for the life of the lease.
Iberia’s balance sheet assets and liabilities in US dollars are hedged through a rolling programme of swaps that eliminate the
profit and loss volatility arising from revaluation of these items into euros. British Airways utilises its US dollar, euro and Japanese
yen debt repayments as a hedge of future US dollar, euro and yen revenues. Vueling’s and Aer Lingus’s position in US dollars is
managed using derivative financial instruments.
138
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in the exchange rates,
with all other variables held constant, on result before tax and equity:
Strengthening/
(weakening) in
US dollar rate
per cent
Effect on
result
before tax
€ million
Effect on
equity
€ million
Strengthening/
(weakening) in
pound
sterling rate
per cent
Effect on
result
before tax
€ million
Effect on
equity
€ million
Strengthening/
(weakening) in
Japanese
yen rate
per cent
Effect on
result
before tax
€ million
Effect on
equity
€ million
2015
2014
10
(10)
10
(10)
(2)
2
(1)
–
(72)
117
(136)
115
10
(10)
10
(10)
(43)
43
(1)
1
170
(179)
152
(161)
10
(10)
10
(10)
–
–
(2)
2
(32)
32
(24)
24
Interest rate risk
c
The Group is exposed to changes in interest rates on floating rate debt and on cash deposits.
Interest rate risk on floating rate debt is managed through interest rate swaps, floating to fixed cross currency swaps and interest
rate collars. After taking into account the impact of these derivatives, 79 per cent of the Group’s borrowings were at fixed rates
and 21 per cent were at floating rates.
All cash deposits are on tenors less than one year. The interest rate is predominantly fixed for the tenor of the deposit.
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in the interest rates,
on result before tax and equity:
Strengthening/
(weakening) in
US interest rate
Basis points
Effect on
result
before tax
€ million
Effect on
equity
€ million
Strengthening/
(weakening) in
euro interest
rate
Basis points
Effect on
result
before tax
€ million
Strengthening/
(weakening) in
sterling interest
rate
Basis points
Effect on
result
before tax
€ million
Effect on
equity
€ million
Effect on
equity
€ million
2015
2014
50
(50)
50
(50)
(3)
3
(2)
2
1
(1)
(1)
1
50
(50)
50
(50)
(6)
6
(5)
5
–
–
(5)
5
50
(50)
50
(50)
8
(8)
1
(1)
–
–
1
(1)
d Counterparty risk
The Group is exposed to counterparty risk to the extent of non-performance by its counterparties in respect of financial assets
receivable. The Group has policies and procedures in place to minimise the risk by placing credit limits on each counterparty.
These policies and procedures are coordinated through the Group Treasury Committee. The Committee also reviews the
application of the policies and procedures by British Airways, Iberia, Vueling and Aer Lingus. The Group monitors counterparty
credit limits and defaults of counterparties, incorporating this information into credit risk controls. Treasury activities include
placing money market deposits, fuel hedging and foreign currency transactions, which could lead to a concentration of different
credit risks with the same counterparty. This risk is managed by allocation of exposure limits for the counterparty to British
Airways, Iberia, Vueling and Aer Lingus. Exposures at the activity level are monitored on a daily basis and the overall exposure
limit for the counterparty is reviewed at least monthly in the light of available market information such as credit ratings. Sovereign
risk is also monitored, country concentration and sovereign credit ratings are reviewed at every hedging committee meeting.
Each operating company invests surplus cash in interest-bearing accounts, time deposits, money market deposits, and
marketable securities, choosing instruments with appropriate maturities or liquidity to provide sufficient headroom. At the
reporting date the operating companies held money market funds and other liquid assets that are expected to readily generate
cash inflows for managing liquidity risk.
139
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Financial risk management objectives and policies continued
The financial assets recognised in the financial statements, net of impairment losses, represent the Group’s maximum exposure
to credit risk, without taking account of any guarantees in place or other credit enhancements. The Group does not hold any
collateral to mitigate the exposure, but only transacts with counterparties of sufficient credit rating to reasonably assure the
recoverability of financial assets. Counterparty risks arising from acting as guarantor are disclosed in note 33.
At December 31, 2015 the Group’s credit risk position, allocated by region, in respect of treasury managed cash and derivatives
was as follows:
Region
United Kingdom
Spain
Ireland
Rest of Eurozone
Rest of world
Marked-to-market of treasury controlled
financial instruments allocated by geography
20%
4%
7%
38%
31%
e Liquidity risk
Liquidity risk management includes maintaining sufficient cash and interest-bearing deposits, the availability of funding from
an adequate amount of credit facilities and the ability to close out market positions. Due to the volatile nature of the underlying
business, Group treasury maintains flexibility in funding by maintaining availability under committed credit lines.
At December 31, 2015 the Group had undrawn overdraft facilities of €14 million (2014: €13 million). The Group held undrawn
uncommitted money market lines of €34 million at December 31, 2015 (2014: €32 million). The Group had the following undrawn
general and committed aircraft financing facilities:
Million
Euro facility expiring between February and November 2016
US dollar facility expiring between September and December 2016
US dollar facility expiring December 2021
US dollar facility expiring June 2022
Million
Euro facility expiring between January and November 2015
US dollar facility expiring between January and October 2015
Renminbi facility expiring November 2015
Euro facility expiring January 2016
US dollar facility expiring between September and October 2016
US dollar facility expiring December 2021
2015
Currency
€ equivalent
€137
$1,247
$1,164
$1,750
137
1,146
1,069
1,608
2014
Currency
€ equivalent
€335
$805
RMB 750
€3
$1,153
$1,164
335
655
99
3
937
946
140
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 The following table analyses the Group’s financial liabilities and derivative financial instruments into relevant maturity groupings
based on the remaining period at December 31 to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows and include interest.
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments:
Aircraft lease hedges (asset)
Forward currency contracts (asset)
Fuel derivatives (asset)
Currency options (asset)
Aircraft lease hedges (liability)
Forward currency contracts (liability)
Fuel derivatives (liability)
Currency options (liability)
Hedge of available-for-sale asset
December 31, 2015
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments:
Aircraft lease hedges (asset)
Forward currency contracts (asset)
Fuel derivatives (asset)
Currency options (asset)
Aircraft lease hedges (liability)
Cross currency swaps (liability)
Forward currency contracts (liability)
Fuel derivatives (liability)
Currency options (liability)
Hedge of available-for-sale asset
December 31, 2014
Within 6
months
6 – 12
months
1 – 2
years
2 – 5
years
More than
5 years
Total
2015
(315)
(53)
(62)
(3,442)
1
97
2
11
(1)
(6)
(858)
(2)
1
(371)
(449)
(73)
–
1
86
1
3
(1)
–
(465)
(1)
–
(803)
(89)
(81)
(10)
10
38
–
4
(3)
(2)
(232)
(1)
–
(2,263)
(1,109)
(251)
–
(2,765)
(737)
(207)
–
–
11
–
2
–
(2)
(42)
(1)
–
–
–
–
–
–
–
–
–
–
(4,627)
(1,269)
(1,169)
(3,655)
(3,709)
(6,517)
(2,437)
(674)
(3,452)
12
232
3
20
(5)
(10)
(1,597)
(5)
1
(14,429)
Within 6
months
6 – 12
months
1 – 2 years
2 – 5 years
More than 5
years
Total
2014
(320)
(41)
(48)
(3,017)
7
78
–
14
(1)
–
(1)
(806)
–
(5)
(4,140)
(356)
(53)
(69)
–
7
61
–
10
(1)
–
–
(518)
–
–
(919)
(574)
(441)
(79)
–
11
51
–
4
–
(1)
–
(332)
–
–
(1,361)
(1,889)
(532)
(43)
–
5
2
–
–
–
–
–
–
–
–
(2,457)
(3,100)
(77)
(42)
–
–
–
–
–
–
–
–
–
–
–
(3,219)
(6,239)
(1,144)
(281)
(3,017)
30
192
–
28
(2)
(1)
(1)
(1,656)
–
(5)
(12,096)
141
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Financial risk management objectives and policies continued
f Offsetting financial assets and liabilities
The following financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and
similar agreements.
The Group enters into derivative transactions under master netting agreements. In general, under such agreements the amounts
owed by each counterparty on a single day in respect of all transactions outstanding are aggregated into a single net amount
that is payable by one party to the other. In certain circumstances, for example, when a credit event such as a default occurs,
all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single amount
is payable in settlement of all transactions.
December 31, 2015
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
December 31, 2014
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
Gross value
of financial
instruments
Financial
instruments
that are offset
under netting
agreements
Net amounts
of financial
instruments in the
balance sheet
Related amounts
not set off in the
balance sheet
Net amount
279
(19)
260
1,629
(19)
1,610
(5)
(5)
255
1,605
Gross value
of financial
instruments
Financial
instruments
that are offset
under netting
agreements
Net amounts
of financial
instruments in the
balance sheet
Related amounts
not set off in the
balance sheet
Net amount
263
1,677
(5)
(5)
258
1,672
–
–
258
1,672
g Capital risk management
The Group’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 reduce the cost of capital and to provide returns to shareholders.
The Group monitors capital on the basis of the adjusted net debt to EBITDAR. Net debt comprises the current and non-current
portions of long-term borrowings, less cash and cash equivalents and other current interest-bearing deposits.
As at December 31, 2015, adjusted net debt increased to €8,510 million from €6,081 million at December 31, 2014.
142
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 27 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
€ million
Non-current assets
Available-for-sale financial assets
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Non-current assets held for sale
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
€ million
Non-current liabilities
Interest-bearing long-term borrowings
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Derivative financial instruments
Financial assets
Derivatives
used for
hedging
Loans and
receivables
Available-for-sale
Non-financial
assets
Total carrying
amount
by balance
sheet item
–
–
345
1,196
545
–
–
2,947
2,909
–
62
–
–
–
–
198
–
–
74
–
–
–
–
–
–
–
–
–
–
20
–
690
5
–
–
–
74
62
365
1,196
1,235
5
198
2,947
2,909
Financial liabilities
Loans and
payables
Derivatives
used for
hedging
Non-financial
liabilities
Total carrying
amount
by balance
sheet item
7,498
–
10
1,132
3,442
–
–
282
–
–
–
1,328
–
–
213
–
361
–
7,498
282
223
1,132
3,803
1,328
143
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Financial instruments continued
December 31, 2014
€ million
Non-current assets
Available-for-sale financial assets
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
Non-current assets held for sale
Derivative financial instruments
Other current interest-bearing deposits
Cash and cash equivalents
€ million
Non-current liabilities
Interest-bearing long-term borrowings
Derivative financial instruments
Other long-term liabilities
Current liabilities
Current portion of long-term borrowings
Trade and other payables
Derivative financial instruments
Financial assets
Derivatives
used for
hedging
Loans and
receivables
Available-for-sale
Non-financial
assets
Total carrying
amount
by balance
sheet item
–
–
167
1,252
244
–
–
3,416
1,528
–
80
–
–
–
–
178
–
–
84
–
–
–
–
11
–
–
–
–
–
21
–
358
7
–
–
–
84
80
188
1,252
602
18
178
3,416
1,528
Financial liabilities
Loans and
payables
Derivatives used
for hedging
Non-financial
liabilities
Total carrying
amount
by balance
sheet item
5,904
–
7
713
3,017
–
–
359
–
–
–
1,313
–
–
219
–
264
–
5,904
359
226
713
3,281
1,313
144
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 b Fair value of financial assets and financial liabilities
The Group’s financial instruments are disclosed in hierarchy levels based 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 represent 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 those 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 values of the Group’s interest-bearing borrowings including leases are 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 other investments which are classified as Level 3.
The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2015 are set out below:
€ million
Financial assets
Available-for-sale financial assets
Aircraft lease hedges1
Forward currency contracts1
Fuel derivatives1
Currency option contracts1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Aircraft lease hedges2
Forward currency contracts2
Fuel derivatives2
1 Current portion of derivative financial assets is €198 million.
2 Current portion of derivative financial liabilities is €1,328 million.
Fair value
Level 1
Level 2
Level 3
Total
Carrying
value
Total
9
–
–
–
–
–
2,102
–
–
–
–
–
12
231
3
14
6,117
496
635
5
10
1,595
65
–
–
–
–
–
–
–
–
–
–
74
12
231
3
14
6,117
2,598
635
5
10
1,595
74
12
231
3
14
5,878
2,117
635
5
10
1,595
145
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Financial instruments continued
The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2014 are set out below:
€ million
Financial assets
Available-for-sale financial assets
Aircraft lease hedges1
Forward currency contracts1
Fuel derivatives1
Currency option contracts1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Aircraft lease hedges2
Cross currency swaps2
Forward currency contracts2
Fuel derivatives2
Hedge of available-for-sale asset2
Currency options contracts2
Fair value
Level 1
Level 2
Level 3
Total
Carrying
value
Total
19
–
–
–
–
–
881
11
–
–
–
–
–
–
–
38
191
–
29
5,681
313
262
10
1
1
1,654
5
1
65
–
–
–
–
–
–
–
–
–
–
–
–
–
84
38
191
–
29
5,681
1,194
273
10
1
1
1,654
5
1
84
38
191
–
29
5,384
960
273
10
1
1
1,654
5
1
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
Opening balance for the year
Gains recognised in the Income statement1
Gains recognised in Other comprehensive income2
Settlements
Exchange movements
Closing balance for the year
December 31,
2015
December 31,
2014
65
–
–
(5)
5
65
22
1
48
(7)
1
65
Included in Net credit relating to available-for-sale financial assets in the consolidated Income statement.
1
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 revaluation resulted in a gain of €48 million recognised in Other comprehensive income.
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.
146
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 d Hedges
i Cash flow hedges
Hedge accounting is applied on the following cash flow hedges.
At December 31, 2015 the Group had five principal risk management activities that were designated as hedges of future forecast
transactions. These were:
• A proportion of future revenue receipts in foreign currency and future debt repayments in foreign currency, hedging future
foreign exchange risk;
• Future jet fuel purchases by forward crude, gas oil and jet kerosene derivative contracts hedging future fuel price risk;
• Future aircraft operating lease cash outflows, hedging future foreign currency and interest rate risk with cross currency swaps;
• Certain revenue receipts, hedging future foreign exchange risk with foreign exchange contracts; and
• Certain foreign currency operational payments, hedging future foreign exchange risk with forward currency contracts.
To the extent that the hedges were assessed as highly effective, a summary of the amounts included in equity, the notional
principal amounts and the years to which the related cash flows are expected to occur are summarised below:
December 31, 2015
Financial instruments designated as
hedging instruments
€ million
Debt repayments to hedge future revenue
Forward contracts to hedge future payments
Hedges of future fuel purchases
Hedges of future aircraft operating leases
Currency options to hedge future payments
Related deferred tax credit
Total amount included within equity
December 31, 2015
Million
To hedge future currency revenues in euros
To hedge future currency revenues in pound sterling
To hedge future currency revenues in US dollars
To hedge future operating payments in US dollars
Hedges of future fuel purchases
Cross Currency swaps:
– Floating to fixed (euro)
– Fixed to fixed (euro)
Debt repayments to hedge future revenue:
– US dollars
– Euro
– Japanese yen
– Chinese yuan
Cash flows hedged
Within 6
months
6 – 12
months
1 – 2 years
2 – 5 years
More than
5 years
Total
December 31,
2015
7
(92)
780
1
(8)
688
14
(86)
530
–
(1)
457
33
(36)
206
(7)
(2)
194
26
(9)
32
–
(1)
48
(10)
(3)
–
–
–
(13)
70
(226)
1,548
(6)
(12)
1,374
(298)
1,076
Notional principal amounts
(in local currency)
€160
£76
$54
$3,770
$4,710
€260
€126
$3,061
€1,498
¥41,698
CNY 716
147
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Financial instruments continued
December 31, 2014
Financial instruments designated as
hedging instruments
€ million
Debt repayments to hedge future revenue
Forward contracts to hedge future payments
Hedges of future fuel purchases
Hedges of future aircraft operating leases
Currency options to hedge future payments
Available-for-sale asset hedge1
Related deferred tax credit
Total amount included within equity
December 31, 2014
Million
Cash flows hedged
Within 6
months
6 – 12
months
1 – 2 years
2 – 5 years
More than 5
years
Total
December
31, 2014
15
(87)
751
1
(12)
5
673
7
(71)
605
1
(6)
–
536
15
(62)
369
(1)
(4)
–
317
49
(6)
–
(1)
–
–
42
(45)
–
–
–
–
–
(45)
41
(226)
1,725
–
(22)
5
1,523
(330)
1,193
Notional principal amounts
(in local currency)
To hedge future currency revenues against US dollars
To hedge future operating payments in US dollars
To hedge future operating payments in euros
Hedges of future fuel purchases
Hedges of future share price volatility on available-for-sale assets
Cross currency swaps:
– Floating to fixed (euro)
– Fixed to fixed (euro)
Debt repayments to hedge future revenue:
– US dollars
– Euro
– Japanese yen
$730
$2,928
€325
$4,799
€11
€360
€204
$3,307
€1,130
¥34,335
1 At December 31, 2014 the Group had an investment representing 0.075 per cent of the share capital of Amadeus (note 18). On August 7, 2012 the Group entered into a derivative
transaction with Nomura International Plc (Nomura) on its entire ownership interest in Amadeus. The transaction took the form of a ‘collar’ with two ‘European’ options. During
2014 Iberia entered into an agreement to settle the hedging transaction in equal instalments over a 100 trading day period. At December 31, 2014 Iberia had settled 99 per cent
of the transaction.
At December 31, 2014 the notional principal amount of the cash flow hedge was €11 million. The change in the fair value of the cash flow hedge of €432 million decrease was
accounted for as €43 million decrease directly in equity, net of deferred tax; €387 million release from equity, net of deferred tax to the Income statement (as a result of the
partial settlement); and the time value credit of €2 million recognised in the Income statement.
The ineffective portion recognised in the Income statement during the year on cash flow hedges was a loss of €70 million
(2014: loss of €51 million).
ii. Fair value hedges
The Group has no significant fair value hedges at December 31, 2015 and 2014.
iii. Net investments in foreign operations
The Group has no such hedges at December 31, 2015 and 2014.
148
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 28 Share capital and share premium
Allotted, called up and fully paid
January 1, 2015: Ordinary shares of €0.50 each
December 31, 2015
Number
of shares
000s
Ordinary share
capital
€ million
Share
premium
€ million
2,040,079
2,040,079
1,020
1,020
5,867
5,867
29 Treasury shares
The treasury shares balance consists of shares held directly by the Group. During the year to December 31, 2015, the Group
purchased directly 21.2 million shares at a weighted average share price of €7.70 per share totalling €163 million, which are held
as Treasury shares. 7.7 million shares were issued to employees during the year as a result of vesting of employee share schemes.
At December 31, 2015 the Group held 14.7 million shares, which represented 0.72 per cent of the Issued share capital of the
Company.
30 Share-based payments
The Group operates share-based payment schemes as part of the total remuneration package provided to employees. These
schemes comprise both share option schemes where employees acquire shares at an option price and share award plans
whereby shares are issued to employees at no cost, subject to the achievement by the Group of specified performance targets.
a Share Option Plan
The British Airways Share Option Plan 1999 (SOP) granted options to qualifying employees based on performance at an option
price which was not less than the market price of the share at the date of the grant (or the nominal value if shares are to be
subscribed and this value is greater than the market value). The options are subject to a three year vesting period with the
exception of grants made during the year to March 31, 2005, when there was a single re-test after a further year which measured
performance of British Airways over the four year period from the date of grant. Upon vesting, options may be exercised at any
time until the 10th anniversary of the date of grant. No further grants of options under the SOP have been made since 2005. At
December 31, 2015 there are no awards outstanding.
b Deferred Share Plan
The British Airways Deferred Share Plan 2005 (DSP) was granted to qualifying employees based on performance and service
tests. It will be awarded when an incentive award is triggered subject to the employee remaining in employment with the Group
for three years after the grant date. The relevant population received a percentage of their incentive award in cash and the
remaining percentage in shares through the DSP. The maximum deferral is 50 per cent.
IAG Performance Share Plan
c
In 2011 the Group introduced the IAG Performance Share Plan, granted to senior executives and managers of the Group who are
most directly involved in shaping and delivering business success over the medium to long term. For 2011 to 2014, a conditional
award of shares is subject to the achievement of a variety of performance conditions, which will vest after three years subject to
the employee remaining employed by the Group. From 2015, the award was made as nil-cost options, and also had a two-year
additional holding period after the end of the performance period, before vesting takes place. The awards made between
2012 and 2014 will vest based 50 per cent on achievement of IAG’s TSR performance targets relative to the MSCI European
Transportation Index, and 50 per cent based on achievement of earnings per share targets. The award made in 2015 will vest
based one-third on achievement of IAG’s TSR performance targets relative to the MSCI European Transportation Index, one-
third based on achievement of earnings per share targets, and one-third based on achievement of return on invested capital
targets.
IAG Incentive Award Deferral Plan
d
In 2011 the Group introduced the IAG Incentive Award Deferral Plan (IADP), granted to qualifying employees based on
performance and service tests. It will be awarded when an incentive award is triggered subject to the employee remaining
in employment with the Group for three years after the grant date. The relevant population will receive 50 per cent of their
incentive award up front in cash, and the remaining 50 per cent in shares after three years through the IADP.
149
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
–
42
17
59
–
30 Share-based payments continued
e Share-based payment schemes summary
Share Option Plan
Performance Share Plans
Deferred Share Plans and
Incentive Award Deferral Plans
Outstanding
at January 1,
2015
’000s
942
27,960
5,649
34,551
Granted
number
’000s
–
5,051
1,918
6,969
Lapsed
number
’000s
12
3,539
Exercised
number
’000s
930
11,620
226
933
3,777
13,483
–
17,852
6,408
24,260
Outstanding at
December 31,
2015
’000s
Exercisable at
December 31,
2015
’000s
Weighted average exercise price
of Share Option Plans (£)
2.76
–
2.76
2.76
–
A total of 930,000 (2014: 2,072,000) shares related to the Share Option Plan were exercised at a weighted average market share
price of £5.50 (2014: £4.13).
The fair value of equity-settled share-based payment plans determined using the Monte-Carlo model, taking into account
the terms and conditions upon which the plans were granted, used the following weighted average assumptions:
Weighted average fair value (£)
Expected share price volatility (per cent)
Expected comparator group volatility (per cent)
Expected comparator correlation (per cent)
Expected life of options (years)
Weighted average share price at date of grant (£)
December 31,
2015
December 31,
2014
3.19
30
20
60
2.40
5.50
2.35
35
25
65
3
4.33
Volatility was calculated with reference to the Group’s weekly pound sterling share price volatility. The expected volatility reflects
the assumption that the historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The
fair value of the PSP and the IAG Performance Share Plan also takes into account a market condition of total shareholder returns
as compared to strategic competitors. No other features of share-based payment plans granted were incorporated into the
measurement of fair value.
The Group recognised a share-based payment charge of €35 million for the year to December 31, 2015 (2014: €29 million).
150
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 31 Other reserves and non-controlling interests
Year to December 31, 2015
Other reserves
€ million
January 1, 2015
Retained
earnings
Unrealised
gains and
losses1
Currency
translation2
(234)
(1,086)
319
Profit for the year
1,495
–
Other comprehensive income for the year:
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Investments
Net change in fair value of cash flow hedges
Available-for-sale assets reclassified
and reported in net profit
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-employment
benefit obligations
Cost of share-based payments
Vesting of share-based payment schemes
Equity portion of convertible bond issued
Dividend
Dividend of a subsidiary
Distributions made to holders
of perpetual securities
December 31, 2015
–
–
–
–
–
–
–
–
156
45
(99)
–
(203)
–
–
1,160
14
1,474
(202)
4
(1,104)
(5)
(9)
–
–
–
–
–
–
–
–
(914)
500
–
–
–
–
–
–
–
–
181
–
–
–
–
–
–
–
Equity
portion of
convertible
bond3
72
–
–
–
–
–
–
–
–
–
–
–
–
101
–
–
–
173
Merger
reserve4
Total other
reserves
Non-
controlling
interests5
(2,467)
(3,396)
308
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,467)
1,495
21
14
1,474
(202)
4
(1,104)
(5)
(9)
181
156
45
(99)
101
(203)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(1,548)
(20)
308
151
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 Other reserves and non-controlling interests continued
Year to December 31, 2014
Other reserves
Retained
earnings
Unrealised
gains and
losses1
Currency
translation2
(814)
982
122
–
151
–
Equity
portion of
convertible
bond3
72
–
€ million
January 1, 2014
Profit for the year
Other comprehensive income for the year:
Cash flow hedges reclassified
and reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Investments
Net change in fair value of cash flow hedges
Available-for-sale assets reclassified and
reported in net profit
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-employment
benefit obligations
Cost of share-based payments
Vesting of share based payments
Distributions made to holders
of perpetual securities
December 31, 2014
–
–
–
–
–
–
–
–
(394)
38
(46)
–
(234)
5
47
34
271
(1,235)
(359)
29
–
–
–
–
–
(1,086)
–
–
–
–
–
–
–
168
–
–
–
–
319
Merger
reserve4
Total other
reserves
(2,467)
(2,936)
–
–
–
–
–
–
–
–
–
–
–
–
982
5
47
34
271
(1,235)
(359)
29
168
(394)
38
(46)
Non-
controlling
interests5
307
21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
72
–
(2,467)
–
(3,396)
(20)
308
1 The unrealised gains and losses reserve records fair value changes on available-for-sale investments and the portion of the gain or loss on a hedging instrument in a cash flow
hedge that is determined to be an effective hedge.
2 The currency translation reserve records exchange differences arising from the translation of the financial statements of foreign subsidiaries and associates.
3 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2014, this related to the €390 million fixed rate 1.75
per cent convertible bond, and at December 31, 2015 it also related to the €500 million fixed rate 0.25 per cent convertible bond and the €500 million fixed rate 0.625 per cent
convertible bond (note 23).
4 The merger reserve records the difference between the fair value of the shares acquired and the nominal value of the shares issued from the original merger of British Airways
and Iberia.
5 Non-controlling interests largely comprise €300 million of 6.75 per cent fixed coupon euro perpetual preferred securities issued by British Airways Finance (Jersey) LP.
The holders of these securities have no rights against Group undertakings other than the issuing entity and, to the extent prescribed by the subordinated guarantee,
British Airways Plc. In the event of a dividend paid by the Company, the coupon payment is guaranteed. The effect of the securities on the Group as a whole, taking into
account the subordinate guarantee and other surrounding arrangements, is that the obligations to transfer economic benefits in connection with the securities do not go
beyond those that would normally attach to preference shares issued by a UK company.
152
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 32 Employee benefit obligations
The Group operates a variety of post-employment benefit arrangements, covering both defined contribution and defined
benefit schemes. The Group also has a scheme for flight crew who meet certain conditions and therefore have the option
of being placed on reserve and retaining their employment relationship until reaching the statutory retirement age, or taking
early retirement (note 25).
Defined contribution schemes
The principal defined contribution schemes within the Group are in IAG, British Airways, Iberia and Aer Lingus.
Aer Lingus participates in the Irish Airlines Superannuation Schemes. These schemes are treated as defined contribution
schemes as there is no obligation, legal or constructive to increase its contributions.
Total employer contributions to defined contribution pension plans in Spain, UK and Ireland for the year to December 31, 2015
were €108 million (2014: €82 million).
Defined benefit schemes
The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (APS) and the
New Airways Pension Scheme (NAPS), both of which are in the UK and are closed to new members. APS has been closed
to new members since 1984 and NAPS closed to new members in 2003.
Benefits provided under APS are based on final average pensionable pay and, for the majority of members, are subject to
inflationary increases in payment in line with the Annual Review Orders (ARO) issued by the British Government, which is based
on the Consumer Price Index (CPI). Benefits provided under NAPS are based on final average pensionable pay reduced by an
amount (the abatement) not exceeding one and a half times the Government’s lower earnings limit. NAPS pension increases are
also linked to the ARO and increases are capped at a maximum of five per cent in any one year. In NAPS, annual pensionable
pay increases for active members are capped at RPI.
The Trustees of APS have purported to grant an additional discretionary increase above CPI inflation for the 2013/14 pensions in
payment. British Airways has challenged the decision as it considers the Trustees have no power to grant such increases and it
is concerned about the actuarial funding position of the scheme. British Airways is also concerned about the residual unhedged
risk in the scheme, which will be increased by the addition of new unfunded benefits, to which British Airways may ultimately be
exposed as the principal employer and sponsor of the scheme. British Airways is committed to an existing recovery plan, which
sees deficit payments of €75 million per annum until March 2023. Legal proceedings, initiated by British Airways, are underway
to determine the legitimacy of the additional discretionary increase. This discretionary increase has not been reflected in the
accounting assumptions used.
APS and NAPS are governed by separate Trustee Boards. Although separate, much of the business of the two schemes is
common. Most main Board and committee meetings are held in tandem although each Trustee Board reaches its decisions
independently. There are three committees which are separately responsible for the governance, operation and investments of
each scheme. British Airways Pension Trustees Limited holds the assets of both schemes on behalf of their respective Trustees.
Deficit payment plans are agreed with the Trustees of each scheme every three years based on the actuarial valuation (triennial
valuation) rather than the IAS 19 accounting valuation. The latest deficit recovery plan was agreed on the March 31, 2012 position
(note 32i). The actuarial valuations performed at March 31, 2012 are different to the valuation performed under IAS 19 ‘Employee
benefits’ at December 31, 2015 mainly due to timing differences of the measurement dates and to the scheme specific
assumptions used in the actuarial valuation versus IAS guidance used in the accounting valuation assumptions, notably the
discount rate to calculate the present value of the liabilities.
The defined benefit plans expose the Group to risks, such as longevity risk, interest rate risk, market (investment) risk and
currency risk.
Most employees of British Airways engaged outside the UK are covered by appropriate local arrangements. British Airways
provides certain additional post-retirement healthcare benefits to eligible employees in the US through the US Post-Retirement
Medical Benefit plan (US PRMB) which is considered to be a defined benefit scheme.
During the year the Group acquired the Aer Lingus defined benefit pension scheme (net defined benefit liability at the
acquisition date of €8 million).
Cash payments to pension schemes comprise normal employer contributions by the Group; deficit contributions based on the
agreed deficit payment plan with APS and NAPS; and cash sweep payments relating to additional payments made conditional
on the level of cash in British Airways. Total payments for the year to December 31, 2015 net of service costs were €434 million
(2014: €409 million) being the employer contributions of €699 million (2014: €612 million) less the current service cost of €265
million (2014: €203 million) (note 32b).
153
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
32 Employee benefit obligations continued
a Employee benefit schemes recognised on the Balance sheet
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2015
Represented by:
Employee benefit assets
Employee benefit obligations
€ million
Scheme assets at fair value
Present value of scheme liabilities
Net pension asset/(liability)
Effect of the asset ceiling2
Other employee benefit obligations
December 31, 2014
Represented by
Employee benefit assets
Employee benefit obligations
APS
9,916
(8,405)
1,511
(561)
–
950
2015
NAPS
17,997
(18,460)
(463)
–
–
(463)
Other1
429
(805)
(376)
–
(12)
(388)
Total
28,342
(27,670)
672
(561)
(12)
99
957
(858)
99
APS
9,542
(8,191)
1,351
(502)
–
849
2014
NAPS
16,201
(17,134)
(933)
–
–
(933)
Other1
Total
424
(795)
(371)
–
(14)
(385)
26,167
(26,120)
47
(502)
(14)
(469)
855
(1,324)
(469)
1 The present value of scheme liabilities for the US PRMB was €62 million at December 31, 2015 (2014: €83 million).
2 APS has an accounting surplus under IAS 19, which would be available to the Group as a refund upon wind up of the scheme. This refund is restricted due to withholding taxes
that would be payable by the trustees.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
€ million
Defined benefit plans:
Current service cost
Past service cost
Defined contribution plans
Pension costs recorded as employee costs
Pension costs charged as finance costs are:
€ million
Interest income on scheme assets
Interest expense on scheme liabilities
Interest expense on asset ceiling
Net financing expense relating to pensions
154
2015
2014
265
(1)
264
108
372
203
–
203
82
285
2015
(1,031)
1,024
19
12
2014
(1,058)
1,051
11
4
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 c Remeasurements recognised in the Statement of other comprehensive income
€ million
Return on plan assets excluding interest income
Remeasurement of plan liabilities from changes in financial assumptions
Remeasurement of experience gains
Remeasurement of the APS asset ceiling
Exchange movements
Pension remeasurements
d Fair value of scheme assets
A reconciliation of the opening and closing balances of the fair value of scheme assets is set out below:
€ million
January 1
Acquired through Business combination
Interest income
Return on plan assets excluding interest income
Employer contributions1
Employee contributions
Benefits paid
Exchange movements
December 31
2015
(462)
498
183
–
(12)
207
2015
26,167
13
1,031
(462)
684
114
(1,276)
2,071
28,342
2014
1,338
(1,837)
171
(232)
(17)
(577)
2014
22,481
–
1,058
1,338
596
106
(944)
1,532
26,167
1
Includes employer contributions to APS of €120 million (2014: €83 million) and to NAPS of €535 million (2014: €489 million), of which deficit funding payments represented
€110 million for APS (2014: €75 million) and €389 million for NAPS (2014: €229 million).
Scheme assets at December 31 comprise:
€ million
Return seeking investments – equities
UK
Overseas
Return seeking investments – other
Private equity
Property
Alternative investments
Liability matching investments
UK fixed bonds
Rest of world fixed bonds
UK index-linked bonds
Rest of world index-linked bonds
Other
Cash and cash equivalents
Derivatives
Insurance contract
Longevity swap
Other
All equities and bonds have quoted prices in active markets.
2015
2014
2,724
7,112
9,836
882
2,142
1,224
4,248
3,949
118
6,650
124
10,841
1,174
(114)
1,928
(40)
469
28,342
2,499
6,467
8,966
769
1,812
928
3,509
3,578
205
6,212
139
10,134
1,336
(255)
1,867
(47)
657
26,167
155
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
32 Employee benefit obligations continued
For APS and NAPS, the composition of the scheme assets is:
€ million
Return seeking investments
Liability matching investments
Insurance contract and related longevity swap
Other
Fair value of scheme assets
December 31, 2015
December 31, 2014
APS
1,721
6,103
7,824
1,862
230
9,916
NAPS
12,169
4,616
16,785
–
1,212
17,997
APS
1,713
5,661
7,374
1,798
370
9,542
NAPS
10,552
4,367
14,919
–
1,282
16,201
For both APS and NAPS, the trustees have ultimate responsibility for decision making on investments matters, including the
asset-liability matching strategy. The latter is a form of investing designed to match the movement in pension plan assets with
the movement in the projected benefit obligation over time. The trustees’ investment committee adopts an annual business plan
which sets out investment objectives and work required to support achievement of these objectives. The committee also deals
with the monitoring of performance and activities, including work on developing the strategic benchmark to improve the risk
return profile of the scheme where possible, as well as having a trigger based dynamic governance process to be able to take
advantage of opportunities as they arise. The investment committee reviews the existing investment restrictions, performance
benchmarks and targets, as well as continuing to develop the de-risking and liability hedging portfolio.
The strategic benchmark for asset allocations differentiate between ‘return seeking assets’ and ‘liability matching assets’.
Given the respective maturity of each scheme, the proportion for APS and NAPS vary. At December 31, 2015, the benchmark
for APS, expressed as a percentage of the assets excluding the insurance contract, was 18.7 per cent (2014: 21.2 per cent) in
return seeking assets and 81.3 per cent (2014: 78.8 per cent) in liability matching investments; and for NAPS the benchmark
was 68 per cent (2014: 68 per cent) in return seeking assets and 32 per cent (2014: 32 per cent) in liability matching investments.
Bandwidths are set around these strategic benchmarks that allow for tactical asset allocation decisions, providing parameters
for the investment committee and its investment managers to work within.
In addition to this, APS has an insurance contract with Rothesay Life which covers 24 per cent (2014: 24 per cent) of the
pensioner liabilities for an agreed list of members. The insurance contract is based on future increases to pensions in line with
RPI inflation and will match future obligations on that basis for that part of the scheme. The insurance contract can only be
used to pay or fund employee benefits under the scheme. APS has also secured a longevity swap contract with Rothesay Life,
which covers an additional 20 per cent (2014: 20 per cent) of the pensioner liabilities for the same members covered by the
insurance contract above. The value of the contract is based on the difference between the value of the payments expected
to be received under this contract and the pensions payable by the scheme under the contract.
The fair value of insurance policies which exactly match the amount and timing of some or all benefits payable under the
scheme are deemed to be the present value of the related obligations. Longevity swaps are measured at their fair value.
Both schemes use derivative instruments for investment purposes and to manage exposures to financial risks, such as interest
rate, foreign exchange and liquidity risks arising in the normal course of business. Exposure to interest rate risk is managed
through the use of Inflation-Linked Swap contracts. Foreign exchange forward contracts are entered into to mitigate the risk
of currency fluctuations. For NAPS, a strategy exists to provide protection against the equity market downside risk by reducing
some of the upside participation.
The asset-liability matching strategy in respect of the Group’s other schemes have been determined in accordance with local practice.
156
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 e Present value of scheme liabilities
A reconciliation of the opening and closing balances of the present value of the defined benefit obligations is set out below:
€ million
January 1
Acquired though Business combination
Current service cost
Past service cost
Interest expense
Remeasurements – financial assumptions
Remeasurements – demographic assumptions
Benefits paid
Employee contributions
Exchange movements
December 31
2015
26,120
21
265
(1)
1,024
(498)
(183)
(1,276)
114
2,084
27,670
2014
22,485
–
203
–
1,051
1,837
(171)
(944)
106
1,553
26,120
The defined benefit obligation comprises €79 million (2014: €95 million) arising from unfunded plans and €27,591 million
(2014: €26,025 million) from plans that are wholly or partly funded.
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling representing the IAS19 irrecoverable surplus in APS is set out below:
€ million
January 1
Interest expense
Remeasurements
Exchange movements
December 31
2015
502
19
–
40
561
2014
236
11
232
23
502
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Per cent per annum
Discount rate
Rate of increase in pensionable pay1
Rate of increase of pensions in payment
RPI rate of inflation2
CPI rate of inflation2
2015
2014
APS
3.60
2.85
1.85
2.85
1.85
NAPS
Other
schemes
3.85
2.1 – 4.4
3.00 3.0 – 4.0
1.5 – 3.5
2.00
3.00 3.0 – 3.2
1.7 – 3.0
2.00
APS
3.45
2.85
1.85
2.85
1.85
NAPS
3.80
2.95
1.95
2.95
1.95
Other
schemes
3.4 – 4.1
3.5 – 4.0
1.5 – 3.5
3.0 – 3.1
2.1 – 3.0
1 Rate of increase in pensionable pay is assumed to be in line with the RPI rate of inflation.
2 The inflation rate assumptions for NAPS and APS are based on the difference between the yields on index-linked and fixed-interest long-term government bonds.
The inflation assumptions are used to determine the rate of increase for pensions in payment and the rate of increase in deferred pensions where there is such an increase.
Rate of increase in healthcare costs is based on medical trend rates of 7.0 per cent grading down to 5.0 per cent over nine years
(2014: 7.5 per cent to 5.0 per cent over five years).
157
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
32 Employee benefit obligations continued
In the UK, mortality rates are calculated using the standard SAPS mortality tables produced by the CMI for APS and NAPS.
The standard mortality tables were selected based on the actual recent mortality experience of members and were adjusted
to allow for future mortality changes. The current longevities underlying the values of the scheme liabilities were as follows:
Mortality assumptions
Life expectancy at age 60 for a:
– male currently aged 60
– male currently aged 40
– female currently aged 60
– female currently aged 40
2015
2014
28.3
29.9
29.9
32.3
28.3
29.8
29.8
32.3
At December 31, 2015, the weighted-average duration of the defined benefit obligation was 12 years for APS (2014: 12 years)
and 19 years for NAPS years (2014: 19 years).
For the US PRMB, mortality rates were based on the RP-14 mortality tables.
h Sensitivity analysis
Reasonable possible changes at the reporting date to significant actuarial assumptions, holding other assumptions constant,
would have affected the present value of scheme liabilities by the amounts shown:
€ million
Discount rate (decrease of 10 basis points)
Future salary growth (increase of 10 basis points)
Future pension growth (increase of 10 basis points)
Future mortality rate – one year increase in life expectancy
Increase in net pension liability
448
84
330
785
Although the analysis does not take into account the full distribution of cash flows expected under the plan, it does provide
an approximation of the sensitivity of the assumptions shown.
i Funding
Pension contributions for APS and NAPS were determined by actuarial valuations made at March 31, 2012 using assumptions
and methodologies agreed between the Group and the Trustees of each scheme. At the date of the actuarial valuation, the
actuarial deficits of APS and NAPS amounted to €932 million and €3,647 million respectively. In order to address the deficits
in the schemes, the Group has also committed to the following undiscounted deficit payments:
€ million
Within 12 months
2-5 years
5-10 years
More than 10 years
Total expected deficit payments for APS and NAPS
APS
75
302
170
–
547
NAPS
206
1,091
1,935
107
3,339
The Group has determined that the minimum funding requirements set out above for APS and NAPS will not be restricted.
The present value of the contributions payable is expected to be available as a refund or a reduction in future contributions
after they are paid into the plan. This determination has been made independently for each plan, subject to withholding taxes
that would be payable by the Trustees.
Deficit payments in respect of local arrangements outside of the UK have been determined in accordance with local practice.
In total, the Group expects to pay €576 million in employer contributions and deficit payments to its post-retirement benefit
plans in 2016. This includes expected employer contributions of €84 million to APS (of which €75 million relates to the funding
shortfall) and €466 million to NAPS (of which €206 million relates to the funding shortfall). This excludes any additional deficit
contributions which may be required if British Airways declares dividends in future years in excess of payments into the scheme
for that year.
158
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 33 Contingent liabilities and guarantees
There were contingent liabilities at December 31, 2015 in respect of guarantees and indemnities entered into as part of the
normal course of the Group’s business. No material losses are likely to arise from such contingent liabilities and guarantees.
The Group also has 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 are 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.
Tax
The Group files income tax returns in many jurisdictions throughout the world. Various tax authorities are currently examining the
Group’s income tax returns. Tax returns contain matters that could be subject to differing interpretations of applicable tax laws
and regulations and the resolution of tax positions through negotiations with relevant tax authorities, or through litigation, can
take several years to complete. While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate
that there will be any material impact on the Group’s financial position or results of operations.
Other
The Group has certain contingent liabilities and guarantees, which at December 31, 2015 amounted to €172 million (December 31,
2014: €138 million).
The Group has contingent liabilities in respect of certain claims and litigation in the normal course of business, which if realised
are not expected to have a material adverse effect on the Group’s consolidated financial position, results of operations or cash
flows. The Group recognises provisions for liabilities when it is more likely than not that a settlement will be required and the
value of such a payment can be reliably measured.
34 Related party transactions
The following transactions took place with related parties for the financial years to December 31:
Sales and purchases of goods and services
€ million
Sales of goods and services
Sales to associates
Sales to significant shareholders
Purchases of goods and services
Purchases from associates
Purchases from significant shareholders
2015
2014
8
29
57
61
16
–
59
–
159
FINANCIAL STATEMENTS www.iairgroup.com NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
34 Related party transactions continued
€ million
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
2015
2014
3
1
3
4
6
–
6
–
During the year to December 31, 2015 British Airways met certain costs of administering its retirement benefit plans, including
the provision of support services to the Trustees. Costs borne on behalf of the retirement benefit plans amounted to €7 million
(2014: €6 million) in relation to the costs of the Pension Protection Fund levy.
In 2012 the Group entered into a hedging transaction at arm’s length with Nomura International plc, a related party to IAG as
there is a common Non-Executive Board member. The transaction was a risk management exercise to protect the value of the
33,562,331 ordinary shares that the Group holds in Amadeus. During the third quarter of 2014, the Group entered into an
agreement to settle the hedging transaction over its ownership interest in Amadeus and sell its entire holding. At December 31,
2014 the Group had settled 99 per cent of the transaction, and the remaining 1 per cent was settled in January 2015.
The Group has transactions with related parties that are conducted in the normal course of the airline business, which include
the provision of airline and related services. All such transactions are carried out on an arm’s length basis.
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).
Further details of the main transactions between the Group, associates and significant shareholders are provided below.
Associates
Total sales to associates of €8 million during the year (2014: €16 million) consisted primarily of sales for airline related services to
Dunwoody Airline Services (Holding) Limited (Dunwoody) of €8 million (2014: €12 million) and an amount of less than €1 million
(2014: €2 million) to Sociedad Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A. (Medios de Pagos).
Purchases from associates totalling €57 million (2014: €59 million) mainly included €29 million of airport auxiliary services
purchased from Multiservicios Aeroportuarios, S.A. (2014: €26 million), €10 million of handling services provided by Dunwoody
(2014: €11 million), €8 million of services received from International Supply Management, S.L. (2014: €7 million), €7 million of
maintenance services received from Serpista, S.L. (2014: €7 million) and €3 million of services received from Iber-America
Aerospace, LLC (2014: nil). The comparative year included €5 million of maintenance services received from Madrid Aerospace
Services, S.L.
The Group had amounts owed by associates at December 31, 2015 for airline related services rendered, that included balances
with Dunwoody of €1 million (2014: €1 million), Madrid Aerospace Services, S.L. of €1 million (2014: €1 million) and Medios de
Pagos of €1 million (2014: €1 million).
At December 31, 2015 amounts owed to associates consisted primarily of €1 million due to Dunwoody (2014: €1 million), €1 million
to Serpista, S.A. (2014: €1 million) and an amount of less than €1 million to Multiservicios Aeroportuarious, S.A. (2014: €3 million).
160
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Significant shareholders
In this instance, significant shareholders are those parties who have the power to participate in the financial and operating
policy decisions of the Group, as a result of their shareholdings in the Group, but who do not have control over these policies.
On January 30, 2015 Qatar Airways (Q.C.S.C.) announced that it has acquired a 9.99 per cent shareholding in IAG.
Total sales to significant shareholders of €29 million during the year (2014: nil), and total purchases of €61 million (2014: nil)
related to interline services with Qatar Airways.
The Group had amounts owed to significant shareholders of €4 million (2014: nil) and owed by significant shareholders of less
than €1 million at December 31, 2015 (2014: nil), both related to Qatar Airways.
At December 31, 2015 the Group had cash deposit balances with shareholders holding a participation of between 3 to 5 per cent,
of €48 million (2014: €65 million).
Board of Directors and Management Committee remuneration
Compensation received by the Group’s key management personnel, which includes the Board of Directors and Management
Committee, in 2015 and 2014 is as follows:
€ million
Base salary, fees and benefits
Board of Directors’ remuneration
Management Committee remuneration
December
31, 2015
December
31, 2014
15
22
37
13
18
31
The Board of Directors includes remuneration for two Executive Directors (2014: two Executive Directors).
The Management Committee includes remuneration for nine members (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 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).
161
FINANCIAL STATEMENTS www.iairgroup.com SPANISH CORPORATE
GOVERNANCE
REPORT
According to the provisions of Article 540 of the Spanish Companies Act, the Company
presents the Spanish Corporate Governance Report, which provides a detailed
explanation of the structure of its governance and its operation. This report has been
prepared following the model established by the Comisión Nacional del Mercado de
Valores for this purpose.
In this section
163 A Ownership structure
167 B Shareholders’ meeting
168 C Company management structure
194 D Related–party and intragroup transactions
196 E Risk control and management systems
200 F
Internal Control over Financial Reporting (ICFR)
211 G Degree of compliance with
Corporate governance recommendations
220 H Other information of interest
162
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2015
A.
A.1
OWNERSHIP STRUCTURE
Complete the following table on the company’s share capital:
Date of last modification
October 7, 2013
Share capital (€)
1,020,039,261.50
Number of shares
2,040,078,523
Number of
voting rights
2,040,078,523
Indicate whether different types of shares exist with different associated rights:
No
Type
A.2
Number of shares
Nominal
amount
Nominal amount of voting
rights
Other rights
List the direct and indirect holders of significant ownership interests in your company at year-end,
excluding directors:
Name or corporate name of
shareholder
Number of direct
voting rights
Name of direct holder
Number of voting rights
Indirect voting rights
Qatar Airways (Q.C.S.C.)
0 Qatar Airways Luxembourg
203,863,316
% of total
voting rights
9.993%
Standard Life Investments
(Holdings) Limited
Europacific Growth Fund
Capital Research and
Management Company
BlackRock Inc.
Legal & General
Investment Management
Limited
Lansdowne Partners
International Limited
Invesco Limited
S.à.r.l.
60,639,188 Standard Life Investments
61,942,109
6.008%
Limited and Ignis
Investment Services
Limited
107,329,400 –
0 Collective investment
institutions managed by
Capital Research and
Management Company
0 Funds and accounts
managed by investors
controlled by BlackRock
Inc.
0
102,997,951
5.261%
5.049%
61,696,340
3.024%
54,407,837 Legal & General (Unit Trust
11,611,554
Managers) Limited
0 Funds and accounts
managed by Lansdowne
Partners (UK) LLP.
0 Mutual benefit societies
and pension funds
managed by Invesco
Limited and its subsidiaries
36,869,133
22,064,264
3.236%
1.807%
1.082%
163
FINANCIAL STATEMENTS www.iairgroup.comSPANISH CORPORATE GOVERNANCE REPORT SPANISH CORPORATE GOVERNANCE REPORT CONTINUED
Indicate the most significant movements in the shareholder structure during the year:
Name or corporate name of shareholder
Causeway Capital Management, LLC
Templeton Global Advisors Limited
BlackRock Inc.
Qatar Airways (Q.C.S.C.)
Qatar Airways (Q.C.S.C.)
BlackRock Inc.
BlackRock Inc.
BlackRock Inc.
Lansdowne Developed Markets Master Fund Ltd.
BlackRock Inc.
BlackRock Inc.
Date of the transaction
January 14, 2015
January 19, 2015
January 23, 2015
January 23, 2015
January 27, 2015
February 27, 2015
March 20, 2015
April 29, 2015
September 21, 2015
December 3, 2015
December 4, 2015
Description of the transaction
Decrease to below 3% of the share capital
Decrease to below 3% of the share capital
Decrease to below 3% of the share capital
Increase to above 3% of the share capital
Increase to above 5% of the share capital
Increase to above 3% of the share capital
Decrease to below 3% of the share capital
Increase to above 3% of the share capital
Decrease to below 1% of the share capital
Decrease to below 3% of the share capital
Increase to above 3% of the share capital
A.3
Complete the following tables on company directors holding voting rights through company shares:
Name or corporate
name of director
Antonio Vázquez
Sir Martin
Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy
de Lôme
Baroness
Kingsmill
James Lawrence
María Fernanda
Mejía
Kieran Poynter
Dame Marjorie
Scardino
Alberto Terol
Number of direct
Indirect voting rights
voting rights
Name of direct holder
Number of voting rights
512,291 –
155,365 Jocelyn Broughton
1,243,219 –
1,000,000 –
0 –
301,869 –
2,000 –
326,500 –
100 –
0 –
100 –
9,200 –
–
19,545
–
–
–
–
–
–
–
–
–
–
% of total voting rights held by the Board of Directors:
% of total
voting rights
0.025%
0.009%
0.061%
0.049%
0.000%
0.015%
0.000%
0.016%
0,000%
0.000%
0.000%
0.000%
0.175%
Complete the following tables on company’s share rights held by the company’s directors:
Name or corporate
name of director
Willie Walsh
Enrique Dupuy de
Lôme
Number of
Indirect rights
Number of
direct rights
Direct holder
Number of voting rights
equivalent shares
% of total voting rights
1,673,512 –
662,613 –
–
–
1,673,512
0. 082%
662,613
0. 032%
164
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 A.4
Indicate, as applicable, any family, commercial, contractual or corporate relationships between owners of significant
shareholdings, insofar as these are known by the company, unless they are insignificant or arise from ordinary
trading or exchange activities:
Brief description
–
Related-party name or corporate name
Type of relationship
–
–
A.5
Indicate, as applicable, any commercial, contractual or corporate relationships between owners of significant
shareholdings, and the company and/or its group, unless they are insignificant or arise from ordinary trading or
exchange activities:
Related-party name or corporate name
Type of relationship
BlackRock Investment
Management (UK) Ltd.
Commercial
Qatar Airways (Q.C.S.C.)
Commercial
Brief description
Cash deposits invested as part of
liquidity fund portfolio
Cargo capacity agreement, passenger
codeshares and interline agreement
Indicate whether the company has been notified of any shareholders’ agreements pursuant to articles 530 and 531
of the Spanish Companies Law. Provide a brief description and list the shareholders bound by the agreement, as
applicable:
A.6
No
Parts bound by agreement
% of share capital affected
Brief description of agreement
–
–
–
Indicate whether the company is aware of the existence of any concerted actions among its shareholders. Give a brief
description as applicable:
No
Shareholders involved in concerted action
% of share capital affected
Brief description of concerted action
–
–
–
Expressly indicate any amendments to or termination of such agreements or concerted actions during the year:
Not applicable
Indicate whether any individuals or bodies corporate currently exercise control or could exercise control over the
company in accordance with article 5 of the Securities Market Law: If so, identify:
A.7
No
Name or corporate name
–
Remarks
–
Complete the following tables on the company’s treasury stock:
A.8
At year-end:
Number of shares held directly
Number of shares held indirectly (*)
14,684,018
(*) Through:
0
% of total share capital
0.720%
Name or corporate name of direct stake
Number of shares held directly
–
Total
Explain any significant changes during the year, pursuant to Royal Decree 1362/2007:
Explanation of significant changes
Date of
notification
07/31/2015
Total number of direct
shares acquired
21,548,242
Total number of indirect
shares acquired
0
–
–
% of total
share capital
1.056
165
FINANCIAL STATEMENTS www.iairgroup.com SPANISH CORPORATE GOVERNANCE REPORT CONTINUED
A.9
Give details of the applicable conditions and time periods governing any resolutions of the Shareholders’ Meeting
to issue, buy back and/or transfer treasury stock.
The Annual Shareholders’ Meeting of International Consolidated Airlines Group, S.A. (“IAG” or the “Company”) held on June 18,
2015, granted authorisation to the Board of Directors for the derivative acquisition of shares of the Company in the context of the
provisions of article 146 of the Spanish Companies Law, according to the applicable laws and subject to the following conditions:
a)
b)
c)
d)
e)
The acquisitions may be made directly by IAG or indirectly through its subsidiaries.
The acquisitions shall be made through purchase and sale, exchange or any other transaction permitted
by the law.
The maximum aggregate number of shares which are authorised to be purchased is the lower of the maximum
amount permitted by the law and the number as represents 10 per cent of the share capital of IAG as at the
date of passing the resolution, that is, June 18, 2015.
The minimum price which may be paid for a share is zero.
The maximum price which may be paid for a share is the highest of:
i)
ii)
an amount equal to 5 per cent above the average of the middle market quotations for the shares as
taken from the relevant stock exchange for the five business days immediately preceding the day on
which the transaction is performed; and
the higher of the price of the last independent trade and the highest current independent bid on the
trading venues where the transaction is carried out at the relevant time;
in each case, exclusive of expenses.
f)
The authorisation is granted for a term ending at 2016 annual Shareholders’ Meeting (or if earlier, 15 months
from June 18, 2015).
The resolution of the Shareholders’ Meeting, places expressly on record that for the purposes of provisions of article 146 of the
Spanish Companies Law, the shares acquired pursuant to the authorisation may be delivered directly to the employees or
directors of the Company or its subsidiaries, or as a result of the exercise of option rights held thereby.
A.9 bis Estimated floating capital
Estimated floating capital
%
63.64
Give details of any restriction on the transfer of securities or voting rights. Indicate, in particular, the existence of
any restrictions on the takeover of the company by means of share purchases on the market
A.10
Yes
Description of restrictions
The Bylaws establish a series of special obligations concerning disclosure of share ownership as well as certain limits on
shareholdings, taking into account the ownership and control restrictions provided for in applicable legislation and bilateral air
transport treaties signed by Spain and the UK.
Disclosure obligations
In accordance with article 7.2 b) of the Bylaws, shareholders must notify the Company of any acquisition or disposal of shares or
of any interest in the shares of the Company that directly or indirectly entails the acquisition or disposal of a stake equal to or of
over 0.25 per cent of the Company’s capital, or of the voting rights corresponding thereto, as well as the creation of any charges
on shares (or interests in shares) or other encumbrances whatsoever, for the purposes of the exercise of the rights conferred
by them.
In addition, in accordance with article 10.1 of the Bylaws, the Company may require any shareholder or any other person with a
confirmed or apparent interest in shares of the Company to disclose to the Company in writing such information as the
Company shall require relating to the beneficial ownership of or any interest in the shares in question, as lies within the
knowledge of such shareholder or other person, including any information that the Company deems necessary or desirable in
order to determine the nationality of the holders of said shares or other person with an interest in the Company’s shares, or
whether it is necessary to take steps in order to protect the operating rights of the Company or its operating affiliates or for any
other reason in relation to the potential application of article 11 of the Bylaws (Limitation on share ownership).
166
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015
In the event of the breach of these obligations by a shareholder or any other person with a confirmed or apparent interest in the
Company’s shares, the Board of Directors may suspend at any time the voting and other political rights of the relevant person in
respect of the shares in relation to which the default has occurred and the relevant shareholder will not be entitled to exercise
any voting rights or any political rights at any Shareholders’ Meeting. If the shares with respect to which the aforementioned
obligations have been breached represent a percentage equal to or greater than 0.25 per cent of the Company’s capital, the
Board of Directors may also direct that no transfer of any such shares is registered.
Limitations on ownership of the Company shares
In the event that the Board of Directors deems it necessary or appropriate to adopt measures to protect an operating right of
the Company or of its operating subsidiaries, in light of the nationality of its shareholders or any persons with an interest in the
Company’s shares, it may adopt any of the measures provided for such purpose in article 11 of the Bylaws, including the
determination of a maximum number of shares that may be held by non-EU shareholders, which may not be less than 40 per
cent of the Company’s capital stock under any circumstances.
In the event that the Board has specified a maximum number of shares that may be held by non-EU shareholders, and identified
those shares the holding of which gave rise or contributed to such a determination, the Board may also (i) agree on the
suspension of voting and other political rights of the holder of the relevant shares, and (ii) request that the holders dispose of the
corresponding shares so that no non-EU person may directly or indirectly own such shares or have an interest in the same. If
such transfer is not performed on the terms provided for in the Bylaws, the Company may acquire the corresponding shares (for
their subsequent redemption) pursuant to applicable legislation. This acquisition must be performed at the lower of the following
prices: (a) the book value of the corresponding shares according to the latest published audited balance sheet of the Company;
and (b) the middle market quotation for an ordinary share of the Company as derived from the London Stock Exchange’s Daily
Official List for the business day on which they were acquired by the relevant non-EU person.
Indicate whether the shareholders’ meeting has agreed to take neutralisation measures to prevent a public takeover
bid by virtue of the provisions of Law 6/2007.
A.11
No
If applicable, explain the measures adopted and the terms under which these restrictions may be lifted:
Not applicable
Indicate whether the company has issued securities not traded in a regulated market of the European Union.
A.12
No
If so, identify the various classes of shares and, for each class of shares, the rights and obligations they confer.
Not applicable
SHAREHOLDERS’ MEETING
Indicate, and as applicable, describe the difference in relation to the minimum rules established in the Spanish
Companies Law (LSC) regarding the quorum required for constitution of the shareholders’ meeting.
B.
B.1
No
Quorum % other than that established
in article 193 of the LSC for general cases
Quorum % other than that established in article
194 of the LSC for the special cases described
in article 194
Quorum required for first call
Quorum required for second call
Description of differences
–
–
–
–
–
167
FINANCIAL STATEMENTS www.iairgroup.com Indicate and, as applicable, describe any differences in relation to the rules established in the Spanish Companies
Law (LSC) regarding the system of adopting corporate resolutions:
B.2
No
Describe how they differ from the rules established in the LSC.
Qualified majority other than that established
in article 201.2 of the LSC for general cases
described in 194.1 of the LSC
% set by company for adopting
corporate resolutions
–
Describe the differences
Other cases requiring
a qualified majority
–
–
B.3
Indicate the rules governing amendments to the company’s Bylaws. In particular, indicate the majorities required to
amend the Bylaws and, if applicable, the rules for protecting shareholders’ rights when changing the Bylaws.
The procedure for amending the Bylaws and the applicable rules for protecting shareholders’ rights when changing the Bylaws
are governed by the provisions established in the Spanish Companies Law.
B.4
Indicate the attendance figures for the shareholders’ meetings held during the year corresponding to this report
and for the previous year:
Date of shareholders’
meeting
% attending
in person
June 18, 2015
June 18, 2014
0.124%
0.123%
Attendance data
% remote voting
% by proxy
60.677%
52.873%
Electronic means
0.003%
0.005%
Other
3.566%
2.792%
Total
64.370%
55.793%
Indicate whether the Bylaws impose any minimum requirement on the number of shares required to attend the
shareholders’ meetings:
B.5
No
Number of shares required to attend the shareholders’ meetings
–
B.6
B.7
Section eliminated.
Indicate the address and mode of accessing corporate governance content on your company’s website as well as
other information on shareholders’ meetings which must be made available to shareholders on the website.
The Company corporate governance information is available on the Company’s website: www.iairgroup.com in the “Corporate
Governance” section.
C.
C.1
C.1.1
COMPANY MANAGEMENT STRUCTURE
Board of Directors
List the maximum and minimum number of directors included in the Bylaws:
Maximum number of directors
Minimum number of directors
14
9
168
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED C.1.2
Name or corporate
name of director
Complete the following table with board members:
Position on
the board
Category
of director
Representative
Date of first
appointment
Date of last
appointment
Election
procedure
Antonio
Vázquez
Sir Martin
Broughton
Willie Walsh
César Alierta
Patrick Cescau
Enrique Dupuy
de Lôme
Baroness
Kingsmill
James
Lawrence
María
Fernanda Mejía
Kieran Poynter
Dame Marjorie
Scardino
Alberto Terol
–
–
–
–
–
–
–
–
–
–
–
–
Other External
Chairman
May 25, 2010
June 18, 2015
Independent
Deputy Chairman
May 25, 2010
June 18, 2015
Executive
Chief Executive
Officer
May 25, 2010
June 18, 2015
Independent
Director
Independent
Director
Executive
Director
Independent
Director
Independent
Director
Independent
Director
Independent
Director
Independent
Director
Independent
Director
September 27,
2010
September 27,
2010
June 18, 2015
June 18, 2015
September 26,
2013
June 18, 2015
September 27,
2010
September 27,
2010
February 27,
2014
June 18, 2015
June 18, 2015
June 18, 2015
September 27,
2010
June 18, 2015
December 19,
2013
June 18, 2015
June 20,
2013
June 18, 2015
Total number of directors:
Indicate any board members who left the board during this information period:
Name or corporate name of director
José Pedro Pérez-Llorca
Category of the director at the
time of leaving
Independent
C.1.3
Complete the following tables on board members and their respective categories:
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
Vote at the
Shareholders’
Meeting
12
Leaving date
06/18/2015
EXECUTIVE DIRECTORS
Name or corporate name of director
Willie Walsh
Enrique Dupuy de Lôme
Total number of executive directors
% of the total of the board
Position held in the company organization chart
Chief Executive Officer
Chief Financial Officer
2
16.67%
169
FINANCIAL STATEMENTS www.iairgroup.com
PROPRIETARY DIRECTORS
Name or corporate name of director
–
Total number of proprietary directors
% of the total of the board
Name or corporate name of significant shareholder
represented or proposing appointment
–
–
–
EXTERNAL INDEPENDENT DIRECTORS
Individual or corporate
name of director
Sir Martin Broughton
Profile
Key areas of prior experience: consumer, finance, governance.
Current external appointments: Chairman, Sports Investment Partners.
Previous relevant experience: Chairman, British Airways 2004-2013 and Director since 2000.
President, Confederation of British Industry 2007-2009. Chairman, Liverpool FC 2010. Chairman,
British Horseracing Board 2004-2007. Chairman, British American Tobacco 1997-2004 following its
demerger from BAT Industries, previously Chief Executive Officer, BAT Industries 1993-1997 and
member of the Board since 1988. Other executive positions at British American Tobacco 1971-1993.
Key areas of prior experience: finance, telecommunications, consumer.
Current external appointments: Chairman and Chief Executive Officer, Telefónica Group.
Non-Executive Director, China Unicom. Member, Columbia Business School Board of Overseers.
Previous relevant experience: Member of the Board, Telecom Italia 2007-2013. Non-Executive
Director, Telefónica 1997-2000. Executive Chairman, Altadis Group 1996-2000. Member of the
Board, Madrid Stock Exchange 1991-1996. Chairman, Spanish Financial Analysts’ Association
1991-1996. Chairman and founder, Beta Capital 1985-1996.
Key areas of prior experience: consumer, finance, sales/marketing, governance.
Current external appointments: Non-Executive Chairman, InterContinental Hotel Group. Trustee,
LeverHulme Trust. Member, Temasek European Advisory Panel. Patron, St Jude India
Children’s Charity.
Previous relevant experience: Senior Independent and Non-Executive Director, Tesco 2009-2015.
Director, INSEAD 2009-2013. Senior Independent and Non-Executive Director, Pearson Plc
2002-2012. Group Chief Executive, Unilever 2005-2008. Chairman, Unilever PLC. Deputy
Chairman, Unilever NV. Finance Director and other executive positions (including a number of
Unilever major operating companies and divisions in the USA, Indonesia and Portugal), having joined
the Unilever Group in 1973.
Key areas of prior experience: government, legal and regulatory affairs.
Current external appointments: Non-Executive Director, EON Supervisory Board. Non-Executive
Director, Telecom Italia. Member of the International Advisory Board, IESE Business School. Member
of the House of Lords since 2006.
Previous relevant experience: Vice Chair and Senior Independent Director, APR Energy 2010-2015.
Non-Executive Director, British Airways 2004-2010. Deputy Chairman, Competition Commission
1997-2003. Chairman, Department of Trade and Industry’s Accounting for People task force 2003.
Key areas of prior experience: finance, consumer, corporate governance.
Current external appointments: Chairman, Great North Star LLC. Non-Executive Director, Smurfit
Kappa Group. Non-Executive Director and Chairman of the Audit Committee, Avnet Inc.
Previous relevant experience: Chairman, Rothschild North America 2012-2015. CEO, Rothschild
North America and Co-Head of Global Investment Banking 2010-2012. Executive Director and Chief
Financial Officer, Unilever 2007-2010. Non-Executive Director, British Airways 2006-2010. Vice
Chairman, Chief Financial Officer and Head of International, General Mills 1998-2007. Executive
Vice President and Chief Financial Officer, Northwest Airlines 1996-1998. Executive Vice President
and other executive positions, Pepsi-Cola 1992-1996. Chairman and Co-Founder, LEK Consulting
1983-1992. Partner, Bain & Company 1977-1983.
César Alierta
Patrick Cescau
Baroness Kingsmill
James Lawrence
170
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED Individual or corporate
name of director
María Fernanda Mejía
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Profile
Key areas of prior experience: consumer, customer development, strategic planning, supply chain,
innovation and marketing communications.
Current external appointments: Senior Vice President and President of Kellogg Latin America,
Corporate Officer and member of Kellogg’s Global Leadership Team. Board Member of the Council
of the Americas.
Previous relevant experience: Colgate-Palmolive Co. – Vice-President and General Manager Global
Personal Care and Corporate Fragrance Development 2010-2011, Vice-President Marketing and
Innovation Europe/South Pacific Division 2005-2010, President and CEO Spain and Spain Holding
Company 2003-2005, General Manager Hong Kong and a Director Greater China Management
team 2002-2003, Marketing Director Venezuela 2000-2002, Marketing Director Ecuador
1998-2000.
Key areas of prior experience: professional services, finance services.
Current external appointments: Chairman, F&C Asset Management plc. Non-Executive Director and
Chairman of the Remuneration Committee, British American Tobacco PLC.
Previous relevant experience: Chairman, Nomura International plc 2009-2015. Chairman and Senior
Partner, PricewaterhouseCoopers 2000-2008. Managing Partner, PricewaterhouseCoopers
1998-2000 and other executive positions at PricewaterhouseCoopers 1982-1998. Member,
Advisory Committee for the Chancellor of the Exchequer on the competitiveness of the UK financial
services sector 2009-2010. Member, President’s Committee of the Confederation of British Industry
2000-2008.
Key areas of prior experience: commercial management and government affairs, communications,
digital and media, legal services.
Current external appointments: Non-Executive Director, Twitter, Inc. Member, Board of Pure Tech
Health Inc., Member, charitable boards including The MacArthur Foundation; London School of
Hygiene and Tropical Medicine (Chairman); and The Carter Center. Member, Board of the Royal
College of Art. Member, of the Visiting Committee for the MIT Media Lab; Member, Board of Bridge
International Academies (HQ-Kenya).
Previous relevant experience: Chief Executive Officer, Pearson PLC 1997-2012. Chief Executive Officer,
The Economist Group from 1993-1996. President, The Economist Group US 1985-1993. Lawyer
practising in the US 1975-1985.
Key areas of prior experience: finance, professional services, information technology,
hospitality industry.
Current external appointments: Non-Executive Director, Indra. Non-Executive Director, OHL. Non-
Executive Director and Chairman of the Audit Committee, Aktua. Non-Executive Director, Broseta.
International Senior Advisor, Centerbridge. Executive Chairman of various family owned companies.
Previous relevant experience: Non-Executive Director, N+1 2014-2015. International Senior Advisor,
BNP Paribas 2011-2014. Member, Global Executive Committee Deloitte 2007-2009. Managing
Partner, EMEA Deloitte 2007-2009. Managing Partner, Global Tax & Legal Deloitte 2007-2009.
Member, Global Management Committee Deloitte 2003-2007. Managing Partner, Latin America
Deloitte 2003-2007. Managing Partner, Integration Andersen Deloitte 2002–2003, Managing
Partner, Europe Arthur Andersen 2001-2002. Managing Partner, Global Tax & Legal Arthur Andersen
1997-2001. Managing Partner, Garrigues 1997-2000.
Total number of external independent directors
% of the board
9
75%
List any external independent directors who receive from the company or group any amount or payment other than standard
director remuneration or who maintain or have maintained during the period in question a business relationship with the
company or any group company, either in their own name or as a significant shareholder, director or senior manager of an entity
which maintains or has maintained the said relationship.
No
If applicable, include a justified statement from the board detailing the reasons why the said director may carry on their duties as
an external independent director.
Name or corporate name of director
Description of the relationship
Justified statement
–
–
–
171
FINANCIAL STATEMENTS www.iairgroup.com OTHER NON-EXECUTIVE DIRECTORS
Name or corporate name of director
Antonio Vázquez
Total number of other non-executive directors
% of the total of the board
Committee notifying or
proposing appointment
Nominations Committee
1
8.33%
List the reasons why these cannot be considered proprietary or external independent directors and detail their relationships with
the company, its executives or shareholders.
Name or corporate name of director
Reasons
Antonio Vázquez
He was until the merger between British Airways and
Iberia effective date (January 21, 2011) the Executive
Chairman of Iberia
List any changes in the category of each director which have occurred during the year.
Company, executive or
shareholder with whom the
relationship is maintained
–
Name or corporate name of director
Date of change
Previous category
Current category
–
–
–
–
C.1.4
Complete the following table on the number of female directors at the end of the last four years and their category.
Number of female directors
% of total directors of each category
Year t
Year t-1
Year t-2
Year t-3 Year t
Executive
Proprietary
External independent
Other non-executive
Total
0
0
3
0
3
0
0
3
0
3
0
0
2
0
2
0 0
0 0
1 33.33%
0 0
1 25%
Year t-1
0
0
30.00%
0
23.08%
Year t-2
0
0
22.22%
0
14.29%
Year t-3
0
0
12.5%
0
7.14%
C.1.5
Explain the measures, if applicable, which have been adopted to ensure that there is a sufficient number of female
directors on the board to guarantee an even balance between men and women.
Explanation of measures
IAG adopted a Board Diversity policy in September 2012, which was updated in June 2014. IAG’s Diversity policy aimed to
promote diversity in the Board composition and established the Board’s aspirational goal of achieving 25 per cent female
representation on the Board by 2015. This target was met by the Company ahead of this time limit.
Following the new Spanish corporate governance code recommendation, the Board has approved on January 2016 a Directors
Selection and Diversity policy which supersedes the former Board Diversity policy. The objective of this new Policy is to ensure
that the appointments of directors are based on a prior analysis of the Board’s needs and favour a diversity of knowledge,
experience and gender. This Policy incorporates the former diversity principles while regulating the process for appointing
directors. Under this Policy, director appointments are evaluated against the existing balance of skills, knowledge and experience
on the Board, with directors asked to be mindful of diversity, inclusiveness and meritocracy considerations when examining
nominations to the Board.
The Board recognises the value of diversity as a tool to enrich its discussions and decision-making process. Consequently, it is
the Board’s objective to create a board whose composition ensures a healthy diversity of opinions, perspectives, skills,
experiences, backgrounds and orientations. Specifically, this will include an appropriate gender ratio, as well as including diversity
in other senses, subject to the overriding principle of merit and suitability mentioned above.
This will be achieved over time, taking account of the valuable knowledge and experience of the present board members and
the value of a more diverse Board.
Accordingly, the Directors Selection and Diversity Policy establishes a new female representation objective of 33 per cent for
2020 following the recommendation included in the final Davies report published in the UK.
The Board, through its Nominations Committee, regularly reviews the percentage of women that sit on the Board and on the
Company’s Management Committee, as well as the number of women in the Group’s workforce worldwide. The IAG Board and
Management Committee continue to focus on this important area.
172
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED The Nominations Committee leads the process for Board appointments. It evaluates the balance of skills, experience,
independence, diversity and knowledge on the Board and, in the light of this evaluation, considers the role and capabilities
required for a particular appointment. This evaluation will be made alongside succession plans for directors and takes into
consideration any conclusions from the annual review of Board performance.
As further detailed in the following section, the Directors Selection and Diversity Policy states the Company’s intention only to
engage, so far as practicable, search firms which have signed up to the latest UK Voluntary Code of Conduct for Executive
Search Firms (or its international equivalent). This is a voluntary code of conduct to address gender diversity on corporate
boards and best practice for the related search processes. The code lays out steps for search firms to follow across the search
process, from accepting a brief through to final induction.
When reviewing board appointments, the Board’s Policy is to consider candidates from a wide variety of backgrounds, without
discrimination based on gender, race, colour, age, social class, beliefs, religion, sexual orientation, disability or other factors.
It is the Nominations Committee’s intention to reconcile the achievement of this objective while preserving the general diversity
and merit based appointment principles established in IAG’s policy.
IAG’s Directors Selection and Diversity Policy is published on the Company’s website.
C.1.6
Explain the measures taken, if applicable, by the nomination committee to ensure that the selection processes are
not subject to implicit bias that would make it difficult to select female directors, and whether the company makes a
conscious effort to search for female candidates who have the required profile.
Explanation of measures
The Nominations Committee leads the process for Board appointments. It evaluates the balance of skills, experience,
independence, diversity and knowledge in the Board and, in the light of this evaluation, considers the role and capabilities
required for a particular appointment. The appointment of new directors is made in accordance with a formal, rigorous and
transparent process.
An overriding principle is that all appointments to the Board will be based upon merit and suitability of the candidate to the
particular role being filled. As stated in the Directors Selection and Diversity Policy, it is the Board’s objective to create a board
whose composition ensures a healthy diversity of opinions, perspectives, skills, experiences, backgrounds and orientations.
Specifically, this includes an appropriate gender ratio, as well as including diversity in other senses, subject to the overriding
principle of merit and suitability mentioned above.
In support of this Policy and, particularly, of the gender ratio objective, IAG has stated that, when conducting a search for a new
board member, so far as practicable, it intends only to engage search consultants who have signed up to the UK Voluntary Code
of Conduct on gender diversity for executive search firms or an international equivalent.
As previously explained, this is a voluntary code of conduct to address gender diversity on corporate boards and best practice
for the related search processes, which lays out steps for search firms to follow across the search process.
According to this code, when taking a specific brief, search firms should look at overall board composition and, in the context of
the board’s agreed aspirational goals on gender balance and diversity more broadly, explore with the chairman if recruiting
women directors is a priority on this occasion.
In addition, when presenting their longlists, search firms should try to ensure that at least 30 per cent of the candidates are
women – and, if not, should explicitly justify to the client why they are convinced that there are no other qualified female options,
through demonstrating the scope and rigour of their research. Search firms should seek to ensure that the shortlist is
appropriately reflective of the longlist, discussing with their clients each woman on the longlist and aiming to have at least one
woman whom they would ‘strongly recommend’ that the client should meet.
Finally, search firms who are signatories to this code should seek to broaden their own databases of potential candidates, and
are encouraged to invest time into developing relationships with the pipeline of future female candidates.
This code has been signed up to by over 70 search firms, who collectively account for the vast majority of the board work in the
UK. All have committed to following the code’s provisions in their board search processes, irrespective of sector, company and
organisation and to ensuring that all provisions of the code are embedded in their day to day practices.
When, despite the measures taken, there are few or no female directors, explain the reasons.
Explanation
–
173
FINANCIAL STATEMENTS www.iairgroup.com C.1.6.bis Explain the conclusions of the Nominations Committee with respect to verification of compliance with the director
selection policy. In particular, explain how this policy promotes the objective of having female directors represent at
least 30% of the total members of the Board of Directors by 2020.
The Nominations Committee regularly reviews the percentage of women that sit on the Board and on the Company’s
Management Committee. It also monitors the number of women within the Group’s workforce worldwide. This information (and
the progress made towards achieving greater diversity) is published annually in the Company’s annual report.
As previously explained, IAG adopted a Board Diversity policy in September 2012, which was updated in June 2014, that
established the Board’s aspirational goal of achieving 25 per cent female representation on the Board by 2015. This target was
met by the Company ahead of this time frame.
The Board of Directors, at its meeting held on January 28, 2016, approved a new Directors Selection and Diversity Policy which
superseded the former Diversity Policy which has established a new female representation objective of 33 per cent for 2020. A
detailed explanation of how this Policy promotes the achievement of this objective is included in the two preceding sections.
In addition, IAG’s Directors Selection and Diversity Policy establishes the Nominations Committee’s obligation to carry out an
annual check on compliance with this policy and to set out its findings in the Company’s annual corporate governance report.
During 2015, no new directors were appointed to the Board.
Explain how shareholders with significant holdings are represented on the board.
C.1.7
There are no significant shareholders with representation on the Board of Directors.
C.1.8
Explain, if applicable, the reasons why proprietary directors have been appointed upon the request of shareholders
who hold less than 3% of the share capital.
Name or corporate name of shareholder
–
Reason
–
Provide details of any rejections of formal requests for board representation from shareholders whose equity interest is equal to
or greater than that of other shareholders who have successfully requested the appointment of proprietary directors. If so,
explain why these requests have not been entertained.
No
Name or corporate name of shareholder
–
C.1.9
Explanation
–
Indicate whether any director has resigned from office before their term of office has expired, whether that director
has given the board their reasons and through which channel and, if tendered in writing, list below the reasons given
by that director:
Name of director
–
Reasons for resignation
–
Indicate what powers, if any, have been delegated to the chief executive officer(s).
C.1.10
Name or corporate name of director
Willie Walsh
Brief description
All of the powers of the Board have been permanently
delegated to the IAG Chief Executive for their exercise,
jointly and severally, save for those which cannot be
delegated pursuant to the Bylaws, the Board
Regulations or the applicable legislation.
C.1.11
List the directors, if any, who hold office as directors or executives in other companies belonging to the listed
company’s group:
Individual or corporate name of director
Corporate name of entity
within the Group
Position
Willie Walsh
Aer Lingus plc
Non-Executive Director
Do they have executive
functions?
No
174
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED C.1.12
List any company board members who likewise sit on the boards of directors of other non-group companies that are
listed on official securities markets, insofar as these have been disclosed to the company.
Name or corporate name of director
César Alierta
César Alierta
Patrick Cescau
Baroness Kingsmill
Baroness Kingsmill
James Lawrence
James Lawrence
Kieran Poynter
Dame Marjorie Scardino
Alberto Terol
Alberto Terol
Name of listed company
Telefónica, S.A.
China Unicom
Intercontinental Hotels
Group
Telecom Italia
E.ON
Smurfit Kappa Group
Avnet Inc.
British American Tobacco
Twitter, Inc.
Indra Sistemas, S.A.
Obrascon Huarte Lain, S.A.
Position
Chairman
Non–Executive Director
Non–Executive Chairman
Non–Executive Director
Member of the
Supervisory Board
Non–Executive Director
Non–Executive Director
Non–Executive Director
Non–Executive Director
Non–Executive Director
Non–Executive Director
Indicate and, where appropriate, explain whether the board regulations establish rules on the maximum number of
company boards on which its directors may sit:
C.1.13
Yes
Explanation of rules
According to article 17.5 of the Board Regulations, unless otherwise authorised by the Nominations Committee, a director shall
not hold more than six other directorships of which no more than four, in the case of non-executive directors, and no more than
one, in the case of executive directors, can be in public listed companies. In any event, prior consent from the Nominations
Committee is required before an executive director can accept any external directorship appointment.
Asset-holding or pure investment companies are excluded for the purposes of the preceding paragraph. Furthermore,
companies belonging to the same group shall be considered as a single company.
C.1.14
Section eliminated.
List the total remuneration of the board:
C.1.15
Board remuneration (thousands of euros)
Amount of pension rights accumulated by directors (thousands of euros)
Amount of pension rights accumulated by former directors (thousands of euros)
15,860
308
5,173
C.1.16
List any members of senior management who are not executive directors and indicate total remuneration paid to
them during the year.
Name or corporate name
Keith Williams
Luis Gallego
Robert Boyle
Alex Cruz
Ignacio de Torres
Christopher Haynes
Julia Simpson
Steve Gunning
Stephen Kavanagh
Position(s)
Executive Chairman of British Airways
Executive Chairman of Iberia
Director of Strategy
Vueling Chief Executive Officer
Director of Global Services
General Counsel
Chief of Staff
IAG Cargo Chief Executive Officer
Aer Lingus Chief Executive Officer
Total remuneration received by senior management (thousands of euros)
21,943
175
FINANCIAL STATEMENTS www.iairgroup.com C.1.17
List, if applicable, the identity of those directors who are likewise members of the boards of directors of companies
that own significant holdings and/or group companies.
Name or corporate name of director
–
Name or corporate name of
significant shareholder
–
Position
–
List, if appropriate, any relevant relationships, other than those included under the previous heading,that link members of the
board with significant shareholders and/or their group companies.
Name or corporate name of director
–
Name or corporate name of
significant shareholder
–
Relationship
–
C.1.18
Indicate whether any amendments have been made to the board regulations during the year.
Yes
Description of amendments
The Board Regulations were modified by the Board of Directors during the meeting held on June 18, 2015 in order to adapt their
wording to the reforms introduced by Law 31/2014 amending the Spanish Companies Law to improve corporate governance
and to introduce certain technical and systematic improvements.
Further amendments were introduced and approved by the Board of Directors in its meeting held on December 17, 2015, in order
to adapt its wording to certain of the recommendations of the new Spanish Good Governance Code for Listed Companies
published in February 2015.
The full text of the Board Regulations is published on the Company’s website: www.iairgroup.com.
C.1.19
Indicate the procedures for selection, appointing, re-electing, evaluating and removing directors. List the competent
bodies, procedures and criteria used for each of these procedures.
Appointment of directors
The Shareholders’ Meeting or, if applicable, the Board of Directors itself shall be entitled to designate the members of the Board
of Directors subject to the current law provisions.
Any vacancies may be covered by the Board of Directors by means of cooption, according to the applicable law, on an interim
basis until the next Shareholders’ Meeting is held, which shall ratify, as the case may be, the appointments or appoint the persons
that are to replace any directors not ratified, or eliminate any vacant positions.
Proposals for the appointment of directors submitted by the Board to the Shareholders’ Meeting for consideration, as well as
decisions on appointments made by the Board of Directors using the powers of cooption legally attributed to it, shall be in
respect of persons that satisfy the legal and Bylaw requirements to hold office as director, are of suitable repute and have
appropriate professional skills, experience, knowledge and availability for the exercise of the functions and duties of such office.
Proposals for the appointment or renewal of directors submitted to the Shareholders’ Meeting by the Board, as well as
provisional appointments by means of cooption, must be approved on the proposal of the Nominations Committee in the case
of independent directors and subject to a report from the Nominations Committee in all other cases.
Directors shall hold office for the period set forth in the Bylaws (one year) unless the Shareholders’ Meeting resolves on their
removal from office or dismissal, or they stand down from office.
Selection of directors
In identifying suitable candidates, the Nominations Committee may use open advertising or the services of external advisers to
facilitate the search, and consider candidates from a wide range of backgrounds with due regard to diversity, including gender as
well as other forms of diversity. Selection will be based on merit and against objective criteria, as well as considering the
candidates’ ability to commit sufficient time to the role.
In accordance with the recommendation included in the Spanish Good Governance Code for Listed Companies, the Board
approved in January 2016 a Directors Selection and Diversity Policy which ensures that appointments are based on a prior
analysis of the Board’s needs and favours a diversity of knowledge, experience and gender. In particular and as established in
this policy, IAG only engages external search consultants who have signed up to the UK Voluntary Code of Conduct on gender
diversity for executive search firms or an international equivalent.
Re-election of directors
At the end of their term of office, directors may be re-elected one or more times for periods of equal duration to that established
in the Bylaws.
176
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED Proposals for re-election of directors that the Board of Directors resolves to submit to the Shareholders’ Meeting shall be subject
to a formal preparation process, which must include a proposal made by the Nominations Committee, in the case of
independent directors, and the report from the Nominations Committee in all other cases. The Nominations Committee’s
proposal or report shall be prepared having given due regard to the performance, commitment, capacity, ability and availability
of the director to continue to contribute to the Board with the knowledge, skills and experience required. To this end, the
directors sitting on the Nominations Committee shall be evaluated by the Nominations Committee itself, and each of them shall
abstain from participating in any debate or vote that may affect them.
Evaluation of directors
Under the Chairman’s leadership, the performance of individual directors, the Board of Directors as a whole and the Board
Committees is evaluated at least once a year.
During the reporting period, the Chairman met each Non-Executive Directors individually to discuss their contribution to the
Board. In addition to this, the Senior Independent Director met with the other Non-Executive Directors to discuss the
performance of the Chairman, and the outcome of this evaluation was reported and considered by the Nominations Committee
and by the Board as a whole.
Resignation and dismissal of directors
Directors shall cease to hold office when the term of office for which they were appointed expires and they are not re-appointed
or whenever so decided by the Shareholders’ Meeting.
Notwithstanding the above, a director must place his position at the disposal of the Board of Directors and, at its request,
formally resign from office in the cases established in article 16.2 of the Board Regulations.
Directors who stand down before the end of their term of office, due to resignation or for any other reason, must state their
reasons in a letter to be sent to all the directors. Without prejudice to the notification of such vacation of office as a price
sensitive information communication, the reasons for the same must be explained in the Annual Corporate Governance Report.
The Board of Directors may only propose the removal of an independent director before the end of the mandate established in
the Bylaws when it considers there is just cause, following a report by the Nominations Committee. For these purposes, just
cause shall be deemed to exist when the director takes up new positions or enters into new obligations that prevent him from
dedicating the necessary time to the performance of the duties inherent in his office, breaches the duties inherent in his office or
unexpectedly becomes subject to any of the circumstances provided for in article 16.2 of the Board Regulations. The removal
may also be proposed as a result of takeover bids, mergers or other similar corporate transactions that determine a material
change to the shareholding structure of the Company.
C.1.20 Explain to what extent the annual evaluation of the board has prompted significant changes in its internal
organisation and the procedures applicable to its activities:
Description of amendments
No external evaluation has been carried out in 2015. Nonetheless, the Board and Committees’ performance evaluation was
conducted internally. The review concluded that the Board had effectively fulfilled its responsibilities during 2015, and the
general progress made was unanimously recognised by the Board.
Furthermore, during the reporting period, the Chairman met each non-executive director individually to discuss their
contribution to the Board. In addition to this, the Senior Independent Director met with the other non-executive directors to
discuss the performance of the Chairman, and the outcome of this evaluation was reported and considered by the Nominations
Committee and by the Board as a whole.
Finally, the Chairman completed the performance evaluation of the Chief Executive which was then reported to the Nominations
Committee and subsequently to the Remuneration Committee, and the outcome of this evaluation was reported to the Board of
Directors for their review.
C.1.20 bis Describe the evaluation process and the areas evaluated by the board with the aid, as applicable, of an external
consultant, with respect to the diversity of its composition and competencies, the functioning and composition of its
committees, the performance of the board chairman and of the chief executive, and the performance and
contribution of each director.
The Board and Committees’ performance evaluation was conducted internally in 2015. The last external evaluation was
completed in 2013. The review took the format of a self-assessment survey designed to test directors’ opinions and views on a
number of matters including: the role and organisation of the Board, Board composition, organisation of meetings, quality of
Board debate, knowledge and experience, relationship with management, and progress made against the 2015 action plan.
The Board Secretary prepared a report on the performance evaluation of the Board and each of the Committees. The Board
report was considered by the Nominations Committee; with each of the committees’ reports and the results of the
questionnaires being considered by the different Committees and discussed at the Board meeting held in January 2016. The
177
FINANCIAL STATEMENTS www.iairgroup.com review concluded that the Board had effectively fulfilled its responsibilities during 2015, and the general progress made was
unanimously recognised by the Board.
The Chairman also met with each director individually to provide feedback on their performance. He also discussed the
functioning of the Board as a whole and the contribution expected of each director.
The Board evaluation also included an assessment of performance against the objectives agreed for 2015. Progress made on
Board and executive succession planning and talent development was recognised, as well as the actions agreed to improve
Board effectiveness.
C.1.20 ter List any business relationships held by the consultant or any company in its group with the company or any group
company.
Not applicable
Indicate the cases in which directors must resign.
C.1.21
In accordance with article 16.2 of the Board Regulations, a director must place his position at the disposal of the Board of
Directors and, at its request, formally resign from office in the following cases:
a)
b)
c)
d)
e)
f)
g)
When he ceases to hold the executive positions to which his or her appointment as director is linked, or when
the reasons for which he was appointed no longer exist. In particular, in the case of nominee directors, when
the shareholder(s) that proposed, requested or determined their appointment sell or transfer their holding in
whole or in part, so that such holding has no longer the status of significant or is not sufficient to justify
the appointment.
When, due to supervening circumstances, the director is subject to any of the grounds for incompatibility or
prohibition provided for in the law, the Corporate Bylaws or the Board Regulations.
When he is prohibited by law from acting as a director.
If requested to do so by the Board of directors as a result of a determination made in accordance with the
provisions of article 11.7 of the Bylaws, to the extent that such determination arises as a result of his or her
membership of the Board of Directors.
When the director ceases to have the good standing, suitability, reliability, competence, availability or
commitment to office necessary to be a director of the Company.
When his or her presence on the Board of Directors might jeopardise, for any reason, directly, indirectly or
through any person related to him, the loyal and diligent exercise of his functions in accordance with the
corporate interest.
When his or her remaining on the Board might affect the Company’s credit or reputation in the market or
otherwise jeopardise its interests.
C.1.22 Section eliminated.
C.1.23 Are qualified majorities other than those prescribed by law required for any type of decision?
No
If applicable, describe the differences.
Description of differences
–
C.1.24
Indicate whether there are any specific requirements, apart from those relating to the directors, to be appointed
chairman of the board:
No
Description of requirements
–
C.1.25
Indicate whether the chairman has the casting vote:
No
Matters where the Chairman has the casting vote
–
178
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED C.1.26
Indicate whether the bylaws or the board regulations set an age limit for directors.
No
Age limit for Chairman
Age limit for Chief Executive Officers
Age limit for directors
C.1.27
Indicate whether the bylaws or the board regulations set a limited term of office for external independent directors
different from the one established in the applicable law.
No
Maximum number of years in office
–
C.1.28
Indicate whether the bylaws or the board regulations stipulate specific rules on appointing a proxy to the board, the
procedures for doing so and, in particular, the maximum number of proxy appointments a director may hold, as well
as whether any limit has been established in relation to the categories of director that may be appointed as a proxy,
further to the limits imposed by law. If so, give brief details.
In accordance with article 40 of the Bylaws and 10 of the Board Regulations, directors shall make every effort to attend
Board meetings.
Notwithstanding the above, all directors may cast their vote through, and grant a proxy to another director, although
non-executive directors may only grant a proxy to other non-executive director.
Proxies must be granted in writing, addressed to the Chairman or to the Board Secretary, and must be granted specifically for
each meeting. For such purposes, a message addressed to the Chairman or the Secretary by letter, fax, telegram or e-mail shall
be valid.
No director may hold more than three proxies, with the exception of the Chairman, who shall not be subject to such limit but may
not represent more than half of the members of the Board of Directors.
The director granting the proxy shall endeavour, where possible, to include voting instructions in the proxy letter.
C.1.29
Indicate the number of board meetings held during the year and how many times the board has met without the
Chairman’s attendance. Attendance will also include proxies appointed with specific instructions.
Number of board meetings
Number of board meetings held without the Chairman’s attendance
If the chairman is an executive director, indicate the number of meetings held without the presence of an executive director, in
person or by proxy, and under the chairmanship of the lead director.
Number of meetings
Indicate the number of meetings of the various board committees held during the year.
Number of meetings of the Executive or Delegate Committee
Number of meetings of the Audit and Compliance Committee
Number of meetings of the Nomination and Remuneration Committee
Number of meetings of the Nominations Committee
Number of meetings of the Remuneration Committee
Number of meetings of the Safety Committee
9
0
–
–
7
–
5
4
2
C.1.30
Indicate the number of board meetings held during the year with all members in attendance. Attendance will also
include proxies appointed with specific instructions.
Number of meetings held with all directors in attendance
% of attendances of the total votes cast during the year
3
92.03%
179
FINANCIAL STATEMENTS www.iairgroup.com Indicate whether the consolidated and individual financial statements submitted for authorisation for issue by the
board are certified previously:
C.1.31
Yes
Identify, where applicable, the person(s) who certified the company’s individual and consolidated financial statements prior to
their approval by the board.
Name
Willie Walsh
Enrique Dupuy de Lôme
Position
Chief Executive Officer
Chief Financial Officer
C.1.32 Explain the mechanisms, if any, established by the board to prevent the individual and consolidated financial
statements it prepares from being laid before the shareholders’ meeting with a qualified audit report.
In accordance with article 35.4 of the Board Regulations, the Board of Directors shall prepare the Company’s financial
statements so that such financial statements do not give rise to any restrictions or qualifications by the auditors. This
notwithstanding, if the Board of Directors deems it appropriate to prepare the financial statements subject to restrictions or
qualifications in the opinion of the auditors, it must clearly explain to shareholders the scope of such restrictions or qualifications
and the reasons behind its actions.
The Audit and Compliance Committee has the duty to review the Company’s annual financial statements, monitor compliance
with legal requirements, the appropriate definition of the scope of consolidation and the correct application of generally
accepted accounting principles, as well as reviewing significant financial reporting judgements in the Company’s
annual accounts.
C.1.33
Is the secretary of the board also a director?
No
If the secretary is not a director, complete the following table:
Name or corporate name of the secretary
Álvaro López-Jorrín
C.1.34 Section eliminated.
Representative
–
C.1.35
Indicate and explain, where applicable, the specific mechanisms implemented by the company to preserve the
independence of the auditor, financial analysts, investment banks and rating agencies.
The relations of the Board of Directors with the Company’s auditors shall be channelled through the Audit and
Compliance Committee.
The Board of Directors shall refrain from engaging any audit firm entitled to be paid by the Company for all services rendered
fees in an amount in excess of 10 per cent of such firm’s total revenue for the previous year.
With regard to the external auditor, the Audit and Compliance Committee has, among others, the following powers:
i)
ii)
iii)
iv)
v)
vi)
To submit to the Board proposals on the selection, appointment, reappointment and substitution of the
auditor, assuming responsibility for the selection process and the terms of its engagement, its remuneration
(ensuring its independence and quality are not compromised), the scope of its professional mandate and the
revocation or renewal of its appointment.
To regularly collect information from the auditors on the audit plan and its implementation, as well as
preserving their independence in the exercise of their functions. In particular, to ensure that the Company and
the external auditor respect the current legislation on provision of non-audit services, the limits on the auditor’s
business concentration and, in general, any other rules regarding auditor independence.
To oversee compliance with the audit agreement.
To serve as a channel for communication between the Board and the auditors and to assess the results of
each audit.
To review the effectiveness of the external audit process.
To establish the appropriate relationships with the external auditor in order to receive information on matters
which may jeopardise its independence, for its examination by the Audit and Compliance Committee, and on
any other matters relating to the audit process, and, as appropriate, the authorisation of permissible non-audit
services as legally established, as well as any other communications provided for in the audit legislation
and standards.
180
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED In all cases, the declaration of their independence in relation to the entity or entities directly or indirectly related
thereto must be received annually from the external auditors, as well as information on the additional services
of any kind provided and the corresponding fees received.
vii)
viii)
ix)
x)
To issue on an annual basis, prior to the issue of the auditor’s report, a report expressing an opinion on whether
the independence of the auditor is compromised. This report must contain, in all cases, the assessment of the
provision of the additional services referred to in the preceding paragraph, taken individually and as a whole,
other than the statutory audit and in relation to the rules on independence or to audit regulations.
To develop and implement a policy on the engagement of the external auditors to supply additional non-audit
services pursuant to the provisions of the UK Corporate Governance Code issued by the Financial
Reporting Council.
To ensure that the external auditor has a yearly meeting with the Board of Directors in full to inform on the
work undertaken and any developments in the Company’s risk and accounting positions.
In the event of the external auditor’s resignation, to review any underlying circumstances.
During 2015, the Audit and Compliance Committee reviewed the work undertaken by the external auditors and assessed their
independence, objectivity and performance. In doing so, it took into account relevant professional and regulatory requirements
and the relationship with the auditor as a whole, including the provision of any non-audit services. The Audit and Compliance
Committee monitored the auditors’ compliance with relevant regulatory, ethical and professional guidance on the rotation of
partners, and assessed its qualifications, expertise, resources and the effectiveness of the audit process, including a report from
the external auditor on its own internal quality procedures. The Audit and Compliance Committee decided not to tender the
audit for the Company for fiscal year 2016.
The Audit and Compliance Committee receives a quarterly report on compliance with the Group’s External Auditor Services
Policy, which restricts the volume and types of non-audit services that Ernst & Young can provide throughout the Group.
The Board of Directors approved in January 2016 a Policy regarding Communication and Contact with Shareholders, Institutional
Investors and Proxy Advisors that regulates the relationship and channels of communication of the Company with shareholders,
institutional investors and proxy advisors. This policy complies in full with market abuse regulations and provides an equitable
treatment to shareholders in the same position.
In addition, the Company has a Group Standing Instruction on business integrity in order to ensure compliance with competition
and anti-bribery legislation. As stated in this Instruction, IAG and its staff are bound by values of integrity and responsibility; the
Company is firmly committed to maintaining the highest standards of ethics, honesty, openness and accountability.
This Instruction applies to all staff of IAG and its subsidiary companies and to suppliers and their representatives when working
for IAG. A breach of these principles will be managed in accordance with the Company’s established disciplinary procedures or
contract engagement terms. In accordance with this policy, staff should immediately report any actual or potential breaches of
the Instruction to their line managers or, if not appropriate for whatever reason, to the Chief of Staff or General Counsel. All
matters will be dealt with in confidence. Timely, appropriate and thorough investigations will be carried out into all cases of
actual or suspected breaches whether discovered or reported. There is also mandatory training providing specific guidance
on how these policies apply to staff in their respective roles.
This Instruction also prevents the offering or making of payments or the offering or promising of gifts to dishonestly influence a
decision or to induce or reward a person for improper performance of their functions or job activity.
The Company has established whistleblowing procedures so that staff can report any malpractice. In addition to this, there is a
whistle blower hotline as an alternative for those employees who, for whatever reason, do not feel comfortable using internal
procedures. This hotline is an independent, confidential call bureau. All calls are forwarded to the highest level of management
within IAG.
Conflict of interest situations are also covered within IAG’s employees’ regulations, establishing appropriate reporting obligations.
If employees become aware of any potential conflicts of interest, these must be disclosed to the Company as soon as possible.
181
FINANCIAL STATEMENTS www.iairgroup.com C.1.36
Indicate whether the company has changed its external audit firm during the year. If so, identify the incoming audit
firm and the outgoing auditor.
No
Outgoing auditor
–
Explain any disagreements with the outgoing auditor and the reasons for the same.
No
Explanation of the disagreements
–
Incoming auditor
–
C.1.37
Indicate whether the audit firm performs non-audit work for the company and/or its group. If so, state the amount of
fees paid for such work and the percentage they represent of all fees invoiced to the company and/or its group.
Yes
Amount of non-audit work
(in thousands euros)
Amount of non-audit work as a % of the total
amount billed by the audit firm
Company
30
3%
Group
1,399
29%
Total
1,429
24%
Indicate whether the audit report on the previous year’s financial statements is qualified or includes reservations.
Indicate the reasons given by the Chairman of the Audit Committee to explain the content and scope of those
reservations or qualifications.
C.1.38
No
Explanation of reasons
–
C.1.39
Indicate the number of consecutive years during which the current audit firm has been auditing the financial
statements of the company and/or its group. Likewise, indicate for how many years the current firm has been
auditing the financial statements as a percentage of the total number of years over which the financial statements
have been audited.
Number of consecutive years
Number of years audited by current audit firm/Number of years the
company’s financial statements have been audited (%)
Company
6
Company
100%
Group
6
Group
100%
C.1.40
Indicate and give details of any procedures through which directors may receive external advice:
Yes
Procedures
In accordance with article 26 of the Board Regulations, in order to be assisted in the performance of his or her duties, any
director may request the hiring of legal, accounting, technical, financial, commercial or other expert advisors, whose services
shall be paid for by the Company.
The assignment must deal with specific issues of certain significance and complexity arising during the performance of the
director’s duties.
The request for an expert to be hired shall be channelled through the Chairman or the Company Secretary, who may subject it
to the prior approval of the Board of Directors. Such approval may be denied in well-founded instances, including the
following circumstances:
Where it is not necessary for the proper performance of the duties entrusted to the directors;
Where the cost thereof is not reasonable in light of the significance of the issues and the assets and income of
the Company;
a.
b.
182
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED Where the technical assistance sought may be adequately provided by the Company’s own experts and technical
personnel; or
Where it may entail a risk to the confidentiality of the information that must be made available to the expert.
Indicate whether there are procedures for directors to receive the information they need in sufficient time to prepare
for meetings of the governing bodies:
c.
d.
C.1.41
Yes
Procedures
Calls to Board meetings always include, unless there is a justified cause, the meeting agenda (which shall indicate any items
requiring a resolution or decision by the Board of Directors) and shall be accompanied, as the case may be, by the information
deemed necessary. Call notices shall be sent sufficiently in advance to ensure that directors receive them no later than the seven
days before the date of the meeting, except in the case of meetings deemed urgent by the Chairman (or by the Deputy
Chairman, in the event of absence, illness or inability of the Chairman). This notice period shall not apply to cases in which the
Board Regulations stipulate a specific call period.
In addition, in accordance with article 9 of the Board Regulations, prior to the commencement of each fiscal year, the Board of
Directors shall set a schedule for its ordinary meetings. This schedule may be modified by a resolution adopted by the Board of
Directors or by a decision made by the Chairman, who shall endeavour to notify the modification to the directors not less than
five days in advance of the date originally set for the meeting or of the new date set in lieu thereof, if the latter date falls earlier.
Papers for Board meetings are typically distributed to the Board members in the week prior to the relevant meeting.
In this regard, the Chairman shall ensure that the directors receive accurate, appropriate and clear information, in particular about
the Company’s performance, its strategy, challenges and opportunities in order to enable the Board of Directors to make sound
decisions and monitor correctly the Company’s performance and shall lead Board of Directors discussions with a view to
encouraging effective decision-making and a constructive debate on the performance of the Company, its growth strategy and
commercial objectives encouraging the active participation of the directors during meetings and safeguarding their freedom of
expression.
In accordance with article 25 of the Board Regulations, a director shall have the broadest powers to obtain information regarding
any aspect of the Company, to examine its books, records and documents, to inspect its facilities, and to communicate with the
senior managers of the Company. The exercise of such powers of information shall be channelled through the Chairman or the
Company Secretary.
In addition, all Board members have access to the Board Secretary and the Group General Counsel for any further information
they require. If any of the non–executive directors has any concerns about the running of the Group, they discuss these concerns
with one of the executive directors, the Group General Counsel or the Chairman. If their concerns cannot be resolved in this way,
then they are recorded in the Board minutes. No such concerns arose during the reporting period.
In accordance with article 28 of the Board Regulations, the Board Committees must receive appropriate and timely training, both
in the form of induction programmes for new members and on an on-going basis for all members. The Board Committees shall
also arrange for annual evaluations of their own performance, conducted externally at least every three years.
Papers for Committees are typically distributed to their members in the week prior to the relevant meeting.
Indicate and, where appropriate, give details of whether the company has established rules obliging directors to
inform the board of any circumstances that might harm the organisation’s name or reputation, tendering their
resignation as the case may be.
C.1.42
Yes
Details of rules
In accordance with article 23.2.c) of the Board Regulations, a director must disclose to the Company any judicial, administrative
or other proceedings brought against the director which, because of their significance or characteristics, may seriously reflect
upon the reputation of the Company and, in general, any fact or event that may be reasonably material to his or her conduct as a
director of the Company. In particular, directors must inform the Company, through the Chairman, if they are charged, become
subject to an order for further criminal prosecution upon indictment or if an order for the commencement of an oral trial is issued
against them in a criminal proceeding for any crime, and of the occurrence of any other significant procedural milestone in such
proceedings. In such case, the Board of Directors shall review the case as soon as practicable and shall adopt the decisions it
deems fit, taking into account of the corporate interest.
183
FINANCIAL STATEMENTS www.iairgroup.com In addition, in accordance with article 16.2 of the Board Regulations, a director must place his position at the disposal of the
Board of Directors and, at its request, formally resign from his or her position:
a.
b.
c.
d.
e.
f.
g.
When the director ceases to hold the executive positions to which his appointment as director is linked, or when the
reasons for which he was appointed no longer exist. In particular, in the case of nominee directors, when the
shareholders that proposed, requested or determined their appointment sell or transfer their holding in whole or in part,
so that such holding no longer has the status of significant or is not sufficient to justify the appointment.
When, due to supervening circumstances, the director is subject to any of the grounds for incompatibility or prohibition
provided for in the law, the Corporate Bylaws or these Regulations.
When the director is prohibited by law from acting as a director.
If requested to do so by the Board of Directors as a result of a determination having been made under article 11.7 of the
Corporate Bylaws to the extent that such determination is due to the fact that such director is a member of the Board
of Directors.
When the director ceases to have the good standing, suitability, reliability, competence, availability or commitment to
office necessary to be a director of the Company.
When his or her presence on the Board of Directors might jeopardise, for any reason, directly, indirectly or through any
person related to him, the loyal and diligent exercise of his functions in accordance with the corporate interest.
When his remaining on the Board of Directors might affect the Company’s credit or reputation in the market or
otherwise jeopardises its interests.
C.1.43
Indicate whether any director has notified the company that they have been indicted or tried for any of the offences
stated in article 213 of the Spanish Companies Law.
No
Name of director
–
Criminal proceedings
–
Remarks
–
Indicate whether the board has examined this matter. If so, provide a justified explanation of the decision taken as to whether or
not the director should continue to hold office or, if applicable, detail the actions taken or to be taken by the board.
–
Decision/action taken
–
Justified explanation
–
C.1.44 List the significant agreements entered into by the company which come into force, are amended or terminate in the
event of a change of control of the company due to a takeover bid, and their effects.
The following significant agreements contain provisions entitling the counterparties to exercise termination, alteration or other
similar rights, in the event of a change of control of the Company:
•
•
•
the brand alliance agreement in respect of British Airways and Iberia’s membership of “oneworld”, the globally-branded
airline alliance, could be terminated by a majority vote of the parties in the event of a change of control of the Company.
the joint business agreement between British Airways, Iberia, American Airlines and Finnair and the joint business
agreement between British Airways, Japan Airlines and Finnair can be terminated by the other parties to those
agreements in the event of a change of control of the Company by either a third party airline, or the parent of a third
party airline.
Certain British Airways exchange and interest rate hedging contracts allow for early termination if after a change of
control of the Company British Airways’ credit worthiness was materially weaker.
In addition, the Company’s share plans contain provisions as a result of which options and awards may vest and become
exercisable on a change of control of the Company in accordance with the rules of the plans.
184
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED C.1.45
Identify, in aggregate form and provide detailed information on agreements between the company and its officers,
executives and employees that provide indemnities, guarantee or “golden parachute” clauses for the event of
resignation, unfair dismissal or termination as a result of a takeover bid or other type of transaction.
Number of beneficiaries
12
Type of beneficiary
Description of the resolution
Executive Directors and
IAG Management
Committee
Chairman
There are no express provisions in executive directors and senior executives service contracts with
the Company for compensation payable upon termination of those contracts, other than for
payments in lieu of notice. The period of notice required from the executive directors and senior
executives is six months; the period of notice required from the Company is 12 months.
Where the Company makes a payment in lieu of notice, a lump sum in lieu of six months’ basic salary
is payable within 28 days of the date of termination of employment. A payment in respect of basic
salary for the second six months period only becomes payable if, in the Company’s reasonable
opinion, the executive directors and senior executives have taken reasonable steps to find alternative
paid work and then only in six monthly instalments. The Company may reduce the sum payable in
respect of any month by any amount earned by the executive directors and senior executives
(including salary and benefits) referable to work done in that month.
Antonio Vázquez has a specific agreement if his service contract is terminated for whatever reason.
Additional information on this agreement has been provided in the Annual Report on the
Remuneration of the Directors.
Indicate whether these agreements must be reported to and/or authorised by the governing bodies of the company or
its group.
Body authorising clauses
Is the Shareholders’ Meeting informed of such clauses?
Board of Directors
Shareholders’ Meeting
X
Yes
X
No
C.2
C.2.1
Board committees
Give details of all board committees, their members and the proportion of executive, proprietary, independent and
other non-executive directors on them:
EXECUTIVE OR DELEGATE COMMITTEE
Name
–
–
% of executive directors
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
–
–
Type
–
–
–
–
–
–
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
–
Indicate whether the composition of the executive or delegate committee reflects the participation within the board of the
different types of directors:
No
If not, explain the composition of the executive or delegate committee
–
185
FINANCIAL STATEMENTS www.iairgroup.com AUDIT COMMITTEE
Name
James Lawrence
Patrick Cescau
Kieran Poynter
Alberto Terol
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
Chairman
Member
Member
Member
Type
Independent
Independent
Independent
Independent
–
100%
–
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
a)
Rules of organisation and operation:
The Audit and Compliance Committee shall be made up of no less than three and no more than five
non-executive directors appointed by the Board, with the dedication, capacity and experience necessary to
carry out their function. The members of the Audit and Compliance Committee, and particularly its Chairman,
shall be appointed in light of their knowledge and experience on accounting, audit and risk management
matters, and at least one of them shall have recent and relevant financial experience.
A majority of the members of the Audit and Compliance Committee shall be independent directors and one of
them, at least, shall be appointed in light of his knowledge and experience on accounting or audit matters,
or both.
The Board of Directors shall designate an Audit and Compliance Committee chairman from among the
independent directors on the Audit and Compliance Committee who must be replaced at least every four
years and may stand for re-election one year after vacating office. The Secretary or his nominee shall act as
secretary to the Audit and Compliance Committee.
The Audit and Compliance Committee shall meet whenever convened by its chairman, at his own initiative, or
at the request of at least two of its members and at least once every three months and, in all cases, where the
Board of Directors requests the issue of reports, the presentation of proposals or the adoption of resolutions
within the scope of its functions.
The Chairman of the Audit and Compliance Committee shall have the power to call committee meetings and
to establish the agenda. The Audit and Compliance Committee shall be validly convened without prior call
when all of its members are present and unanimously agree to hold a meeting. The call notice for ordinary
meetings shall include the agenda, shall be served in writing sufficiently in advance to ensure that members
receive it no later than three days before the date of the meeting and shall be authorised by the signature of
the Chairman of the Audit and Compliance Committee or the Secretary or whomsoever acts as such.
Extraordinary meetings may be called by telephone and the above requirements shall not apply where the
Chairman of the Audit and Compliance Committee deems that the circumstances justify it.
The Audit and Compliance Committee shall be validly convened where more than half of its members are
present, in person or by proxy, and decisions shall be adopted by an absolute majority of the members present,
in person or by proxy.
The Audit and Compliance Committee may call any employee or officer of the Company and may even order
them to appear without the presence of any other officer.
b)
Functions:
The key function of the Audit and Compliance Committee is to assist the Board of Directors in oversight and
control of the Group, regularly checking compliance with the legal provisions and internal regulations
applicable to the IAG Group.
186
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED The main functions of the Audit and Compliance Committee include:
A.
In relation to the Shareholders’ Meeting:
a.
To report to the Shareholders’ Meeting on questions raised in relation to any matters under
the Committee’s competence and, in particular, on the results of the statutory audit
explaining how this has contributed to the integrity of the financial information and the role
that the Committee has performed in this process.
B.
With regard to the external auditor:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
To submit to the Board the proposals on the selection, appointment, reappointment and
substitution of the auditor, assuming responsibility for the selection process, and the terms of
its engagement, its remuneration (ensuring its independence and quality are not
compromised), the scope of its professional mandate and the revocation or renewal of its
appointment.
To regularly collect information from the auditors on the audit plan and its implementation, as
well as preserving their independence in the exercise of their functions. In particular, to
ensure that the Company and the external auditor respect the current legislation on provision
of non-audit services, the limits on the auditor’s business concentration and, in general, any
other rules regarding auditor independence.
To oversee compliance with the audit agreement, ensuring that the opinion concerning the
annual accounts and that the principal contents of the audit report are drafted in a clear and
precise manner.
To serve as a channel for communication between the Board and the auditors, to assess the
results of each audit and the response by the management team to their recommendations,
and to mediate in the event of disputes between the auditors and the management team in
relation to the principles and methods used in preparing the annual accounts.
To review the effectiveness of the external audit process.
To establish the appropriate relationships with the external auditor in order to receive
information on matters which may jeopardise its independence, for its examination by the
Committee, and on any other matters relating to the audit process, and, as appropriate, the
authorisation of permissible non-audit services as legally established, as well as any other
communications provided for in the audit legislation and standards. In all cases, the
declaration of their independence in relation to the entity or entities directly or indirectly
related thereto must be received annually from the external auditors, as well as information
on the additional services of any kind provided and the corresponding fees received from
these entities by the external auditors or by persons or entities related thereto pursuant to
the provisions of audit legislation.
To issue on an annual basis, prior to the issue of the auditor’s report, a report expressing an
opinion on whether the independence of the auditor is compromised.
To develop and implement a policy on the engagement of the external auditors to supply
additional non-audit services pursuant to the provisions of the UK Corporate Governance
Code issued by the Financial Reporting Council.
To ensure that the external auditor has a yearly meeting with the Board of Directors to inform
on the work undertaken and any developments in the Company’s risk and
accounting positions.
In the event of the external auditor’s resignation, to review any underlying circumstances and,
in general, to oversee that the Company discloses the change of auditor as price sensitive
information (relevant fact), including a statement regarding any possible discrepancies with
the departing auditor and, if any exist, their content.
C.
In relation to internal control and reporting systems:
a.
b.
To supervise the effectiveness of the internal control of the Company, the internal auditing,
and the risk management systems, including tax risks, and to discuss with the auditor any
significant weaknesses in the internal control systems identified in the course of the audit.
To ensure the independence and efficiency of the internal audit function (which functionally
reports to the Chairman of the Audit and Compliance Committee) to propose the selection,
appointment, reappointment and removal of the head of the internal audit service; to validate
the department’s budget; to approve its annual work plan and focus, ensuring that its activity
is focused principally on the significant risks faced by the Company; to receive periodic
187
FINANCIAL STATEMENTS www.iairgroup.com c.
d.
e.
information on its activities, as well as on any incidents arising; and to check that senior
management takes into account the conclusions and recommendations contained in its
reports.
To periodically review the internal control and risk management systems to ensure that the
principal risks are adequately identified, managed and disclosed.
To monitor the functioning of the Company’s risk control and management unit, accountable
for: (a) ensuring that risk control and management systems are functioning correctly and,
specifically, that major risks the Company faces are correctly identified, managed and
quantified; (b) participating actively in the preparation of risk strategies and in key decisions
about their management; and (c) ensuring that risk control and management systems are
mitigating risks effectively in accordance with the policy drawn up by the Board.
To review the arrangements by which the employees of the Group may, in confidence, raise
concerns about possible irregularities in matters of financial reporting or other matters. The
Audit and Compliance Committee’s objective should be to ensure that arrangements are in
place for the proportionate and independent investigation of such matters and for
appropriate follow-up action.
D.
In relation to financial information:
a.
b.
c.
d.
To supervise the process for the preparation and presentation of the required financial
information and report to the Board on the financial information that the Company is
periodically required to disclose.
To review the Company’s accounts, monitor compliance with legal requirements, the
appropriate definition of the scope of consolidation and the correct application of generally
accepted accounting principles. To review significant financial reporting judgements in the
Company’s accounts. To monitor the functioning of the internal financial control manuals and
procedures adopted by the Company, to verify compliance with them and review the
designation and replacement of the persons responsible for them.
To report to the Board on the steps taken by management to ensure that the Annual Report
and Accounts, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s performance, business
model and strategy.
To report to the Board of Directors on the steps taken by management to assess the viability
of the Company, including whether there is a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall due.
E.
In relation to compliance supervision:
a.
b.
c.
d.
e.
f.
To assess the level of compliance with the Bylaws, the Board Regulations and the Internal
Code of Conduct in matters relating to the securities market and, in general, with the
Company’s rules on governance and to make the necessary proposals for improvement,
assessing regularly the effectiveness of the Company’s corporate governance system, to
confirm that it is fulfilling its mission to promote the corporate interest and accommodating,
as appropriate, the legitimate interests of the remaining stakeholders. In particular, the Audit
and Compliance Committee shall be responsible for receiving information and, as the case
may be, issuing reports on the disciplinary measures to be applied to senior executives of
the Company.
To consider suggestions from the Audit and Compliance Committee Chairman, directors,
senior executives or shareholders, and to report and make proposals to the Board with
regard to any measures it deems appropriate in relation to the audit activity and any others
assigned to it, as well as with regard to compliance with legislation on market reporting and
transparency and accuracy of the same.
To oversee the communication and relations strategy with shareholders and investors,
including small and medium-sized shareholders.
To review the Company’s corporate social responsibility policy, ensuring that it is geared to
value creation.
To monitor corporate social responsibility strategy and practices and assess compliance in
this respect.
To monitor and evaluate the Company’s interaction with its stakeholder groups.
188
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED g.
h.
To evaluate all aspects of the non-financial risks the Company is exposed to, including
operational, technological, legal, social, environmental, political and reputational risks.
To coordinate non-financial and diversity reporting processes in accordance with applicable
legislation and international benchmarks.
F.
Other responsibilities:
a.
b.
c.
To report on related transactions or on transactions that entail or may entail a conflict of
interest, in the terms established in the Board Regulations.
To report to the Board, prior to the adoption by it of the corresponding decision, regarding
the creation or acquisition of interests in special purpose entities or entities registered in
countries or territories regarded as tax havens, as well as any other transactions or operations
of a similar nature that, due to the complexity thereof, might detract from the transparency of
the Group.
To receive information on any relevant structural or corporate transactions that the Company
plans to undertake, for its analysis and subsequent report to the Board of Directors on its
economic conditions and accounting impact and particularly, when applicable, on the
exchange ratio proposed.
c)
Steps taken during the year:
The Committee’s principal activities during the year were:
•
•
•
•
review of financial statements and announcements relating to the financial performance and
governance of the Group;
review of the effectiveness of the internal control system, provide assurance on the risk management
process and review the principal risks facing the Group;
review and agreement of the internal audit programme, resourcing, effectiveness and resolution of
issues raised; and
recommending the appointment of external auditors and reviewing their effectiveness, fees, terms of
reference and independence.
State the member of the Audit Committee who has been appointed having regard to his/her knowledge or experience in
accounting and/or audit matters and indicate the number of years the Committee chairman has held office.
Name of director with experience
Number of years Committee chairman has held office
NOMINATION AND REMUNERATION COMMITTEE
Name
–
–
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
–
–
Kieran Poynter
1
Type
–
–
–
–
–
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
–
189
FINANCIAL STATEMENTS www.iairgroup.com NOMINATIONS COMMITTEE
Name
Sir Martin Broughton
Antonio Vázquez
Cesar Alierta
Baroness Kingsmill
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
Chairman
Member
Member
Member
Type
Independent
Other external
Independent
Independent
–
75%
25%
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
a)
Rules of organisation and operation:
The Nominations Committee shall be made up of no less than three and no more than five non-executive
directors appointed by the Board, with the dedication, capacity and experience necessary to carry out their
function. A majority of the members of the Nominations Committee shall be independent directors.
The Board of Directors shall designate a Nominations Committee Chairman from among the independent
directors forming part of the Committee. The Secretary of the Board of Directors or his or her nominee shall
act as Secretary to the Nominations Committee.
The Nominations Committee shall meet whenever convened by its Chairman, at his or her own initiative, or at
the request of two or more of its members and at least once every year and, in all cases, where the Board
requests the issue of reports, the presentation of proposals or the adoption of resolutions within the scope of
its functions.
b)
Functions:
The main functions of the Nominations Committee include:
A.
B.
C.
D.
E.
F.
G.
H.
I.
To evaluate the competencies, knowledge and experience necessary on the Board and report on and
review the criteria to be followed for its composition and the selection of candidates, defining the
necessary functions and skills and evaluating the time and dedication required to correctly perform its
remit.
To submit to the Board the proposed appointments of independent directors for their designation by
cooption or, as the case may be, to submit the decision to the Shareholders’ Meeting, as well as
proposals for the re-appointment or removal of such directors by the Shareholders’ Meeting.
To report on the proposals of the Board for the appointment of the remaining directors for their
designation by cooption or, as the case may be, to submit the decision to the Shareholders’ Meeting,
as well as proposals for the re-appointment or removal of such directors by the Shareholders’ Meeting.
To report on the proposed designation or removal from office of the Board (including the Secretary
and the Deputy Secretary) and propose to the Board the members that are to form each of the Board
committees and their chairmen.
To put in place plans for the succession of directors, in particular, the succession of the Chairman and
the Chief Executive and, as the case may be, to make proposals to the Board of Directors so that such
succession occurs in a planned and orderly manner.
To oversee and establish guidelines relating to the appointment, recruitment, career, promotion and
dismissal of senior executives in order to ensure that the Company has the highly-skilled personnel
required for its management.
To report on the proposed appointment and/or removal of senior executives of the Company.
To report on the proposed appointment and/or removal of members of the managing bodies of the
main subsidiaries and/or investees of the Group and on the appointment of their chairmen and chief
executive officers.
To ensure that, on appointment, non-executive directors receive a formal letter of appointment setting
out clearly what is expected from them in terms of time commitment, committee service and
involvement outside Board meetings.
190
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED J.
K.
L.
To identify directors qualified to fill vacancies on any committee of the Board of Directors (including
the Nominations Committee).
To establish a target for the representation of the underrepresented gender on the Board which
should be pursued by the Company’s director selection policy.
To submit to the Board the annual report on the evaluation of the Board as a whole.
c)
Steps taken during the year:
The Committee’s principal activities during the year were:
•
•
•
•
•
•
•
•
•
•
Board succession planning;
succession planning for the Group Chief Executive, the IAG Management Committee and leadership
teams of the Group operating companies;
performance evaluation of the Chairman and the Chief Executive;
annual review of the category of each director;
assessment of directors re-election;
review of investors’ feedback from the 2015 Shareholders’ Meeting;
review of appointments to the Group subsidiary boards;
2015 Spanish Good Governance Code for Listed Companies;
refresher programmes for non-executive directors; and
annual performance evaluation planning for the Board and for the Committee.
REMUNERATION COMMITTEE
Name
Dame Marjorie Scardino
Baroness Kingsmill
María Fernanda Mejía
Alberto Terol
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
Chairwoman
Member
Member
Member
Type
Independent
Independent
Independent
Independent
–
100%
–
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
a)
Rules of organisation and operation
The Remuneration Committee shall be made up of no less than three and no more than five non-executive
directors appointed by the Board of Directors, with the dedication, capacity and experience necessary to carry
out their function. A majority of the members of the Remuneration Committee shall be independent directors.
The Board shall designate a Remuneration Committee Chairman from among the independent directors
of the Remuneration Committee. The Chairman of the Board may not be appointed as Remuneration
Committee Chairman. The Secretary of the Board or his or her nominee shall act as secretary to the
Remuneration Committee.
The Remuneration Committee shall meet whenever convened by its Chairman, at his or her own initiative,
or at the request of two or more of its members and at least twice every year and, in all cases, where the
Board requests the issue of reports, the presentation of proposals or the adoption of resolutions within
the scope of its functions.
b)
Functions
The main functions of the Remuneration Committee include:
A.
To propose to the Board the system and amount of the annual remuneration for directors, as well
as the individual remuneration of the executive directors and the other terms of their contracts.
191
FINANCIAL STATEMENTS www.iairgroup.com B.
C.
D.
E.
F.
G.
H.
I.
To report to the Board on the contractual terms on termination for the senior executives,
including executive directors, and to ensure that any payments made are fair to the individual
and the Company, that failure is not rewarded and the duty to mitigate loss is fully recognised.
To report to the Board on the senior executive remuneration policy and the basic terms of
their contracts.
To report on incentive plans and pension arrangements.
To periodically review the remuneration policy for directors and senior executives, taking into
account their suitability and performance and how they reflect and support the Company strategy.
When considering the remuneration policy, to review and have regard to the remuneration trends
and to pay and employees conditions in the Group. And also to obtain reliable, up-to-date information
about remuneration in other companies. To help fulfil its obligations, the Committee shall have full
authority to appoint remuneration consultants and to commission or purchase any reports, surveys
or information which it deems necessary.
To monitor compliance with the Company’s remuneration policy.
To ensure that the disclosure requirements of the Spanish and the United Kingdom listing rules,
any other applicable listing rules, the law or regulation and relevant stock exchanges are fulfilled,
including the annual report on directors’ remuneration.
To ensure that any conflicts of interest do not jeopardise the independence of the external advice
provided to the Committee.
To verify the information on directors’ and executives’ remuneration contained in the different
corporate documents, including the annual report on directors’ remuneration.
c)
Steps taken during the year:
The Committee’s principal activities during the year were:
•
•
•
•
•
•
•
•
•
•
Review of IAG Executive Committee members’ basic salaries.
Implementation arrangements for the strengthened malus and clawback provisions.
2014 annual incentive plan payments to IAG Executive Committee members.
Vesting outcome of the Performance Share Plan 2012 award.
Final review of 2014 Directors’ Remuneration Report.
Preparation for the 2015 Annual General Meeting.
Spain and UK executive remuneration market update, including new Spanish Corporate Governance
Code recommendations.
Remuneration strategy for 2016.
First update on the 2015 Directors’ Remuneration Report.
Remuneration arrangements arising as a result of the Aer Lingus acquisition.
192
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED SAFETY COMMITTEE
Name
Willie Walsh
Antonio Vázquez
Sir Martin Broughton
Kieran Poynter
% of executive directors
% of proprietary directors
% of external independent directors
% of other non-executive directors
Position
Chairman
Member
Member
Member
Type
Executive
Other external
Independent
Independent
25%
–
50%
25%
Explain the functions attributed to this committee, describe the procedures and rules governing its organization and operation,
and summarize the most important steps taken during the year.
a)
Rules of organisation and operation
The Safety Committee shall be made up of no less than three and no more than five directors appointed by the
Board, with the dedication, capacity and experience necessary to carry out its function.
The Board shall designate a Safety Committee Chairman from among the directors of the Safety Committee.
The Secretary or his or her nominee shall act as secretary to the Safety Committee.
b)
Functions
The main functions of the Safety Committee include:
A.
B.
To receive material safety information about the Company and all the Company subsidiaries and any
franchise, codeshare or wet-lease provider used by any member of the Group;
To exercise a high level overview of the safety activities and resources of the Company and all the
Company subsidiaries and inform the Board as appropriate (recognising that responsibility for safety
matters relating to each subsidiary falls to that subsidiary through its own resources); and
C.
To follow up on any safety related measures as determined by the Board of Directors.
c)
Steps taken during the year:
The Committee’s key topics discussed during the year were:
•
•
•
the relevant safety events which occurred during the relevant period;
regulatory developments and initiatives from industry associations; and
the regular safety review reports of British Airways, Iberia and Vueling.
C.2.2
Complete the following table on the number of female directors on the various board committees at the end of the
last four years.
Executive Committee
Audit Committee
Nomination and Remuneration
Committee
Nominations Committee
Remuneration Committee
Safety Committee
Number of female directors
Year t
Number
–
0
–
1
3
0
%
–
0
–
25
75
0
Year t-1
Number
–
0
–
1
3
0
%
–
0
–
25
75
0
Year t-2
Number
–
0
–
1
2
0
%
–
–
25
66,67
0
Year t-3
Number
–
0
–
1
1
0
%
–
–
25
25
0
193
FINANCIAL STATEMENTS www.iairgroup.com C.2.3
Section eliminated.
C.2.4
Section eliminated.
C.2.5
Indicate, as appropriate, whether there are any regulations governing the board committees. If so, indicate where
they can be consulted, and whether any amendments have been made during the year. Also, indicate whether an
annual report on the activities of each committee has been prepared voluntarily.
The Board committees are governed by the provisions of the Bylaws and the Board Regulations (article 29 of the Board
Regulations for the Audit and Compliance Committee, article 30 for the Nominations Committee, article 31 for the Remuneration
Committee and article 32 for the Safety Committee). Where no specific provision is made, the Board committees shall be
governed, by analogy and where applicable, by the provisions applicable to the Board of the Company.
The above mentioned articles of Board Regulations were modified by the Board during its meeting held on June 18, 2015 in
order to adapt its wording to the reforms introduced by Law 31/2014 which modifies the Spanish Companies Law to improve
corporate governance and certain technical and systematic improvements.
Further amendments were introduced and approved by the Board in its meeting held on December 17, 2015, in order to adapt its
wording to certain of the recommendations of the new Spanish Good Governance Code for Listed Companies published in
February 2015.
The Bylaws and the Board Regulations are available on the Company’s website: www.iairgroup.com.
AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee prepares an annual report on its activities, which is available on the Company’s website
within the Annual Report and Accounts.
NOMINATIONS COMMITTEE
The Nominations Committee prepares an annual report on its activities, which is available on the Company’s website within the
Annual Report and Accounts.
REMUNERATION COMMITTEE
The Remuneration Committee prepares an annual report on its activities, which is available on the Company’s website within the
Annual Report and Accounts.
SAFETY COMMITTEE
The Safety Committee prepares an annual report on its activities, which is available on the Company’s website within the Annual
Report and Accounts.
C.2.6
Section eliminated.
D.
D.1
RELATED-PARTY AND INTRAGROUP TRANSACTIONS
Explain, if applicable, the procedures for approving related-party or intragroup transactions.
Competent body
In accordance with article 3.4 of the Board Regulations, the Board of Directors has the exclusive authority to approve
transactions that the Company or companies in its Group entered into with directors, or shareholders that have a significant
holding or that are represented by the Board of Directors or with any persons related to them.
Procedures for reporting on the approval related-party transactions
The performance by the Company or the companies in the Group of any transaction with directors, with shareholders that have
a shareholding equal to or greater than that legally considered significant from time to time or who have proposed the
nomination of any Company directors, or with their respective related parties, shall be subject to authorisation from the Board of
Directors, following a report by the Audit and Compliance Committee.
The Audit and Compliance Committee has, among other powers, the obligation to report on related transactions or on
transactions that entail or may entail a conflict of interest. The Audit and Compliance Committee ensures that transactions
between the Company or the companies forming part of the Group with the directors, the shareholders referred to in the
preceding paragraph or their respective related persons are carried out under arm’s length conditions and with due observance
of the principle of equal treatment of shareholders.
Where the transactions fall within the ordinary course of business and are customary or recurring in nature, it is sufficient with
the prior general authorisation of the line of operations and its general terms and conditions by the Board, following a report by
the Audit and Compliance Committee.
194
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED However, no authorisation of the Board of Directors is required for those transactions that simultaneously satisfy the following
three conditions: (i) that they are performed by virtue of contracts with standard conditions that are applied en masse to a high
number of customers; (ii) that they are performed at prices or rates generally established by the party acting as supplier of the
good or service in question; and (iii) that the amount does not exceed 1 per cent of the annual consolidated income of the
Group.
The authorisation must be endorsed by the Shareholders’ Meeting in the cases established in law and, in particular, where it
concerns a transaction with a director valued at more than 10 per cent of corporate assets.
In addition to this, and prior to the Audit and Compliance Committee consideration, shareholder related party transactions are
also reviewed by the IAG Management Committee and are reported to the IAG Head of Group Audit and Risk Management.
D.2
List any relevant transactions, by virtue of their amount or importance, between the company or its group of
companies and the company’s significant shareholders.
Name or corporate name
of significant shareholder
BlackRock Inc.
BlackRock Inc.
Qatar Airways
(Q.C.S.C.)
Qatar Airways
(Q.C.S.C.)
Name or corporate
name of the company
or its group company
BlackRock
Investment
Management (UK)
Ltd.
BlackRock
Investment
Management (UK)
Ltd.
Qatar Airways
(Q.C.S.C.)
Qatar Airways
(Q.C.S.C.)
Nature of the
relationship
Type of transaction
Amount (in thousands
of euros)
Commercial
Interest received
477
Commercial
Other
Commercial
Commercial
Services rendered
Reception of
services
47,687
28,881
61,177
D.3
List any relevant transactions, by virtue of their amount or importance, between the company or its group of
companies and the company’s managers or directors.
Name or corporate
name of related party
Relationship
Connection
Amount (in thousands
of euros)
Name or corporate name
of director or senior manger
–
D.4
List any relevant transactions undertaken by the company with other companies in its group that are not eliminated
in the process of drawing up the consolidated financial statements and whose subject matter and terms set them
apart from the company’s ordinary trading activities.
–
–
–
In any case, list any intragroup transactions carried out with entities in countries or territories considered to be tax havens.
Corporate name of the group company
–
Indicate the amount involved in other related-party transactions.
D.5
65,665 thousand of euros.
Brief description of the
transaction
Amount (in thousands
of euros)
–
–
D.6
List the mechanisms established to detect, determine and resolve any possible conflicts of interest between the
company and/or its group, and its directors, management or significant shareholders.
The Board of Directors has the exclusive authority to consider those matters deriving from the duty of loyalty in accordance with
the provisions of the law, including actual or potential conflicts of interest involving directors.
As established in article 20 of the Board Regulations, directors shall adopt the required measures to avoid becoming subject to
conflicts of interest in accordance with the provisions of the law.
Directors must notify the Board, through the Chairman or the Secretary or Deputy Secretary, of any conflict of interest to which
they may be subject.
195
FINANCIAL STATEMENTS www.iairgroup.com In case of conflict, the affected director will not participate in the deliberation and voting on any such matters and shall be
excluded from the number of members in attendance for the purposes of calculating the quorum and voting majorities. In
particular, any director affected by proposals for appointment, reelection or dismissal shall refrain from taking part in the
discussions and voting in respect of such matters.
In a conflict of interest situation, independent directors and other directors who are not affected by the potential conflict of
interest need to ensure that the Company’s interests prevail in such situations, provided that this does not result in any unlawful
damage to any shareholder or third party affected thereby.
The Company provides information, as required by the law, on any conflict of interest to which the directors have been subject
during the year.
In addition, in accordance with article 33.4 of the Board Regulations, all public requests for delegation of voting powers made in
favour of any director shall disclose, where applicable, the existence of a conflict of interest, and shall provide detailed reasons for
the direction in which the representative shall vote in the event that no instructions are given by the shareholder, subject always
to the provisions of applicable law.
The existing procedures regarding related party transactions have been described in section D.1.
Is more than one group company listed in Spain?
D.7
No
Identify the listed subsidiaries in Spain
Listed subsidiaries
–
Indicate whether they have provided detailed disclosure on the type of activity they engage in, and any business dealings
between them, as well as between the subsidiary and other group companies;
No
Business dealings between the parent and listed subsidiary, as well as between the subsidiary and other group companies
–
Indicate the mechanisms in place to resolve possible conflicts of interest between the listed subsidiary and other group
companies.
Mechanisms to resolve possible conflicts of interest
–
RISK CONTROL AND MANAGEMENT SYSTEMS
Describe the company’s risk management system, including tax risks.
E.
E.1
The Group has an Enterprise Risk Management Policy approved by the Board on January 28, 2016. This Policy establishes a
common framework within the Group to manage and control the financial and non-financial risks the Group is exposed to,
establishing the risk level that is considered acceptable.
The Board of Directors has ultimate responsibility for risk management and internal control, including the determination of the
nature and extent of the principal risks it is willing to take to achieve its strategic objectives.
The Audit and Compliance Committee reviews all enterprise risk management matters on behalf of the Board. This includes a six
monthly IAG risk map review containing a robust assessment of the principal risks facing the Group and how these risks are
managed or mitigated to reduce their incidence or their impact. The Audit and Compliance Committee also carries out deep
dives on selected risks as and when requested. During such reviews the requirement for any changes to the Board’s risk appetite
is considered. The Audit and Compliance Committee also monitors and reviews the risk management systems, satisfying itself
that they are functioning effectively and that corrective action is being taken where necessary.
Within this common framework, enterprise risk management is led by the Management Committee of IAG supported by the
Aer Lingus, British Airways, Iberia and Vueling Management Committees.
Enterprise risk management at British Airways and Iberia
Both British Airways and Iberia have well established enterprise risk management systems that ensure that:
a.
Each risk is owned by a Senior Manager who is ultimately responsible for its management;
196
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED b.
c.
d.
e.
A central record is kept of all risks, their owners and mitigating actions on systems in both British Airways and Iberia.
The two enterprise risk management systems allow risk owners to update risk records online and central risk
management teams to monitor updates;
A risk map representing the likelihood and potential impact of each risk is reviewed at least every six months by the
British Airways and Iberia Management Committees;
There are defined procedures for updating risks and the mitigating actions in place to manage those risks; and
There is active participation from both the Senior Managers managing the risks and the executive leadership teams in
British Airways and Iberia.
Risks are classified by their source in:
a.
b.
c.
d.
e.
Strategic: risks arising from the competitive and regulatory environment, major projects and strategic decisions;
Business and operational: risks encompassing emergencies, information technology operations, major project
implementation and airline operations;
Financial: risks including liquidity and financing;
Compliance and regulatory: risks associated with compliance with laws and regulation; and
Latent: low likelihood high impact risks such as terrorism, and fleet grounding.
Enterprise risk management in Aer Lingus and Vueling
Enterprise risk management in Aer Lingus was well established on its acquisition by IAG in 2015. The risk map was reviewed by
the IAG Management Committee in October 2015. There are four risk classifications: stakeholder confidence, cost
competitiveness, organisational agility and customer reach. Risks are assessed before mitigation, the inherent risk, and after
mitigation, the residual risk. The Aer Lingus Management Committee review considers significant changes to any of the risks,
new risks and the adequacy of risk mitigation. Underlying the Aer Lingus Management Committee review there are departmental
risk registers allocating risks and mitigating actions to owners.
Enterprise risk management in Vueling is the responsibility of the Vueling Management Committee. A central record of risks is
maintained and each risk is owned by a director. The central records contain mitigating actions and how the Vueling
Management Committee receives assurance on the risk. The risk classifications are aligned to those in British Airways and Iberia
as detailed above.
Enterprise risk management in the Company
At the Group level, material risks from the airlines, together with Group wide risks, are maintained in a Group risk map. The IAG
Management Committee reviews the Group risk map twice a year in advance of reviews by the Audit and Compliance. The
Board of Directors also discusses risk at a number of meetings, including a review of the Group’s risk appetite and discussions
around strategy and the business plan.
During 2015 the Board considered and adopted 19 risk appetite statements. These statements inform the business, either
qualitatively or quantitatively, on the Board’s appetite for certain risks. Each risk appetite statement defines how performance will
be monitored either on a Group-wide basis or within major projects.
Tax risk
Tax risk is explicitly included within the Group’s Enterprise Risk Management Policy. Tax risk is owned by the IAG Head of Tax and
is reported to the IAG Management Committee and Audit and Compliance Committee twice a year. Tax risk is mitigated by an
IAG Tax Policy which considers engagement between the tax department and the business; compliance with tax obligations; tax
planning; reputation; and transparency.
Identify the bodies responsible for preparing and implementing the risk management system, including tax risks.
E.2
Within Iberia for the first half of 2015, the Compliance and Corporate Risk Manager reported to the Director of Risk and Security,
who reported to the Corporate Director who sits on the Iberia Management Committee. Responsibility changed for the second
half of 2015 and responsibility was assumed by the Manager Iberia Internal Audit who reported, for the purposes of enterprise
risk management, to the Chief Financial Officer who sits on the Iberia Management Committee.
Within British Airways, the Head of Risk Management reports to the Director of People and Legal who sits on the British Airways
Management Committee.
Within Aer Lingus, the Corporate Safety and Risk Manager reports to the Chief Executive Officer.
Within Vueling the enterprise risk management process is facilitated by the IAG Head of Group Audit and Risk Management and
is owned by the Vueling Management Committee.
The management committees of British Airways, Iberia, Vueling and Aer Lingus review their respective risk maps. The IAG
Management Committee together with the Audit and Compliance Committee review the Group risk map.
197
FINANCIAL STATEMENTS www.iairgroup.com The Group Treasury Committee manages fuel and foreign exchange risk within the Financial Risk Management Policy approved
by the Board of Directors.
The IAG Tax Department manages tax risk. The IAG Head of Risk Management and Internal Audit reports tax risk to the IAG
Management Committee and the Audit and Compliance Committee.
Indicate the main risks, including tax risks, which may prevent the company from achieving its targets.
E.3
The main risks classified by their source are listed below:
Strategic
a.
Competition
b.
c.
d.
Airline industry consolidation and deregulation
Government intervention
Airport infrastructure and suppliers
Business and operational
Brand reputation
a.
b.
c.
d.
e.
f.
g.
h.
i.
Economic conditions
Employee relations
Failure of a critical IT system
Cyber attack
Pandemic
Increases in landing fees and security charges
Safety/security incident
Event causing significant network disruption
Financial
a.
Future availability of debt funding
b.
c.
Financial risk including fuel price, currency fluctuation, interest rate fluctuation and counterparty failure
Changes to tax legislation or challenge from tax authorities on the interpretation of legislation
Compliance and regulatory
a.
Complexity of the Group governance structure
b.
Non-compliance by an individual or group of individuals with competition, anti-bribery and corruption legislations
Identify whether the company has a risk tolerance level, including tax risks.
E.4
The Board has adopted 19 risk appetite statements. These statements inform the business, either qualitatively or quantitatively,
on the Board’s appetite for certain risks. Each risk appetite statement defines how performance will be monitored either on a
Group wide basis or within major projects. Risk tolerance is also considered, but not necessarily quantified, in assessing the risk
of new projects when presented to the Board of Directors for approval.
E.5
Risk that occurred during the fiscal year
Identify any risks, including tax risks, which have occurred during the year.
Circumstances giving rise thereto
The Group is exposed to currency
devaluation of cash held in currencies
other than the airlines’ local currencies
that is euro and sterling. This risk is
minimised by holding cash in euro and
sterling wherever possible, although
exchange controls in some markets will
from time to time delay conversion and
repatriation of funds. This was the case
of British Airways which experienced
delays in the repatriation of funds from
Nigeria during the second half of 2015.
Performance of control systems
The commercial policy for selling tickets in
Nigeria and the capacity deployed in the
market was kept under regular review at
the IAG Management Committee together
with the Audit and Compliance Committee
during the year. At the year-end British
Airways held balances of €72 million
equivalent in Nigerian Naira.
Currency fluctuation
198
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED Explain the response and monitoring plans for the main risks, including tax risks, the company is exposed to.
E.6
Main risk
Competition
Response and Monitoring Plans
The IAG Management Committee devotes one weekly meeting per month to strategy issues. The
Group strategy team supports the Management Committee by identifying where resources can be
devoted to exploit profitable opportunities. Airline revenue management departments and systems
optimise market share and yield through pricing and inventory management activity.
Our strong global market positioning, leadership in strategic markets, alliances, joint businesses, cost
competitiveness and diverse customer base continue to address this risk.
We also continually review our product offering and respond through initiatives such as investing in
Wi-fi across 90 per cent of the long-haul fleet by early 2019.
The Group’s unrelenting focus on the customer, together with our own exploitation of digital
technology, reduces the space available in which competitive digital disruptors can operate.
The Group maintains rigorous cost control and targeted product investment to remain competitive.
The Group has the flexibility to react to market opportunities arising from weakened competitors.
Vueling and Iberia Express give additional flexibility in this regard as it can deploy capacity at short
notice across Europe.
The IAG Management Committee regularly reviews the commercial performance of joint business
agreements and the status of any negotiations between the parties.
Maintaining a leading presence in oneworld and ensuring the alliance attracts and retains the right
members is key to safeguarding the network.
The Group’s government affairs departments monitor government initiatives, represent the point of
view of the Group and forecast likely changes to laws and regulations.
The ability of the Group to comply with and influence any changes in regulations is key to
maintaining our operational and financial performance.
Airline industry
consolidation and
deregulation
Government intervention
Airport infrastructure and
suppliers
IAG continues to talk to the UK Government about the negative effect the imposition of Air
Passenger Duty (APD) has on the UK economy.
The Group continues to promote the timely conclusion of the UK Government deliberations on
additional runway capacity at London Gatwick and London Heathrow airports.
Brand reputation
Economic conditions
Employee relations
Failure of a critical IT
system
IAG airlines participates in the slot trading market at Heathrow airport, acquiring slots at reasonable
prices when available.
Supplier performance risk is mitigated by active supplier management and contingency plans. We
enter into long-term contracts with fuel suppliers wherever this can secure fuel supply at a
reasonable cost. Short-term fuel shortages are addressed by contingency plans.
The Group allocates substantial resources to safety, operational integrity, and new aircraft to
maintain its market position. Our 2016 – 2020 Business Plan sees average annual Capital
Expenditure of €2.5 billion of which around 80 per cent is directed towards improving, growing and
replacing the aircraft fleet.
The IAG Board and Management Committee review the financial outlook and business performance
of the Group through the financial planning process and regular reforecasts.
These reviews are used to drive the Group’s financial performance through the management of
capacity and the deployment of that capacity in geographic markets, together with cost control,
including management of capital expenditure and the reduction of operational and financial
leverage.
Human resource departments within the airlines engage in collective bargaining with the many trade
unions representing our staff.
Within each operating company system controls, disaster recovery and business continuity
arrangements exist to mitigate the risk of a critical system failure.
In 2015 British Airways commenced the implementation of its new customer management system
that provides passenger check-in and aircraft loading. This is a critical operational system. 2016 will
see the implementation of the system in complex and high volume stations including Gatwick and
Heathrow. The project has a strong risk management workstream designed to minimise, but not
eliminate, the risk of disruption during implementation.
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FINANCIAL STATEMENTS www.iairgroup.com Main risk
Response and Monitoring Plans
Pandemic
Increases in landing fees
and security charges
Safety/security incident
Event causing significant
network disruption
Future availability of debt
funding
Financial risk
Changes to tax legislation
or challenge from tax
authorities on the
interpretation of legislation
Complexity of the Group
governance structure
Non-compliance by an
individual or group of
individuals with
Competition, Anti-Bribery
and Corruption Law
The Company has comprehensive pandemic business continuity plans.
The Group engages in regulatory reviews of supplier pricing.
The corresponding safety committee of each of the airlines of the Group satisfies itself that the
airlines have appropriate safety resources and procedures, which include compliance with Air
Operator Certificate requirements. Each airline has incident centres, which respond in a structured
way in the event of a safety or security incident.
Management has robust business continuity plans to mitigate these risks to the extent feasible.
The IAG Management Committee regularly reviews the Group’s financial position and financing
strategy.
Fuel price risk is partially hedged through the purchase of oil derivatives in forward markets which
can generate a profit or a loss. The IAG Management Committee regularly reviews its fuel hedging
positions.
The Group seeks to reduce foreign exchange exposures arising from transactions in various
currencies through a policy of matching, as far as possible, receipts and payments in each individual
currency and actively managing the surplus or shortfall through treasury hedging operations. The
IAG Management Committee regularly reviews its currency positions.
When there are delays in the repatriation of cash coupled with the risk of devaluation, risk is
mitigated by the review of commercial policy for the route. This may involve capacity reductions and
rebalancing the point of sale away from the local market towards the airline’s home market and
renegotiating supplier contracts to allow payment in local currencies.
The approach to fuel and currency financial risk management was reviewed by the Audit and
Compliance Committee during the year.
The Group complies with the tax policy approved by the IAG Board and tax risk is managed by the
IAG tax department and reviewed by the Audit and Compliance Committee. The approval of the
Company’s tax strategy is under the exclusive authority of the Board of Directors.
The governance structure the IAG Group put in place at the time of the merger had a number of
complex features, including nationality structures to protect British Airways’ and Iberia’s routes and
operating licences and merger assurances to preserve the specific interests of those companies.
The governance structure continued to work well in 2015. From January 21, 2016, the merger
assurances expired.
The Company has comprehensive policies to ensure compliance together with training schemes in
place to educate staff in these matters.
INTERNAL CONTROL OVER FINANCIAL REPORTING (ICFR)
F.
Describe the mechanisms which comprise the internal control over financial reporting (ICFR) risk control and management
system at the company.
F.1
F.1.1
The entity’s control environment
The bodies and/or functions responsible for: (i) the existence and regular updating of a suitable, effective ICFR; (ii)
its implementation; and (iii) its monitoring.
The IAG Board Regulations determine that the IAG Board of Directors is responsible for control policy and periodic monitoring of
internal information and control systems.
This control policy and monitoring is designed to produce reasonable, but not absolute, assurance regarding the safeguarding of
assets against unauthorised use or disposition and the maintenance of proper accounting records and the reliability of financial
information used throughout the business or for publication. These controls are designed to manage rather than eliminate the
risk of failure to achieve business objectives due to circumstances which may reasonably be foreseen and can only provide
reasonable but not absolute assurance against material misstatement, errors, losses or fraud.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED Board of Directors
The Board of Directors of IAG is ultimately responsible for the supervision of the existence and effectiveness of Internal Control
over Financial Reporting (“ICFR”). The Board of Directors has delegated the responsibility for the development of effective
controls to the Chief Executive and the supervision of the effectiveness of these controls to the Audit and Compliance
Committee. The Chief Executive has issued an ICFR policy which requires the IAG Finance Committee to oversee ICFR
throughout the Group and delegates responsibility to the relevant Group Operating Company Chief Financial Officers.
Audit and Compliance Committee
The duties of the Audit and Compliance Committee are set out in section C.2.4 of this report. These duties include:
a.
b.
c.
Review significant reporting judgements contained in the financial statements of the Group;
Monitor the functioning of the internal financial control manuals and procedures adopted by the Company, to verify
compliance with them and review the designation and replacement of the persons responsible for them; and
Supervise the effectiveness of the internal control of the Company, the internal auditing, as the case may be, and the
risk management systems, and to discuss with the auditors or audit firms any significant weaknesses in the internal
control systems detected in the course of the audit.
Audit and Compliance Committee members are appointed based on their knowledge and experience of accounting, auditing,
risk management and compliance matters. They regularly receive updates on developments and regulatory changes in these
areas. The Audit and Compliance Committee also receives regular updates on the Group’s ICFR status.
IAG Disclosure Committee
The IAG Disclosure Committee is chaired by the Group General Counsel and includes the Group Chief Financial Officer and the
Group Head of Investor Relations. The Committee sits monthly (and on an ad-hoc basis) and supports senior management and
the Audit and Compliance Committee by carrying out the following duties related to ICFR:
a.
b.
Review matters discussed at the Management Committee and the Board of Directors to ensure that external disclosure
is adequate; and
Review any financial regulatory disclosures (UK Regulatory Information Services or Spanish Relevant Facts) including
the monthly traffic statistics before publication.
IAG Finance Committee
The IAG Finance Committee sits quarterly and is chaired by the IAG Chief Financial Officer and comprises the IAG Head of
Group Financial Reporting and Control, and the Aer Lingus, British Airways, Iberia, Vueling, IAG Cargo, and Avios chief financial
officers. The Committee supports senior management and the Audit and Compliance Committee by carrying out the following
duties related to ICFR:
a.
b.
c.
d.
Maintain and approve the IAG ICFR policy including delegation of ICFR process ownership to subsidiary chief financial
officers and, where appropriate, to process owners;
Review complex or judgemental accounting issues in the quarterly reports, emerging accounting issues, preparation for
implementation of new accounting standards and issues raised by the external auditors;
Own the Group Accounting Policies and approves any changes thereto; and
Coordinate and monitor ICFR framework implementation and maintenance.
British Airways Finance Committee
The British Airways Finance Committee oversees the implementation of Group accounting policies and procedures within British
Airways. It also approves the accounting treatment of proposed transactions and reviews the impact of emerging business
issues on the accounts. The Committee is chaired by the British Airways Chief Financial Officer and includes the Head of British
Airways Central Finance, the British Airways Treasurer, the IAG Head of Audit UK, and representatives from the British Airways
reporting team.
Iberia and Vueling Finance Directorates
Finance Directorates lead ICFR implementation in Iberia as well as in Vueling. They review and check quarterly financial
statements before submission to IAG; and ensure compliance with IAG accounting policies.
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FINANCIAL STATEMENTS www.iairgroup.com Group Financial Reporting and Control Department
The main responsibilities of the Group Financial Reporting and Control Department, as part of the finance function, and
reporting to the IAG Chief Financial Officer, include:
a.
b.
c.
F.1.2
•
•
•
•
Prepare quarterly financial statements of the Group and monthly internal management accounts;
Monitor accounting standard and regulatory developments; and
Propose changes in the Group accounting policy to the IAG Finance Committee.
The existence or otherwise of the following components, especially in connection with the financial reporting
process:
The departments and/or mechanisms in charge of: (i) the design and review of the organisational structure; (ii) defining
clear lines of responsibility and authority, with an appropriate distribution of tasks and functions; and (iii) deploying
procedures so this structure is communicated effectively throughout the company.
Code of conduct, approving body, dissemination and instruction, principles and values covered (stating whether it
makes specific reference to record keeping and financial reporting), body in charge of investigating breaches and
proposing corrective or disciplinary action.
‘Whistle-blowing’ channel, for the reporting to the Audit Committee of any irregularities of a financial or accounting
nature, as well as breaches of the code of conduct and malpractice within the organisation, stating whether reports
made through this channel are confidential.
Training and refresher courses for personnel involved in preparing and reviewing financial information or evaluating
ICFR, which address, at least, accounting rules, auditing, internal control and risk management.
The Board is responsible for designating the Company’s Chief Executive from among its members, approval of the appointment
or removal of individuals to or from the boards of directors of the principal subsidiaries of the Group and the appointment of
their chairmen and chief executives. The Board is also responsible for decisions concerning the appointment and removal of the
Company’s senior executives. Significant changes to the organisation structure are reviewed and approved by the IAG
Management Committee.
The authorised structure, including job descriptions defining staff responsibilities, is ultimately controlled by the Chief Executive
and delegated to the chief executive officer’ of Aer Lingus, British Airways, Iberia, Vueling, IAG Cargo, and Avios. The authorised
structure is managed by the Chief of Staff’s Human Resources Department in IAG, the Chief People Officer within Aer Lingus,
the Director of People and Legal within British Airways, the Director of Human Resources within Iberia and the Director of
Corporate Areas within Vueling. The authorised structure of the Company, Aer Lingus, British Airways, Iberia and Vueling is
updated and reviewed on an ad hoc basis. In British Airways, Iberia and Vueling it is published on the respective intranet of each
company. In Aer Lingus it is available from the Company Secretary.
The “Way of Business” Group instruction sets out standards of conduct expected of staff and the support that will be available to
the staff from the IAG Management Team in maintaining the expected level of conduct. The Group instruction also sets out IAG
policy on supporting the communities in which it operates and sets out the IAG vision on Corporate Responsibility and the
Environment.
The Group instruction, “Way of Business”, is cascaded down into Aer Lingus, British Airways, Iberia and Vueling through local
policies available on the intranet of each company. Within British Airways this is achieved through British Airways Standing
Instruction 2 “Way of Business”. Within Iberia and Vueling their respective General Code of Conduct sets out principles and
detailed rules governing how board members, managers and employees should act. Minor breaches of the Codes of Conduct
are investigated by Line Managers; more significant breaches are investigated by the Reports Committee in Aer Lingus, the
Asset Protection team in British Airways, by the Legal Directorate in Iberia and the Legal Counsel in Vueling. Disciplinary action is
proposed and administered by line managers in accordance with the employment policies and standards applicable to the
individual. The Group Way of Business does not refer specifically to the financial reporting process and instead ICFR
responsibilities and expectations are communicated through the IAG ICFR policy.
Under the IAG ICFR policy the IAG Chief Executive delegates responsibility for ICFR to the IAG Chief Financial Officer with a
requirement that the chief financial officers of material subsidiaries fully support the IAG Chief Financial Officer. Chief financial
officers are expected to delegate responsibility for ICFR for defined processes to named senior managers within their own
organisations.
There are whistle-blowing channels available throughout the Group where concerns can be raised on a confidential basis. The
Audit and Compliance Committee reviews the effectiveness of whistle-blowing channels on an annual basis. This annual review
reviews the volume of reports by category; timeliness of follow-up; responsibility for follow-up and any issues raised of
significance to the financial statements. The annual review is coordinated by the Head of Group Audit and Risk Management.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED The Company and Iberia use a third-party provider, Ethicspoint, who receives cases online or over the phone on any matter
causing concern to the staff member. Within IAG any such cases will be forwarded to the Head of Business Services and the
Head of Group Audit and Risk Management for investigation. Within Iberia the whistle-blowing channel is managed by the
Compliance Manager within the Legal Directorate who reports cases to a “Complaints Evaluation and Monitoring Group” which
defines the response to the case. This group consists of the Head of Legal Affairs, Compliance Manager, and Labour
Relations Director.
British Airways uses a third party provider, Safecall, who receives cases over the phone on any matter causing concern to the
staff members. Follow up of cases is the responsibility of the British Airways Director of People and Legal who utilises a network
of senior managers and directors throughout the business, including the Director of Safety and Security, to investigate the
concerns.
Vueling uses a third party provider Navex Global, who intakes cases online. The whistle-blowing channel is managed by Legal
Counsel and cases are analysed and investigated by Legal Counsel assisted by internal audit.
Aer Lingus uses Safecall who receives cases via phone or weblink. These are passed for investigation to the Reports Committee
which is made up of the Company Secretary, Director of Legal, Director of Change and Engagement, Executive Counsel and
Corporate Safety and Risk Manager.
All Company staff have an annual individual training programme that sets out their technical and professional skills training
requirements. Achievement of this training plan is monitored twice a year. Within British Airways training is offered on an as
needed basis and as required by law or professional standards. Within Iberia and Vueling there is an Annual Training Plan aimed
at improving the performance of individuals and groups.
Basic finance and risk management training for IAG and British Airways staff is delivered through eLearning modules. IAG has
also delivered classroom based lessons on airline finance basics and interpreting the IAG accounts to widen understanding
beyond the finance team and train accountants joining from other industries. IAG offers finance staff sponsorship to study for
Master of Business Administration qualifications and targeted technical post graduate qualifications offered by leading business
schools. IAG and British Airways offer study leave, financial support and appropriate work experience to staff studying for the
Institute of Chartered Accountants, in England and Wales, the Chartered Institute of Management Accountants and the
Association of Chartered Certified Accountants.
Iberia often uses external providers to develop financial training related to accounting rules, auditing, internal control and risk
management. Managers receive a specific course called “Basic Business Finance” whose goal is to teach financial literacy to
people who have little knowledge on the subject. Job specific training requirements are considered on a case by case basis and
delivered to groups or individuals, often using external providers.
Within Vueling training courses are planned on a yearly basis including all the activities that have been budgeted for the
following year made available to the business units. These activities include general skills training as well as more specific
technical training including financial training. Specific training is also suggested by Finance Directorate whenever regulatory or
accounting changes arise which impact the financial reporting.
Within Aer Lingus financial training is provided on an ad hoc basis dependant on the requirements of the individual and
department. All staff are expected to maintain their accounting technical expertise.
Company finance staff received an average of 3.5 days training in 2015. Members of the IAG Internal Audit team have received
on average 1.5 days ICFR training.
Risk assessment in financial reporting
F.2
Report at least:
F.2.1
•
The main characteristics of the risk identification process, including risks of error or fraud, stating whether:
The process exists and is documented.
•
•
•
•
The process covers all financial reporting objectives (existence and occurrence; completeness; valuation; presentation,
disclosure and comparability; and rights and obligations), is updated and with what frequency.
A specific process is in place to define the scope of consolidation, with reference to the possible existence of complex
corporate structures, special purpose vehicles, holding companies.
The process addresses other types of risk (operational, technological, financial, legal, tax, reputational, environmental,
etc.) insofar as they may affect the financial statements.
Which of the company’s governing bodies is responsible for overseeing the process.
The Group’s Enterprise Risk Management (“ERM”) process assesses the key business risks and mitigating actions facing the
Group. In compiling these risks and mitigating actions a close relationship is established between the ERM teams and the finance
functions. This involves the finance function feeding into the ERM process and reviewing the output of the process to ensure
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FINANCIAL STATEMENTS www.iairgroup.com that the impact of emerging risks are properly captured within the Financial Statements. This review of the completeness of risks
reflected in the Financial Statements is complemented by review of ERM risk maps at the British Airways, Iberia and Vueling’ s
Management Committee and the IAG Audit and Compliance Committee. The ERM process is well developed within Aer Lingus.
Each department including Finance maintains a local risk register maintained by a Risk Champion which feeds the Aer Lingus
Corporate Risk Register reviewed by the Aer Lingus Board. Risks related to financial reporting are therefore assessed regularly.
The ERM process is described fully in section E of this report.
The financial risk assessment is the responsibility of the IAG Finance Committee and is updated and documented annually. The
assessment provides management with a mechanism for the identification of risks and associated controls relevant to the
preparation of the financial report. The risk assessment has two main elements, both of which are reviewed annually by the IAG
Finance Committee:
a.
b.
A high level assessment of key risks to the financial statements focusing on judgemental areas and those susceptible to
error; and
Identification of the key underlying business processes through a quantitative and qualitative risk assessment of the
financial statements of material subsidiaries. The results of this process are set out in section E.3 and include all financial
reporting objectives.
The scope of the consolidation is addressed in two ways. Firstly the establishment of any Special Purpose Vehicles (SPVs) is
approved by the IAG Audit and Compliance Committee, who will confirm the requirement for the SPV, consider the governance
system of the SPV and consider how the SPV will be accounted for. Secondly, the determination of which entities will be
consolidated is considered at the IAG, Aer Lingus, British Airways, Iberia and Vueling group levels. The consolidation is recorded
in a single spreadsheet at IAG but changes are determined by IAG, Aer Lingus, British Airways, Iberia and Vueling based on
developments in the corporate structure during the year. IAG, Aer Lingus, British Airways and Iberia maintain consolidation
hierarchies in their consolidation systems. These hierarchies are subject to access and change controls to ensure their continued
integrity. Transactions or Group developments that require new group companies to be formed or acquired are considered at
the IAG Finance Committee so that the hierarchies can be updated.
Fraud risk at the Company level is most significant in individual projects, generally acquisitions and disposals. This fraud risk is
managed through the individual projects which are staffed with senior professionals from appropriate departments, always
including finance, and third party advisors from leading law firms. As the Company, is a holding company with no commercial
transactions outside individual projects, the risk of a significant fraud in the day to day transactions of the Company is reduced.
Overall responsibility for coordinating the British Airways response to fraud rests with the Head of Corporate Risk and
Compliance. This response includes an Anti-Fraud Policy backed by training and limited by appropriate detective procedures. In
Iberia and Vueling employees must comply with the provisions contained in all in-house regulations of the Company based on
the applicable laws and, in particular, Compliance with Bribery Laws and the rules regarding Guidance for Corporate Hospitality,
Gifts and Entertainment, published on their Intranets.
Control activities
F.3
Indicate the existence of at least the following components, and specify their main characteristics:
F.3.1
Procedures for reviewing and authorising the financial information and description of ICFR to be disclosed to the
markets, stating who is responsible in each case and documentation and flow charts of activities and controls
(including those addressing the risk of fraud) for each type of transaction that may materially affect the financial
statements, including procedures for the closing of accounts and for the separate review of critical judgements,
estimates, evaluations and projections.
The Company’s Management Committee reviews the financial performance of the Group on a monthly basis. This review
examines the previous month’s performance, the forecast for the following quarter and the forecast for the full year against the
finance plan and the prior year. Movements in key performance indicators such as unit revenue and unit cost statistics are
analysed together with the impact of foreign exchange and fuel commodity costs. The analysis is carried out on the Group’s four
main operating units, Aer Lingus, British Airways, Iberia and Vueling. Consistency of these management accounts with the
published quarterly Group accounts leads to a high degree of confidence in the integrity of the published accounts.
The quarterly consolidation process is managed to a pre-agreed timetable and includes reviews and sign offs at key stages in
the process. Within Aer Lingus, the Financial Reporting team consolidates and approves the Aer Lingus group information. This
is approved by the Aer Lingus Chief Financial Officer prior to submission to IAG. Within British Airways the Finance Business
Partners, who are senior finance professionals responsible for each directorate in the business, review and approve consolidation
packs listing the financial information required by the IAG consolidation. This information is then consolidated at the British
Airways group level and is reviewed and approved by the British Airways Chief Financial Officer before final submission to IAG.
Within Iberia the Accounting Department reviews and approves the financial information of the business units together with the
business unit’s responsible senior managers. This information is consolidated at the Iberia group level and reviewed and
approved by the Iberia Chief Financial Officer before final submission to IAG. Within Vueling the Finance Department reviews
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED and approves the financial information in conjunction with the other responsible department senior managers. This information
is reviewed and approved by the Vueling Chief Financial Officer prior to final submission to IAG. These reviews across IAG will
ensure that all material business risks have been properly recorded in the accounts, confirm the accounting treatment of
judgemental areas and ensure the proper application of new accounting standards and guidance notes.
The IAG consolidation process involves a critical review of Aer Lingus, British Airways, Iberia and Vueling group submissions. For
specialist areas, such as treasury, consolidated information is reviewed by subject specialists to identify anomalies,
inconsistencies with management accounting information and any inconsistent interpretation of instructions within the Group.
The final accounts are reviewed by the Group Head of Reporting and Control together with the Chief Financial Officer. A peer
review is also carried out by an experienced finance manager that has not been involved in the latter stages of the
consolidation process.
Critical judgements, estimates, evaluations and projections are, as far as possible reviewed before the year-end close process.
Where appropriate, management obtains the support of internal or external specialists to conclude on any of these matters. The
critical accounting estimates and assumptions include impairment of non-financial assets, pensions and other post-retirement
benefits, passenger revenue recognition, income tax, the residual value of assets and the useful life of assets.
The scope of ICFR in IAG has been based on the material subsidiaries being Aer Lingus, British Airways, Iberia, Vueling and
Avios. The IAG ICFR model contains a Finance Risk & Control Matrix for the Group that includes entity level controls, IT general
controls and 19 main business processes considered relevant to the preparation of the financial statements including:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Cargo Sales
Payroll
Passenger Sales – Ticket Sales
Passenger Sales – Travel
Passenger Sales – Billing/Interline Billing
Fixed Assets – Aircraft
Fixed Assets – Ground Assets
Fixed Assets – Engines and Engine Parts
Fixed & Current Asset Inventory – Engineering
Debtors & Invoicing
Fuel
Buying Goods and Services
m.
User charges
n.
o.
p.
q.
r.
s.
Avios
Treasury
Financial Statement Closing Process
Alliance Partner Arrangements
Tax
Other Revenue
The design, implementation and maintenance of appropriate systems of ICFR is primarily the responsibility of management with
process ownership identified and communicated to the Company, Aer Lingus, British Airways, Iberia, Vueling, and Avios via the
IAG ICFR Policy.
ICFR controls including 388 key controls have been defined across the 19 business processes and IT general controls in order to
provide reasonable assurance as to the reliability of the financial information disclosed to the markets. Such controls can only
provide reasonable and not absolute assurance against material misstatement, errors, losses or fraud. As a result of differences in
business processes across the material subsidiaries not all controls are required in all material subsidiaries.
A Risk & Control Matrix maintains a central source of the following ICFR information for each business process:
a.
b.
c.
Financial reporting objective and associated assertions for each business process and sub-process covering
completeness, existence, accuracy, valuation, rights & obligations and presentation & disclosure;
Risks affecting the reliability of financial reporting including a description of the possible event or action giving rise to
the risk;
Control description of the control activities designed by management and incorporated into policy, procedures or
practices to mitigate the identified risk. The controls are initially classified as key and/or fraud related with the following
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FINANCIAL STATEMENTS www.iairgroup.com additional control characteristics identified; preventative or detective; manual or automated; the frequency of operation;
and who performs the activity; and
d.
Control testing and summary of periodic audit results, including action plan to rectify identified weaknesses.
F.3.2
Internal control policies and procedures for IT systems (including secure access, control of changes, system
operation, continuity and segregation of duties) giving support to key company processes regarding the preparation
and publication of financial information.
IAG Global Business Services manage and support IT systems for the Company, British Airways and Iberia. IT systems used by
Vueling and Avios Group Limited are managed by the operating companies and use of all systems is subject to the control
environments of the host company.
No formal assessment or testing of Aer Lingus IT controls has taken place since the acquisition in August 2015. This exercise will
take place during 2016.
The Company’s IT systems are run on either British Airways, Iberia, Vueling or Avios systems and are subject to the control
environments of the host company. The IAG IT General Controls matrix (“ITGC Matrix”) defines the key IT General Controls (ITGC)
in place across Group over IT systems that support processes related to the preparation of financial information. The ITGC Matrix
is based on the following four processes:
a.
b.
c.
d.
Data Centre and Operations;
Access Security;
System Change and Control;
Disaster Recovery.
A total of 24 ITGC Matrix key controls have been defined across the four information technologies (IT) processes.
British Airways IT Systems
British Airways has established a framework of internal control for the management and administration of IT systems and
processes. This framework includes the IT environment, architecture and infrastructure, and applications relevant to ICFR.
The British Airways framework includes documented baseline standards of control as well as IT policies, grouped under the
following policy areas:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Organisation of Information Security
Policies and Controls Management
Risk Management
Information Asset Management
Personnel Security
Awareness and Training
Physical and Environmental Security
Security Operations
Access Control
Networks and Communications
Systems Development
Incident Management
m.
Business Continuity Management
All applications and systems used by British Airways including those related to ICFR must adhere to the baseline standards as a
minimum standard of internal control.
The documented policies and baseline standards for control activity, when taken together, provide clear direction concerning
expectations for internal control that are required to cover the inherent risks in the following critical IT system management areas:
a.
IT environment
The IT department organisational structure and description of responsibilities
IT systems architecture and infrastructure
Environmental protection against physical damage, loss, theft, or abuse of IT systems and equipment
i)
ii)
iii)
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED b.
System operations
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
Management of back-up files
Incident and problem management
Management of data interfaces and exchange
Service level management and reporting
Management of external partners and third parties
Control of changes
Approval and authorisation of changes
Testing of changes
Release management
c.
Continuity
i)
ii)
iii)
Disaster contingency and recovery plans for IT systems
Business resilience and contingency management arrangements
Fault-resilient system design
d.
Physical and logical security
i)
ii)
iii)
iv)
Information security management
Systems access control
Security operations management
Physical security of data centres
e.
Information security management
An Information Security Department leads, manages and coordinates the dissemination and implementation of information
security practice within British Airways. Information is protected based on its value, confidentiality, criticality to the Company,
and the risk of loss or compromise.
Security measures and controls are implemented to support availability, integrity and confidentiality of information, and guard
against its loss, unauthorised modification, destruction or disclosure. The degree of security protection reflects the value and
sensitivity of the information, the nature of the possible threats, the vulnerability to these threats and the loss, harm, or
embarrassment that could arise from them. These security measures and controls protect against misuse of British Airways’
information resources, where this misuse could cause British Airways, its business partners, customers or employees loss, harm
or embarrassment, or where it could lead to a criminal act such as fraud.
f.
Secure access
Information, computer equipment, software and communications facilities are made available to those who require it in support
of British Airways’ business operations and access is restricted only to those authorised to do so. Resources are organised and
the duties documented, to reduce the risk of unauthorised changes to information, error, theft or fraud and the operation of
certain duties is separated to reduce the opportunities for single individuals to misuse data or services.
Access to infrastructure, platforms and applications is managed via clear segregation of duties and access control processes
and platform, system and application owners are responsible for keeping their systems free of unauthorised and inappropriate
users and access.
External connections to an application are individually identified, verified, recorded and approved by the application owner and
controls are established to maintain the security of British Airways’ information and information processing facilities that are:
accessed, processed, communicated to, or managed by external parties.
Iberia IT Controls
The Iberia framework of internal control over IT systems is based on compliance with data protection law and quality
certifications over key IT control activities.
a.
Demanded by Spanish Data Protection regulation in force
Controls are built around compliance with the Organic Law 15/1999 of December 13 on the Protection of Personal Data and
Royal Decree 1720/2007, of December 21, which approves the regulation implementing Organic Law 15/1999 of December 13 on
the Protection of Personal Data. The most important security measures implemented as a result of this legislation are:
i)
Requirement to have personalised credentials for each user accessing the application. In particular, use of
departmental or generic identifiers is forbidden;
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FINANCIAL STATEMENTS www.iairgroup.com ii)
iii)
iv)
v)
vi)
vii)
Obligation to establish access profiles based on need-to-access rule. Users will only have access to data and
functionality required to carry out the tasks assigned to them by the Company;
Password must be complex;
Password must expire periodically, and users must be able to change it at any time;
Passwords are blocked after a number of denied login attempts;
Passwords are stored encrypted, in order to prevent viewing, and therefore the likelihood of an authorised user
impersonation is minimal; and
Finally, backups and recovery tests must be performed periodically, in order to be able to recover the
information in case of an incident.
b.
Demanded by Quality Certifications
ISO 9001: 2008 establishes a set of quality standards and continuous quality management, established by the International
Organisation for Standardisation (ISO). These quality standards specify how a supervised company operates, its quality
standards, delivery times and service levels. Iberia is ISO 9001: 2008 certified for:
i)
ii)
iii)
iv)
Development and maintenance of information systems;
Systems operation in data processing centre;
Telecommunications network management; and
Installation and maintenance of digital equipment.
In order to comply with its requirements, there are a number of controls in place at Iberia, aimed at ensuring the integrity of data:
i)
ii)
iii)
iv)
Existence of a change management process to prevent uncontrolled changes in the systems;
Existence of procedures to perform backup and recovery, in order to ensure business continuity after an
incident;
Existence of notification and incident response management procedures to ensure incidents resolution in the
minimum time; and
Existence of a critical incidents response protocol.
UNE-ISO/IEC 27001: 2007 (Requirements for Information Technology Security Techniques and Information Security
Management Systems) specifies the requirements for establishing, implementing, maintaining and improving an information
security management system. Iberia is certified in UNE-ISO/IEC 27001: 2007 for iberia.com; employee portal; and data
processing centres.
In order to comply with its requirements, there are a number of controls in place at Iberia:
i)
ii)
iii)
iv)
v)
vi)
Existence of a published security policy, specifying (among others) passwords are personal and not
transferable and the regulation for the use of corporate resources by staff;
Segregation of duties and work environments;
Training sessions for staff, in order to explain the security policy and their obligations under it;
Obligation to limit users’ access to minimal resources for the performance of their duties. This control is
achieved by using:
•
•
•
Network segmentation
Installation of access control software on machines
Applications profiles
Existence of a change management process to prevent uncontrolled changes in the systems; and
Existence of a business continuity plan to ensure service in the event of an incident.
Both UNE-ISO/IEC 27001: 2007 and ISO 9001: 2008 certifications are subject to annual review by Iberia Head of Quality within
the Corporate Affairs Directorate and AENOR, the independent quality certification body.
Vueling IT controls
The Vueling control model over IT systems includes the following key processes:
Logical access control including procedures for adding, changing and deleting users;
Restriction of privileged access rights to application support teams;
Physical access control including restricting access to computer facilities to authorised individuals;
a.
b.
c.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED d.
Systems development and change management including segregation of development, user acceptance and
production environments together with production migration procedures ensuring that testing has been completed
and emergency changes have been monitored; and
e.
Operations practices including batch processing controls, incident resolution and back up.
IT disaster recovery planning requirements are currently being assessed.
The IT Department sits within the Corporate Services Directorate and includes seven managers responsible for IT delivery and
business support.
Aer Lingus IT controls
No formal assessment or testing of Aer Lingus IT controls has taken place since acquisition in August 2015. This exercise will take
place during 2016.
F.3.3
Internal control policies and procedures for overseeing the management of outsourced activities, and of the
appraisal, calculation or valuation services commissioned from independent experts, when these may materially
affect the financial statements.
For all outsourced processes, Service Level Agreements (SLA) are defined, agreed and signed in the contract with the vendor.
As part of the Global Business Service Project British Airways, Iberia, Avios and Cargo have outsourced financial process
support to Accenture. Finance staff maintain a quarterly or half yearly review of outsourced accounts and reconciliations as well
as ongoing monitoring of the operational status of outsourced processes.
When the Group outsources relevant processes for the preparation of financial information to an independent expert, it ensures
the professional’s technical and legal competence. The Group has identified five processes outsourced to independent experts
relevant to financial reporting.
a.
b.
c.
d.
e.
f.
British Airways outsources the derivation of pension scheme accounting, the proposed accounting treatment is subject
to review and challenge by an in-house qualified accountant and pension risk management expert;
Iberia values the obligations to employees and restructuring plan costs by actuarial studies made by independent
experts;
Vueling outsources the valuation of financial instruments and the effectiveness testing of derivatives;
The Group outsources the valuation of assets and liabilities as a part of business combinations;
IAG outsources the calculation of the fare values of share based payment plans; and
Aer Lingus outsources the valuation of pension scheme assets and liabilities.
Information and communication
F.4
Indicate the existence of at least the following components, and specify their main characteristics:
F.4.1
A specific function in charge of defining and maintaining accounting policies (accounting policies area or
department) and settling doubts or disputes over their interpretation, which is in regular communication with the
team in charge of operations, and a manual of accounting policies regularly updated and communicated to all the
company’s operating units.
IAG accounting policies are maintained by the Group Financial Reporting and Control department.
F.4.2 Mechanisms in standard format for the capture and preparation of financial information, which are applied and used
in all units within the entity or group, and support its main financial statements and accompanying notes as well as
disclosures concerning ICFR.
The Group Financial Reporting and Control Department issues reporting instructions at each quarter end.
These instructions establish a timetable for key closing activities such as agreeing intragroup balances, submitting the main
accounting results and detailed disclosures. Assumptions to be used for accounting tests such as Weighted Average Cost of
Capital and percentage sensitivities on derivative transactions are also determined centrally and included in the instructions. The
format of information to be submitted and the entities expected to submit the information is determined within the consolidation
system which also includes validation tests for completeness and internal consistency.
Disclosures relating to ICFR are validated by senior accounting professionals identified by the Chief Financial Officers of IAG, Aer
Lingus, British Airways, Iberia, Vueling and Avios.
Monitoring of the system operation
F.5
Indicate the existence of at least the following components, describing their main characteristics:
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FINANCIAL STATEMENTS www.iairgroup.com F.5.1
The ICFR monitoring activities undertaken by the Audit Committee and an internal audit function whose
competencies include supporting the Audit Committee in its role of monitoring the internal control system, including
ICFR. Describe the scope of the ICFR assessment conducted in the year and the procedure for the person in charge
to communicate its findings. State also whether the company has an action plan specifying corrective measures for
any flaws detected, and whether it has taken stock of their potential impact on its financial information.
The IAG Audit and Compliance Committee reviews all disclosures relating to ICFR and validates the Group’s approach to
complying with the CNMV’s ICFR recommendations. In this respect the Audit and Compliance Committee has been careful to
achieve an appropriate balance between the CNMV’s ICFR recommendations and the UK Corporate Governance Code
approach.
The Internal Audit Department adopts a risk based approach to planning which incorporates financial risk factors. The results of
audits are discussed at the British Airways, Iberia and Vueling Boards of Directors and Management Committees and the IAG
Audit and Compliance Committee. The implementation of actions to address weaknesses identified by the Internal Audit
Department are tracked and follow up audits carried out whenever the overall rating of the original audit was judged to be
“deficient” or “seriously deficient”.
ICFR 2015 Scope
As previously stated, IAG’s ICFR includes the Company, British Airways, Iberia, Vueling, Avios Group Limited and, to a limited
scope as a result of acquisition in the second half of 2015, Aer Lingus. In addition to Entity Level Controls and ITGC’s, 19 business
processes have been identified as having a major impact on financial reporting for 2015 with two in scope for the Company, 18 in
scope for British Airways, 15 in scope for Iberia, five in scope for Vueling and four in scope for Aer Lingus.
Across the entities and business processes identified, the 388 key controls are broken down into 309 business process key
controls and 79 key IT general controls.
Now that the ICFR implementation project is complete, from 2015 onwards all in-scope processes will be tested annually.
However, due to the acquisition of Aer Lingus taking place in the second half of 2015, testing of Aer Lingus processes has been
limited to four processes.
No material weaknesses were detected. A total of three significant weaknesses and 48 weaknesses were detected. Action plans
were put in place with process owners to address each internal control weakness and will be tracked by Internal Audit.
F.5.2
A discussion procedure whereby the auditor (pursuant to TAS), the internal audit function and other experts can
report any significant internal control weaknesses encountered during their review of the financial statements or
other assignments, to the company’s senior management and its Audit Committee or Board of Directors. State also
whether the entity has an action plan to correct or mitigate the weaknesses found.
The Company’s external auditors attend the Audit and Compliance Committee meetings and report on significant control
weaknesses identified during their work. No significant control weaknesses were identified by the external auditors in 2015.
The Head of Group Audit and Risk Management also attends the Audit and Compliance Committee meetings and submits his
report directly to the Audit and Compliance Committee. The Head of Group Audit and Risk Management reports to the Chief
Financial Officer, the Chairman of the Audit and Compliance Committee. The implementation of internal audit recommendations
is tracked by the Audit and Compliance Committee.
Other relevant information
F.6
None.
External auditor review
F.7
State whether:
F.7.1
The ICFR information supplied to the market has been reviewed by the external auditor, in which case the
corresponding report should be attached. Otherwise, explain the reasons for the absence of this review.
The ICFR information supplied to the market has been reviewed by the external auditors, and their auditor report is at the end of
this Annual Corporate Governance Report.
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G.
Indicate the degree of the company’s compliance with the recommendations of the Good Governance Code of
Listed Companies.
Should the company not comply with any of the recommendations or comply only in part, include a detailed explanation of the
reasons so that shareholders, investors and the market in general have enough information to assess the company’s behaviour.
General explanations are not acceptable.
1.
The Bylaws of listed companies should not place an upper limit on the votes that can be cast by a single shareholder, or
impose other obstacles to the takeover of the company by means of share purchases on the market.
Explain
IAG considers that it does not comply with this recommendation because of the restrictions included in the Bylaws of the
Company in relation to the ownership of shares. This is a partial non-compliance because these restrictions derive directly from
the ownership and control restrictions set out in the applicable law or in the bilateral air transport treaties signed by Spain and
the United Kingdom and are not simply determined discretionarily by the Company.
2.
When a dominant and subsidiary company are both listed, they should provide detailed disclosure on:
a)
b)
Not applicable
The type of activity they engage in and any business dealings between them, as well as between the listed
subsidiary and other group companies;
The mechanisms in place to resolve possible conflicts of interest.
3.
During the annual general meeting the chairman of the board should verbally inform shareholders in sufficient detail of
the most relevant aspects of the company’s corporate governance, supplementing the written information circulated in
the annual corporate governance report. In particular:
a)
b)
Complies
Changes taking place since the previous annual general meeting.
The specific reasons for the company not following a given Good Governance Code recommendation, and any
alternative procedures followed in its stead.
4.
The company should draw up and implement a policy of communication and contacts with shareholders, institutional
investors and proxy advisors that complies in full with market abuse regulations and accords equitable treatment to
shareholders in the same position.
This policy should be disclosed on the company’s website, complete with details of how it has been put into practice
and the identities of the relevant interlocutors or those charged with its implementation.
Complies
5.
The board of directors should not make a proposal to the general meeting for the delegation of powers to issue shares
or convertible securities without pre-emptive subscription rights for an amount exceeding 20% of capital at the time of
such delegation.
When a board approves the issuance of shares or convertible securities without pre-emptive subscription rights, the
company should immediately post a report on its website explaining the exclusion as envisaged in company legislation.
Complies
6.
Listed companies drawing up the following reports on a voluntary or compulsory basis should publish them on their
website well in advance of the annual general meeting, even if their distribution is not obligatory:
a)
b)
c)
d)
Complies
Report on auditor independence.
Reviews of the operation of the audit committee and the nomination and remuneration committee.
Audit committee report on third-party transactions.
Report on corporate social responsibility policy.
7.
The company should broadcast its general meetings live on the corporate website.
Complies
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FINANCIAL STATEMENTS www.iairgroup.com
8.
The audit committee should strive to ensure that the board of directors can present the company’s accounts to the
general meeting without limitations or qualifications in the auditor’s report. In the exceptional case that qualifications
exist, both the chairman of the audit committee and the auditors should give a clear account to shareholders of their
scope and content.
Complies
9.
The company should disclose its conditions and procedures for admitting share ownership, the right to attend
general meetings and the exercise or delegation of voting rights, and display them permanently on its website.
Such conditions and procedures should encourage shareholders to attend and exercise their rights and be applied in a
non-discriminatory manner.
Complies
10.
When an accredited shareholder exercises the right to supplement the agenda or submit new proposals prior to the
general meeting, the company should:
a)
b)
c)
d)
Immediately circulate the supplementary items and new proposals.
Disclose the model of attendance card or proxy appointment or remote voting form duly modified so that new
agenda items and alternative proposals can be voted on in the same terms as those submitted by the board
of directors.
Put all these items or alternative proposals to the vote applying the same voting rules as for those submitted
by the board of directors, with particular regard to presumptions or deductions about the direction of votes.
After the general meeting, disclose the breakdown of votes on such supplementary items or
alternative proposals.
Not applicable
11.
In the event that a company plans to pay for attendance at the general meeting, it should first establish a general,
long-term policy in this respect.
Not applicable
12.
The Board of Directors should perform its duties with unity of purpose and independent judgement, according the
same treatment to all shareholders in the same position. It should be guided at all times by the company’s best interest,
understood as the creation of a profitable business that promotes its sustainable success over time, while maximising its
economic value.
In pursuing the corporate interest, it should not only abide by laws and regulations and conduct itself according to
principles of good faith, ethics and respect for commonly accepted customs and good practices, but also strive to
reconcile its own interests with the legitimate interests of its employees, suppliers, clients and other stakeholders, as well
as with the impact of its activities on the broader community and the natural environment.
Complies
13.
The board of directors should have an optimal size to promote its efficient functioning and maximise participation. The
recommended range is accordingly between five and fifteen members.
Complies
14.
The board of directors should approve a director selection policy that:
a)
b)
c)
Is concrete and verifiable;
Ensures that appointment or reelection proposals are based on a prior analysis of the board’s needs; and
Favours a diversity of knowledge, experience and gender.
The results of the prior analysis of board needs should be written up in the nomination committee’s explanatory report, to be
published when the general meeting is convened that will ratify the appointment and re-election of each director.
The director selection policy should pursue the goal of having at least 30% of total board places occupied by women directors
before the year 2020.
The nomination committee should run an annual check on compliance with the director selection policy and set out its findings
in the annual corporate governance report.
Complies
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED
15.
Proprietary and independent directors should constitute an ample majority on the board of directors, while the number
of executive directors should be the minimum practical bearing in mind the complexity of the corporate group and the
ownership interests they control.
Complies
16.
The percentage of proprietary directors out of all non-executive directors should be no greater than the proportion
between the ownership stake of the shareholders they represent and the remainder of the company’s capital.
This criterion can be relaxed:
a)
b)
Complies
In large cap companies where few or no equity stakes attain the legal threshold for significant shareholdings.
In companies with a plurality of shareholders represented on the board but not otherwise related.
17.
Independent directors should be at least half of all board members.
However, when the company does not have a large market capitalisation, or when a large cap company has shareholders
individually or concertedly controlling over 30 percent of capital, independent directors should occupy, at least, a third of board
places.
Complies
18.
Companies should disclose the following director particulars on their websites and keep them regularly updated:
a)
b)
c)
d)
e)
Complies
Background and professional experience.
Directorships held in other companies, listed or otherwise, and other paid activities they engage in, of whatever
nature.
Statement of the director class to which they belong, in the case of proprietary directors indicating the
shareholder they represent or have links with.
Dates of their first appointment as a board member and subsequent re-elections.
Shares held in the company, and any options on the same.
19.
Following verification by the nomination committee, the annual corporate governance report should disclose the
reasons for the appointment of proprietary directors at the urging of shareholders controlling less than 3 percent of
capital; and explain any rejection of a formal request for a board place from shareholders whose equity stake is equal to
or greater than that of others applying successfully for a proprietary directorship.
Not applicable
20.
Proprietary directors should resign when the shareholders they represent dispose of their ownership interest in its
entirety. If such shareholders reduce their stakes, thereby losing some of their entitlement to proprietary directors, the
latters’ number should be reduced accordingly.
Complies
21.
The board of directors should not propose the removal of independent directors before the expiry of their tenure as
mandated by the bylaws, except where they find just cause, based on a proposal from the nomination committee. In
particular, just cause will be presumed when directors take up new posts or responsibilities that prevent them allocating
sufficient time to the work of a board member, or are in breach of their fiduciary duties or come under one of the
disqualifying grounds for classification as independent enumerated in the applicable legislation.
The removal of independent directors may also be proposed when a takeover bid, merger or similar corporate transaction alters
the company’s capital structure, provided the changes in board membership ensue from the proportionality criterion set out in
recommendation 16.
Complies
22.
Companies should establish rules obliging directors to disclose any circumstance that might harm the organisation’s
name or reputation, tendering their resignation as the case may be, and, in particular, to inform the board of any criminal
charges brought against them and the progress of any subsequent trial.
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FINANCIAL STATEMENTS www.iairgroup.com The moment a director is indicted or tried for any of the offences stated in company legislation, the board of directors should
open an investigation and, in light of the particular circumstances, decide whether or not he or she should be called on to resign.
The board should give a reasoned account of all such determinations in the annual corporate governance report.
Complies
23.
Directors should express their clear opposition when they feel a proposal submitted for the board’s approval might
damage the corporate interest. In particular, independents and other directors not subject to potential conflicts of
interest should strenuously challenge any decision that could harm the interests of shareholders lacking board
representation.
When the board makes material or reiterated decisions about which a director has expressed serious reservations,
then he or she must draw the pertinent conclusions. Directors resigning for such causes should set out their reasons
in the letter referred to in the next recommendation.
The terms of this recommendation also apply to the secretary of the board, even if he or she is not a director.
Complies
24.
Directors who give up their place before their tenure expires, through resignation or otherwise, should state their
reasons in a letter to be sent to all members of the board. Whether or not such resignation is disclosed as a material
event, the motivating factors should be explained in the annual corporate governance report.
Complies
25.
The nomination committee should ensure that non-executive directors have sufficient time available to discharge
their responsibilities effectively.
The board of directors regulations should lay down the maximum number of company boards on which directors
can serve.
Complies
26.
The board should meet with the necessary frequency to properly perform its functions, eight times a year at least, in
accordance with a calendar and agendas set at the start of the year, to which each director may propose the addition
of initially unscheduled items.
Complies
27.
Director absences should be kept to a strict minimum and quantified in the annual corporate governance report.
In the event of absence, directors should delegate their powers of representation with the appropriate instructions.
Complies
28.
When directors or the secretary express concerns about some proposal or, in the case of directors, about the
company’s performance, and such concerns are not resolved at the meeting, they should be recorded in the minute
book if the person expressing them so requests.
Complies
29.
The company should provide suitable channels for directors to obtain the advice they need to carry out their duties,
extending if necessary to external assistance at the company’s expense.
Complies
30.
Regardless of the knowledge directors must possess to carry out their duties, they should also be offered refresher
programmes when circumstances so advise.
Complies
31.
The agendas of board meetings should clearly indicate on which points directors must arrive at a decision, so they can
study the matter beforehand or gather together the material they need.
For reasons of urgency, the chairman may wish to present decisions or resolutions for board approval that were not on the
meeting agenda. In such exceptional circumstances, their inclusion will require the express prior consent, duly minuted, of the
majority of directors present.
Complies
32.
Directors should be regularly informed of movements in share ownership and of the views of major shareholders,
investors and rating agencies on the company and its group.
Complies
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED 33.
The chairman, as the person charged with the efficient functioning of the board of directors, in addition to the functions
assigned by law and the company’s bylaws, should prepare and submit to the board a schedule of meeting dates and
agendas; organise and coordinate regular evaluations of the board and, where appropriate, the company’s chief
executive officer; exercise leadership of the board and be accountable for its proper functioning; ensure that sufficient
time is given to the discussion of strategic issues, and approve and review refresher courses for each director, when
circumstances so advise.
Complies
34.
When a lead independent director has been appointed, the bylaws or board of directors regulations should grant him or
her the following powers over and above those conferred by law: chair the board of directors in the absence of the
chairman or vice chairmen give voice to the concerns of non-executive directors; maintain contacts with investors and
shareholders to hear their views and develop a balanced understanding of their concerns, especially those to do with
the company’s corporate governance; and coordinate the chairman’s succession plan.
Not applicable
35.
The board secretary should strive to ensure that the board’s actions and decisions are informed by the governance
recommendations of the Good Governance Code of relevance to the company.
Complies
36.
The board in full should conduct an annual evaluation, adopting, where necessary, an action plan to correct weakness
detected in:
a)
b)
c)
d)
e)
The quality and efficiency of the board’s operation.
The performance and membership of its committees.
The diversity of board membership and competences.
The performance of the chairman of the board of directors and the company’s chief executive.
The performance and contribution of individual directors, with particular attention to the chairmen
of board committees.
The evaluation of board committees should start from the reports they send the board of directors, while that of the board itself
should start from the report of the nomination committee.
Every three years, the board of directors should engage an external facilitator to aid in the evaluation process. This facilitator’s
independence should be verified by the nomination committee.
Any business dealings that the facilitator or members of its corporate group maintain with the company or members of
its corporate group should be detailed in the annual corporate governance report.
The process followed and areas evaluated should be detailed in the annual corporate governance report.
Complies
37.
When an executive committee exists, its membership mix by director class should resemble that of the board.
The secretary of the board should also act as secretary to the executive committee.
Not applicable
38.
The board should be kept fully informed of the business transacted and decisions made by the executive committee.
To this end, all board members should receive a copy of the committee’s minutes.
Not applicable
39.
All members of the audit committee, particularly its chairman, should be appointed with regard to their knowledge and
experience in accounting, auditing and risk management matters. A majority of committee places should be held by
independent directors.
Complies
40.
Listed companies should have a unit in charge of the internal audit function, under the supervision of the audit
committee, to monitor the effectiveness of reporting and control systems. This unit should report functionally to the
board’s non-executive chairman or the chairman of the audit committee.
Complies
215
FINANCIAL STATEMENTS www.iairgroup.com 41.
The head of the unit handling the internal audit function should present an annual work programme to the audit
committee, inform it directly of any incidents arising during its implementation and submit an activities report at the end
of each year.
Complies
42.
1.
The audit committee should have the following functions over and above those legally assigned:
With respect to internal control and reporting systems:
a)
b)
c)
Monitor the preparation and the integrity of the financial information prepared on the company and, where
appropriate, the group, checking for compliance with legal provisions, the accurate demarcation of the
consolidation perimeter, and the correct application of accounting principles.
Monitor the independence of the unit handling the internal audit function; propose the selection, appointment,
re-election and removal of the head of the internal audit service; propose the service’s budget; approve its
priorities and work programmes, ensuring that it focuses primarily on the main risks the company is exposed
to; receive regular report-backs on its activities; and verify that senior management are acting on the findings
and recommendations of its reports.
Establish and supervise a mechanism whereby staff can report, confidentially and, if appropriate and feasible,
anonymously, any significant irregularities that they detect in the course of their duties, in particular financial or
accounting irregularities.
2. With regard to the external auditor:
a)
b)
c)
d)
e)
Investigate the issues giving rise to the resignation of the external auditor, should this come about.
Ensure that the remuneration of the external auditor does not compromise its quality or independence.
Ensure that the company notifies any change of external auditor to the CNMV as a material event,
accompanied by a statement of any disagreements arising with the outgoing auditor and the reasons for
the same.
Ensure that the external auditor has a yearly meeting with the board in full to inform it of the work undertaken
and developments in the company’s risk and accounting positions.
Ensure that the company and the external auditor adhere to current regulations on the provision of non-audit
services, limits on the concentration of the auditor’s business and other requirements concerning
auditor independence.
Complies
43.
The audit committee should be empowered to meet with any company employee or manager, even ordering their
appearance without the presence of another senior officer.
Complies
44.
The audit committee should be informed of any fundamental changes or corporate transactions the company is
planning, so the committee can analyse the operation and report to the board beforehand on its economic conditions
and accounting impact and, when applicable, the exchange ratio proposed.
Complies
45.
Risk control and management policy should identify at least:
a)
b)
c)
d)
The different types of financial and non-financial risk the company is exposed to (including operational,
technological, financial, legal, social, environmental, political and reputational risks), with the inclusion under
financial or economic risks of contingent liabilities and other offbalance-sheet risks.
The determination of the risk level the company sees as acceptable.
The measures in place to mitigate the impact of identified risk events should they occur.
The internal control and reporting systems to be used to control and manage the above risks, including
contingent liabilities and offbalance-sheet risks.
Complies
216
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED 46.
Companies should establish a risk control and management function in the charge of one of the company’s internal
department or units and under the direct supervision of the audit committee or some other dedicated board
committee. This function should be expressly charged with the following responsibilities:
a)
b)
c)
Ensure that risk control and management systems are functioning correctly and, specifically, that major risks
the company is exposed to are correctly identified, managed and quantified.
Participate actively in the preparation of risk strategies and in key decisions about their management.
Ensure that risk control and management systems are mitigating risks effectively in the frame of the policy
drawn up by the board of directors.
Complies
47.
Appointees to the nomination and remuneration committee – or of the nomination committee and remuneration
committee, if separately constituted – should have the right balance of knowledge, skills and experience for the
functions they are called on to discharge. The majority of their members should be independent directors.
Complies
48.
Large cap companies should operate separately constituted nomination and remuneration committees.
Complies
49.
The nomination committee should consult with the company’s chairman and chief executive, especially on matters
relating to executive directors.
When there are vacancies on the board, any director may approach the nomination committee to propose candidates
that it might consider suitable.
Complies
50.
The remuneration committee should operate independently and have the following functions in addition to those
assigned by law:
a)
b)
c)
d)
e)
Complies
Propose to the board the standard conditions for senior officer contracts.
Monitor compliance with the remuneration policy set by the company.
Periodically review the remuneration policy for directors and senior officers, including share-based
remuneration systems and their application, and ensure that their individual compensation is proportionate to
the amounts paid to other directors and senior officers in the company.
Ensure that conflicts of interest do not undermine the independence of any external advice the committee
engages.
Verify the information on director and senior officers’ pay contained in corporate documents, including the
annual directors’ remuneration statement.
51.
The remuneration committee should consult with the company’s chairman and chief executive, especially on matters
relating to executive directors and senior officers.
Complies
52.
The terms of reference of supervision and control committees should be set out in the board of directors regulations
and aligned with those governing legally mandatory board committees as specified in the preceding sets of
recommendations.
They should include at least the following terms:
a)
b)
c)
d)
e)
Committees should be formed exclusively by non-executive directors, with a majority of independents.
They should be chaired by independent directors.
The board should appoint the members of such committees with regard to the knowledge, skills and
experience of its directors and each committee’s terms of reference; discuss their proposals and reports; and
provide report-backs on their activities and work at the first board plenary following each committee meeting.
They may engage external advice, when they feel it necessary for the discharge of their functions.
Meeting proceedings should be minuted and a copy made available to all board members.
Partially complies
217
FINANCIAL STATEMENTS www.iairgroup.com
The Board of Directors of IAG, under its powers of self-organisation, considers it appropriate to have a Safety Committee in order
to exercise a high level overview of each airline’s safety performance and of any important issues that may affect the industry,
although responsibility for safety matters belongs to each of the Group’s airlines. This Committee is governed by the same
principles as all Board Committees and has a clear majority of non-executive directors.
However, the Committee’s composition is not compliant with the Code’s recommendation as an executive director, the Chief
Executive, is a member of this Committee, being also its chairman. The Board believes this to be appropriate in the current
circumstances for the following reasons:
a)
b)
c)
IAG is a holding, non-operational company, exercising a supervisory role within the Group.
Consistent with the civil aviation regulatory framework, responsibility for safety matters remains with each
operating airline.
The technical nature of safety issues and the fact that each operating airline has its own particular
characteristics makes it advisable that the Group’s top executive leads this Committee and coordinates the
reporting of the different Group airlines.
Furthermore, as a counterbalance, the remaining Committee members are senior directors of IAG, currently the Chairman of the
Board, the Senior Independent Director and one of the members of the Audit and Compliance Committee.
Finally, it has to be taken into consideration that safety is a highly regulated area that is subject to strict reporting requirements
to the local regulatory authorities of each airline and to regular external audit reviews.
53.
The task of supervising compliance with corporate governance rules, internal codes of conduct and corporate social
responsibility policy should be assigned to one board committee or split between several, which could be the audit
committee, the nomination committee, the corporate social responsibility committee, where one exists, or a
dedicated committee established ad hoc by the board under its powers of self-organisation, with at the least the
following functions:
a)
b)
c)
d)
e)
f)
g)
h)
Monitor compliance with the company’s internal codes of conduct and corporate governance rules.
Oversee the communication and relations strategy with shareholders and investors, including small and
medium-sized shareholders.
Periodically evaluate the effectiveness of the company’s corporate governance system, to confirm that it is
fulfilling its mission to promote the corporate interest and catering, as appropriate, to the legitimate interests of
remaining stakeholders.
Review the company’s corporate social responsibility policy, ensuring that it is geared to value creation.
Monitor corporate social responsibility strategy and practices and assess compliance in their respect.
Monitor and evaluate the company’s interaction with its stakeholder groups.
Evaluate all aspects of the non-financial risks the company is exposed to, including operational, technological,
legal, social, environmental, political and reputational risks.
Coordinate non-financial and diversity reporting processes in accordance with applicable legislation and
international benchmarks.
Complies
54.
The corporate social responsibility policy should state the principles or commitments the company will voluntarily
adhere to in its dealings with stakeholder groups, specifying at least:
a)
b)
c)
d)
e)
f)
g)
The goals of its corporate social responsibility policy and the support instruments to be deployed.
The corporate strategy with regard to sustainability, the environment and social issues.
Concrete practices in matters relative to: shareholders, employees, clients, suppliers, social welfare issues, the
environment, diversity, fiscal responsibility, respect for human rights and the prevention of illegal conducts.
The methods or systems for monitoring the results of the practices referred to above, and identifying and
managing related risks.
The mechanisms for supervising non-financial risk, ethics and business conduct.
Channels for stakeholder communication, participation and dialogue.
Responsible communication practices that prevent the manipulation of information and protect the company’s
honour and integrity.
Complies
218
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED 55.
The company should report on corporate social responsibility developments in its directors’ report or in a separate
document, using an internationally accepted methodology.
Complies
56.
Director remuneration should be sufficient to attract individuals with the desired profile and compensate the
commitment, abilities and responsibility that the post demands, but not so high as to compromise the independent
judgement of non-executive directors.
Complies
57.
Variable remuneration linked to the company and the director’s performance, the award of shares, options or any other
right to acquire shares or to be remunerated on the basis of share price movements, and membership of long-term
savings schemes such as pension plans should be confined to executive directors.
The company may consider the share-based remuneration of non-executive directors provided they retain such shares until the
end of their mandate. This condition, however, will not apply to shares that the director must dispose of to defray costs related to
their acquisition.
Complies
58.
In the case of variable awards, remuneration policies should include limits and technical safeguards to ensure they
reflect the professional performance of the beneficiaries and not simply the general progress of the markets or the
company’s sector, or circumstances of that kind.
In particular, variable remuneration items should meet the following conditions:
a)
b)
c)
Be subject to predetermined and measurable performance criteria that factor the risk assumed to obtain a
given outcome.
Promote the long-term sustainability of the company and include non-financial criteria that are relevant for the
company’s long-term value, such as compliance with its internal rules and procedures and its risk control and
management policies.
Be focused on achieving a balance between the delivery of short, medium and long-term objectives, such that
performance-related pay rewards ongoing achievement, maintained over sufficient time to appreciate its
contribution to long-term value creation. This will ensure that performance measurement is not based solely on
one-off, occasional or extraordinary events.
Partially complies
IAG Remuneration Policy complies with this recommendation as it is designed to ensure that variable rewards reflect the
professional performance of the beneficiaries and includes appropriate limits and technical safeguards. The performance
measures used include a balanced mix of financial measures as well as personal performance against individual objectives.
Although IAG remuneration framework promotes long-term value creation and ensures, through individual performance,
compliance with IAG’s mission and values, it does not include concrete non-financial criteria in the sense required by letter b) of
this Recommendation 58. IAG is examining options to improve the focus on the long-term sustainability of the Company,
including through the individual objectives and the introduction of more specific non-financial performance measures within its
reward framework in future years.
59.
A major part of variable remuneration components should be deferred for a long enough period to ensure that
predetermined performance criteria have effectively been met.
Complies
60.
Remuneration linked to company earnings should bear in mind any qualifications stated in the external auditor’s report
that reduce their amount.
Complies
61.
A major part of executive directors’ variable remuneration should be linked to the award of shares or financial
instruments whose value is linked to the share price.
Complies
219
FINANCIAL STATEMENTS www.iairgroup.com 62.
Following the award of shares, share options or other rights on shares derived from the remuneration system, directors
should not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration, or to exercise
the share options or other rights on shares for at least three years after their award.
The above condition will not apply to any shares that the director must dispose of to defray costs related to their
acquisition.
Complies
63.
Contractual arrangements should include provisions that permit the company to reclaim variable components of
remuneration when payment was out of step with the director’s actual performance or based on data subsequently
found to be misstated.
Complies
64.
Termination payments should not exceed a fixed amount equivalent to two years of the director’s total annual
remuneration and should not be paid until the company confirms that he or she has met the predetermined
performance criteria.
Complies
H.
1.
2.
3.
OTHER INFORMATION OF INTEREST
If you consider that there is any material aspect or principle relating to the Corporate Governance practices followed by
your company that has not been addressed in this report and which is necessary to provide a more comprehensive
view of the corporate governance structure and practices at the company or group, explain briefly.
You may include in this section any other information, clarification or observation related to the above sections of
this report.
Specifically indicate whether the company is subject to corporate governance legislation from a country other than
Spain and, if so, include the compulsory information to be provided when different to that required by this report.
Also state whether the company voluntarily subscribes to other international, sectorial or other ethical principles or
standard practices. If applicable identify the Code and date of adoption. In particular, state whether the company has
adhered to the Code of Good Tax Practices of July 20, 2010.
This annual corporate governance report was adopted by the company’s Board of Directors at its meeting held on February 25,
2016.
List whether any directors voted against or abstained from voting on the approval of this Report.
No
Name or corporate name of director that did not vote
in favour of approving this report
Reasons (voted against, abstention, non-attendance)
Explain the reasons
OWNERSHIP STRUCTURE OF THE COMPANY
Company’s share capital:
A.
A.1
As a consequence of the conversion request in relation to the issue of convertible bonds named “€390,000,000 1.75 per cent.
convertible bonds due 2018”, the Company has increased its share capital on January 2016, through the issuance of 881,456
ordinary shares.
As a consequence of the foregoing, the total share capital of the Company on the date of this report is €1,020,479,989.50,
divided into 2,040,959,979 ordinary shares with a nominal value of €0.50 each share.
220
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED
A.2
Further detail of the information regarding members of the Board of Directors who have rights attaching to shares
of the Company follows:
Below is a breakdown of the information included in table of section A.3
a)
Directors’ conditional awards
During 2015, Willie Walsh and Enrique Dupuy de Lôme held awards over ordinary shares of the Company under the Company’s
Performance Share Plan (“IAG PSP”).
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the IAG PSP 2015 award
was 550 pence.
Director
Willie Walsh
Total
Plan Date of award
IAG PSP
2012
IAG PSP
2013
IAG PSP
2014
–
August 3,
2012
March 6,
2013
March 6,
2014
–
Number of
awards at
January 1, 2015
Awards
vesting during
the year
Awards lapsed
during the year
Awards made
during the year
1,024,844
874,191
150,653
684,647
0
0
379,310
2,088,801
0
874,191
0
150,653
0
0
0
0
Director
Plan Date of award
Number of
awards at
January 1, 2015
Awards
vesting during
the year
Awards lapsed
during the year
Awards made
during the year
Number of
awards at
December 31,
2015
0
684,647
379,310
1,063,957
Number of
awards at
December 31,
2015
Enrique Dupuy de Lôme
Total
b)
Share options
IAG PSP
2012
IAG PSP
2013
IAG PSP
2014
–
August 3,
2012
March 6,
2013
March 6,
2014
–
372,670
317,887
54,783
248,963
0
0
137,931
759,564
0
317,887
0
54,783
0
0
0
0
0
248,963
137,931
386,894
The following directors held nil-cost options over ordinary shares of the Company granted under the IAG PSP.
Director
Date of grant
Willie Walsh
May 28,
2015
Number of
options at
January 1,
2015
Options
exercised
during
the year
Options
lapsed during
the year
Options
granted
during
the year
Exercise
price
–
–
–
–
309,091
Exercisable
from
Expiry date
January 1,
2020
December
31, 2024
Director
Date of grant
Enrique
Dupuy de
Lôme
May 28,
2015
Number of
options at
January 1,
2015
Options
exercised
during the
year
Exercise
price
Options
lapsed during
the year
Options
granted
during the
year
Exercisable
from
Expiry date
–
–
–
–
112,364
January 1,
2020
December
31, 2024
112,364
c)
Incentive Award Deferral Plan
During 2015, Willie Walsh and Enrique Dupuy de Lôme owned awards over ordinary shares of the Company granted under the
IADP (Incentive Award Deferral Plan) (“IAG IADP”).
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the IAG IADP 2015 award
was 550 pence.
221
Number of
options at
December 31,
2015
309,091
Number of
options at
December 31,
2015
FINANCIAL STATEMENTS www.iairgroup.com Director
Plan Date of award
Number of
awards at
January 1, 2015
Awards
released
during the year Date of vesting
Awards lapsed
during the year
Awards made
during the year
Number of
awards at
December 31,
2015
Willie Walsh
Total
IAG IADP
2012
IAG IADP
2014
IAG IADP
2015
–
August 3,
2012
March, 6,
2014
May 28,
2015
–
93,773
93,773
149,353
0
0
243,126
0
93,773
August 3,
2015
March 6,
2017
March 8,
2018
–
0
0
0
0
0
0
0
149,353
151,111
151,111
151,111
300,464
Director
Enrique Dupuy
de Lôme
Total
Plan Date of award
Number of
awards at
January 1, 2015
Awards
released
during the year Date of vesting
Awards lapsed
during the year
Awards made
during the year
IAG IADP
2012
IAG IADP
2013
IAG IADP
2014
IAG IADP
2015
–
August 3,
2012
March 6,
2013
March 6,
2014
May 28,
2015
–
37,267
37,267
62,241
50,862
0
150,370
0
0
0
37,267
August 3,
2015
March 6,
2016
March 6,
2017
March 8,
2018
–
0
0
0
0
0
0
0
0
50,252
50,252
Number of
awards at
December 31,
2015
0
62,241
50,862
50,252
163,355
For the year to December 31, 2015, the €:£ exchange rate applied is 1.3742.
C.
C.1.3
COMPANY MANAGEMENT STRUCTURE
Pursuant to Spanish Companies Law, on January 21, 2016, Mr. Antonio Vázquez has become an independent director
since five years will have elapsed since his removal as Executive Chairman of Iberia prior to the merger with
British Airways.
RELATED-PARTY AND INTRAGROUP TRANSACTIONS
Indicate the amount involved in other related-party transactions.
D.
D.5
The Group’s related-party transactions included total sales to associate companies of 8,473 thousand of euros and total
purchases from associate companies of 57,192 thousands of euros.
ADDITIONAL INFORMATION AS A RESULT OF THE COMPANY ALSO BEING LISTED ON THE LONDON STOCK EXCHANGE
The Company is subject to the UK Listing Rules, including the requirement to explain whether it complies with the UK Corporate
Governance Code published by the UK Financial Reporting Council as amended from time to time.
During the year the Company considers it has complied with all the provisions of the UK 2014 Corporate Governance Code but
for the following matter: The service contract for Mr. Antonio Vázquez does not comply with the recommendation that notice
periods should be set at one year or less so as to limit any payment on exit. Details can be found in the Directors’
Remuneration Report.
The Company believes that, notwithstanding this exception, it has a robust governance structure.
ADDITIONAL INFORMATION IN RELATION TO THE CODE OF GOOD TAX PRACTICES
Iberia, representing IAG, has joined the Code of Good Tax Practices approved by Spain’s Forum of Big Companies.
222
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015SPANISH CORPORATE GOVERNANCE REPORT CONTINUED 223
FINANCIAL STATEMENTS www.iairgroup.com GROUP INVESTMENTS
Subsidiaries
Name and address
AERL Holding Limited
2 World Business Centre, Newall Road, London Heathrow Airport,
Hounslow, TW6 2SF
Aer Lingus 2009 DCS Trustee Limited
Dublin Airport, Dublin
Aer Lingus Beachey Limited
Penthouse Suite, Analyst House, Peel Road, Isle of Man, IM1 4LZ
Aer Lingus Group Plc*
Dublin Airport, Dublin
Aer Lingus Group DAC
Dublin Airport, Dublin
Aer Lingus Limited
Dublin Airport, Dublin
Aer Lingus Northern Ireland Limited
Aer Lingus Base, Belfast City Airport, Sydenham Bypass, Belfast, BT3 9JH
Aer Lingus (Ireland) Limited
Dublin Airport, Dublin
ALG Trustee Limited
Astral Towers, Betts Way, London Road, Crawley, West Sussex, RH10 9XY
Avios Group (AGL) Limited*
Astral Towers, Betts Way, London Road, Crawley, West Sussex, RH10 9XY
Avios South Africa Proprietary Limited
34 Whitley Road, Unit B, 3rd Floor, Melrose Arch, Melrose North, Johannesburg
BA and AA Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Call Centre India Private Limited (callBA)
F-42, East of Kailash, New-Delhi, 110065
BA Cityflyer Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA European Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Healthcare Trust Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Number One Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
BA Number Two Limited
13 Castle Street, St Helier, JE4 5UT
Bealine Plc
Waterside, PO Box 365, Harmondsworth, UB7 0GB
bmibaby Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Binter Finance B.V.
Prins Bernhardplein 200, Amsterdam, 1097 JB
BritAir Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Plc*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways (BA) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways (No 1) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
224
Principal
activity
Country of
Incorporation
Percentage of
equity owned
England
Republic of
Ireland
100%
100%
Isle of Man
100%
Republic
of Ireland
Republic
of Ireland
Republic
of Ireland
Northern
Ireland
Republic
of Ireland
Republic
of Ireland
England
South
Africa
100%
100%
100%
100%
100%
100%
100%
100%
Airline
operations
Airline
marketing
Holding
company
England
100%
India
100%
Airline
operations
England
100%
England
100%
England
100%
England
100%
Jersey
100%
England
100%
England
100%
Holding
company
Airline
operations
Netherlands
100%
England
100%
England
100%
England
100%
England
100%
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Name and address
British Airways 777 Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Associated Companies Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Avionic Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Capital Limited
Queensway House, Hilgrove Street, St Helier, JE1 1ES
British Airways E-Jets Leasing Limited*
Canon’s Court, 22 Victoria Street, Hamilton, HM 12
British Airways Employee Benefit Trustees (Jersey) Limited
Queensway House, Hilgrove Street, St Helier, JE1 1ES
British Airways Finance (Jersey) Limited Partnership
13 Castle Street, St Helier, JE4 5UT
British Airways Holdings B.V.
Atrium, Strawinskylaan 3105, Amsterdam, 1077 ZX
British Airways Holdings Limited*
13 Castle Street, St Helier, JE4 5UT
British Airways Holidays Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Interior Engineering Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Leasing Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Maintenance Cardiff Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Pension Trustees (No 2) Limited
Whitelocke House, 2-4 Lampton Road, Hounslow, Middlesex, TW3 1HU
British Midland Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Midland Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Cargosur, S.A.
Calle Martínez Villergas 49, Madrid, 28027
Deutsche BA Holding GmbH
Brienner Strasse 28, Munich, 80333
Diamond Insurance Company Limited
1st Floor, Rose House, 51-59 Cicular Road, Douglas, IM1 1RE
Dirnan Insurance Company Limited
Canon’s Court, 22 Victoria Street, Hamilton, Bermuda, HM 12
Easthills Limited
Fourth Floor, Quest House, 125-135 Staines Road, Middlesex, TW3 3JB
Flyline Tele Sales & Services GmbH
Hermann Koehl-Strasse 3, Bremen, 28199
IAG Cargo Limited*
Carrus Cargo Centre, PO Box 99, Sealand Road, London Heathrow Airport,
Hounslow, TW6 2JS
IAG GBS Limited
2 World Business Centre, Newall Road, London Heathrow Airport,
Hounslow, TW6 2SF
Principal
activity
Country of
Incorporation
Percentage of
equity owned
Aircraft
financing
England
100%
England
100%
Aircraft
maintenance
England
100%
Jersey
100%
Aircraft
financing
Bermuda
100%
Holding
company
Package
holidays
Aircraft
maintenance
Aircraft
financing
Aircraft
maintenance
Jersey
100%
Jersey
100%
Netherlands
100%
Jersey
100%
England
100%
England
100%
England
100%
England
100%
England
100%
England
100%
England
100%
Spain
100%
Germany
100%
Isle of Man
100%
Bermuda
100%
England
100%
Germany
100%
Air freight
operations
England
100%
England
100%
225
FINANCIAL STATEMENTS www.iairgroup.com GROUP INVESTMENTS CONTINUED
Name and address
IAG GBS Poland sp z.o.o.
ul. Armii Krajowej 28, Krakow, 30-150
Iberia Express, S.A.*
Calle Alcañiz 23, Madrid, 28006
Iberia México, S.A.*
Ejército Nacional 436, 9th Floor, Colonia Chapultepec-Morales,
Mexico City, 11570
Iberia Tecnología, S.A.*
Calle Martínez Villergas 49, Madrid, 28027
Iberia Líneas Aéreas de España, S.A. Operadora*
Calle Martínez Villergas 49, Madrid, 28027
Illiad Inc
Suite 1300, 1105 N Market Street, PO Box 8985, Wilmington, Delaware, 19899
Openskies SASU*
3 Rue le Corbusier, Rungis, 94150
Overseas Air Travel Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Remotereport Trading Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Santain Developments Limited
Dublin Airport, Dublin
Shinagh Limited
Dublin Airport, Dublin
Speedbird Insurance Company Limited*
Canon’s Court, 22 Victoria Street, Hamilton, HM 12
Teleflight Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
The Plimsoll Line Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Veloz Holdco, S.L.
Pla de l’Estany 5, Parque de Negocios Mas Blau II, El Prat de Llobregat,
Barcelona, 08820
Vueling Airlines, S.A.*
Pla de l’Estany 5, Parque de Negocios Mas Blau II, El Prat de Llobregat,
Barcelona, 08820
British Mediterranean Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Compañía Auxiliar al Cargo Exprés, S.A.*
Centro de Carga Aérea, Parcela 2-5 Nave 6, Madrid, 28042
Iberia Desarrollo Barcelona, S.L.*
Torre Tarragona, Planta 15, Calle Tarragona 161,
Barcelona, 08014
Sociedad Auxiliar Logística Aeroportuaria, S.A.*
Centro de Carga Aérea, Parcela 2-5 Nave 6, Madrid, 28042
* Principal subsidiaries.
Principal
activity
Country of
Incorporation
Percentage of
equity owned
Airline
operations
Storage and
custody
services
Aircraft
maintenance
Airline
operations and
maintenance
Poland
100%
Spain
100%
Mexico
100%
Spain
100%
Spain
100%
USA
100%
Airline
operations
France
100%
England
100%
England
Republic
of Ireland
Republic
of Ireland
100%
100%
100%
Insurance
Bermuda
100%
England
100%
Holding
company
England
100%
Spain
100%
Airline
operations
Spain
99.48%
Cargo
transport
Airport
infrastructure
development
Cargo
transport
England
Spain
Spain
Spain
99%
75%
75%
75%
226
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015 Name and address
Associates
Handling Guinea Ecuatorial S.A.
Malabo Bioko Norte International Airport, Apartado de Correos 92, Malabo
Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.
Avenida de Vantroi y Final, Aeropuerto de Jose Martí, Ciudad de la Habana
Empresa Logística de Carga Aérea, S.A.
Carretera de Wajay km 15, Aeropuerto de Jose Martí, Ciudad de la Habana
Madrid Aerospace Services, S.L.
Calle Verano 9, Polígono Industrial Las Monjas, Torrejón de Ardoz, 28850, Madrid
Multiservicios Aeroportuarios, S.A.
Avenida de Manoteras 46, 2nd Floor, 28050, Madrid
Dunwoody Airline Services (Holdings) Limited
Building 70, Argosy Road, East Midlands Airport, Castle Donnington, Derby, DE74 2SA
Sociedad Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A.
José Ortega y Gasset 22, 3rd Floor, 28006, Madrid
Serpista, S.A.
Cardenal Marcelo Spínola 10, 28016, Madrid
Grupo Air Miles España, S.A.
Avenida de Bruselas 20, Alcobendas, 28108, Madrid
Joint ventures
Propius Holding Limited
PO Box 309, Ugland House, Grand Cayman, K41-1104
Available-for-sale financial assets
The Group’s principal available-for-sale financial assets are as follows:
Country of
Incorporation
Percentage of
equity owned
Equatorial
Guinea
Cuba
Cuba
Spain
Spain
England
51%
50%
50%
50%
49%
40%
Spain
43.5%
Spain
Spain
39%
25%
Cayman
Islands
33.3%
Country of
incorporation
Percentage
of equity
owned
Shareholders
funds
Currency
(million)
Profit/(loss)
before tax
(million)
Name and address
Associates
Servicios de Instrucción de Vuelo, S.L.
Camino de la Muñoza 2, Madrid, 28042
Spain
19.90%
Euro
39
The Airline Group Limited
Brettenham House South, 5th Floor, Lancaster Place,
London, WC2N 7EN
England
16.68%
Comair Limited
1 Marignane Drive, Bonaero Park, 1619, Johannesburg
South
Africa
11.50%
Pound
sterling
South
African
Rand
Adquira España, S.A.
Plaza Cronos, 1 – 4th Floor, Madrid, 28037
Spain
10.00%
Euro
256
1,166
7
2
24
301
1
227
FINANCIAL STATEMENTS www.iairgroup.com LIABILITY STATEMENT OF COMPANY DIRECTORS FOR THE PURPOSES ENVISAGED
UNDER ARTICLE 8.1.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 Consolidated Financial Statements for the year to December 31, 2015 were prepared in accordance
with International Financial Reporting Standards (‘IFRS’), as adopted by the European Union, and other provisions in the
regulatory framework applicable to the Group, 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 Consolidated Management Report includes an accurate analysis of the required information also in
accordance with the Financial Conduct Authority’s DTR 4.1 (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
228
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015STATEMENT OF DIRECTORS’ RESPONSIBILITIES 229
FINANCIAL STATEMENTS www.iairgroup.com Total Group operations
Traffic and capacity
Available seat km (ASK)
Revenue passenger km (RPK)
Cargo tonne km (CTK)
Passengers carried
Tonnes of cargo carried
Sectors
Block hours
Operations
Average manpower equivalent
Aircraft in service at year end
Aircraft utilisation – Longhaul
(average hours per aircraft per day)
Aircraft utilisation – Shorthaul
(average hours per aircraft per day)
Punctuality – within 15 minutes
Regularity
Financial
Passenger unit revenue per ASK (PASK)
Passenger revenue per RPK
Cargo revenue per CTK
Total traffic revenue per ATK (RASK)
Average fuel price
Fuel cost per ASK
Operating profit before depreciation,
amortisation and rentals (EBITDAR)
Total operating expenditure excluding
fuel per ASK (CASK)
Operating margin
Lease adjusted operating margin
Total operating expenditure per ASK
Total operating expenditure per ATK
Dividend cover
Interest cover*
Net debt
Equity*
Adjusted gearing
Adjusted net debt to EBITDAR
million
million
million
‘000
‘000
hours
hours
hours
%
%
€cents
€cents
€cents
€cents
($cents/
US gallon)
€cents
€million
€cents
%
%
€cents
€cents
times
times
€million
€million
%
times
20151,2
20142
20132
20122
20113
272,702
221,996
5,293
88,333
874
660,438
1,867,905
251,931
202,562
5,453
77,334
897
599,624
1,712,506
230,573
186,304
5,653
67,224
928
538,644
1,573,900
219,172
176,102
6,080
54,600
1,011
453,100
1,419,601
213,193
168,617
6,156
51,687
1,050
437,411
1,388,514
60,862
529
59,484
459
60,089
431
59,574
377
56,791
348
13.5
9.1
80.2
99.4
7.46
9.17
19.35
65.11
175.86
2.23
4,301
5.3
10.2
11.2
7.53
62.52
3.8
8.2
2,774
7,328
54
1.9
13.5
8.8
80.9
99.5
7.08
8.80
18.19
60.45
300.16
2.38
13.3
8.4
79.2
99.0
7.05
8.73
18.98
57.1
314.15
2.58
13.6
8.2
77.2
99.0
7.01
8.73
20.02
53.59
320.33
2.78
13.6
8.5
76.6
99.0
6.41
8.11
19.33
49.47
289.04
2.38
3,137
2,258
1,480
1,867
5.08
6.9
7.8
7.45
60.33
n/a
6.4
1,673
3,793
51
1.9
5.18
4.1
5.0
7.77
58.97
n/a
2.8
1,489
4,216
50
2.5
5.49
(0.1)
0.7
8.28
58.60
n/a
(0.2)
1,889
2,978
51
3.6
5.06
3.0
3.8
7.44
52.76
n/a
4.7
1,148
4,312
44
2.3
1 Aer Lingus Group plc results have been consolidated from August 18, 2015.
2 Financial data for the full year to December 31, 2015, 2014, 2013 and 2012 is based on the consolidated results of the Group, before exceptional items.
3 The full year’s data to December 31, 2011 is based on the combined results of operations of British Airways Plc and Iberia Líneas Aéreas de España S.A Operadora.
* Restated for amendment to IAS19 ‘Employee benefits’ accounting standard.
n/a: not available
230
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015OPERATING AND FINANCIAL STATISTICS Adjusted aircraft operating leases
Adjusted earnings per share
Adjusted gearing
Adjusted net debt
Available seat kilometres (ASK)
Available tonne kilometres (ATK)
Block hours
Cargo revenue per CTK
Cargo tonne kilometres (CTK)
Dividend cover
EBITDAR
Earnings per share (EPS)
Equity free cash flow
Interest cover
Invested capital
Lease adjusted operating margin
Manpower equivalent
Aircraft operating lease costs multiplied by 0.67
Earnings are based on results before exceptional items, after tax adjusted for
earnings attributable to equity holders and interest on convertible bonds, divided by
the weighted average number of ordinary shares, adjusted for the dilutive impact of
the assumed conversion of the bonds and employee share schemes outstanding
Adjusted net debt, divided by adjusted net debt and adjusted equity
Net debt plus capitalised operating aircraft lease costs
The number of seats available for sale multiplied by the distance flown
The number of tonnes of capacity available for the carriage of load (passenger and
cargo) multiplied by the distance flown
Hours of service for aircraft, measured from the time that the aircraft leaves the gate
at the departure airport to the time that it arrives at the gate at the destination
airport
Cargo revenue divided by CTK
The number of tonnes of cargo that generate revenue (freight and mail) carried
multiplied by the distance flown
The number of times profit for the year covers the dividends paid and proposed
Operating profit before depreciation, amortisation and rental charges
Earnings are based on results after exceptional items, after tax adjusted for earnings
attributable to equity holders and interest on convertible bonds, divided by the
weighted average number of ordinary shares, adjusted for the dilutive impact of the
assumed conversion of the bonds and employee share schemes outstanding.
EBITDA less cash tax, cash interest and capital expenditure
The number of times profit before taxation and net interest expense and interest
income cover the net interest expense and interest income
Fleet net book value adjusted for inflation (fleet gross book value multiplied by a
cost factor ((1 + asset inflation) ^ asset age and multiplied by net depreciation rate)
plus net book value of remaining tangible fixed assets plus lease rentals multiplied
by 8
Operating result less aircraft operating lease cost plus adjusted aircraft operating
lease costs divided by revenue
Number of employees adjusted for part-time workers, overtime and contractors
231
ADDITIONALINFORMATION www.iairgroup.comGLOSSARY Merger effective date
Net debt
Net depreciation rate
Operating margin
Overall load factor
Passenger load factor
Punctuality
Regularity
Return on invested capital (RoIC)
Revenue passenger kilometres (RPK)
Revenue passenger kilometres (RPK)
Passenger unit revenue per ASK (PASK)
Passenger revenue per RPK (yield)
Revenue tonne kilometres (RTK)
Sector
Total capital
Total Group revenue per ASK (RASK)
Total operating expenditure excluding
fuel per ASK
Total operating expenditure per ASK
(CASK)
Total traffic revenue per ATK
January 21, 2011, the date British Airways and Iberia signed a merger agreement to
create International Airlines Group
Current and long-term interest-bearing borrowings less other current interest-
bearing deposits and cash and cash equivalents
Gross book value divided by net book value
Operating profit/(loss) as a percentage of total revenue
RTK expressed as a percentage of ATK
RPK expressed as a percentage of ASK
The industry’s standard, measured as the percentage of flights departing within 15
minutes of schedule
The percentage of flights completed to flights scheduled, excluding flights cancelled
for commercial reasons
Return on invested capital is defined as operating profit before exceptional items
adjusted for lease and inflation divided by invested capital
The number of passengers that generate revenue carried multiplied by the distance
flown
The number of passengers that generate revenue carried multiplied by the distance
flown
Passenger revenue divided by ASK
Passenger revenue divided by RPK
The revenue load in tonnes multiplied by the distance flown
A one-way revenue flight
Total equity plus net debt
Total group revenue divided by ASK
Total operating expenditure excluding fuel divided by ASK
Total operating expenditure divided by ASK
Revenue from total traffic (passenger and cargo) divided by ATK
232
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2015GLOSSARY CONTINUED Registered office
International Consolidated Airlines Group, S.A
El Caserío, Iberia Zona Industrial nº 2 (La Muñoza)
Camino de La Muñoza, s/n, 28042 Madrid, Spain.
Madrid Commercial Registrar
tomo 27312, folio 11, hoja M-492129
C.I.F. A85845535
UK Branch registered address
International Airlines Group
2 World Business Centre
Newall Road
London Heathrow Airport
Hounslow TW6 2SF, UK
Registered in England & Wales: BR014868
Registrar
Computershare Investor Services PLC
For enquiries relating to shares held through the
Corporate Sponsored Nominee (UK share register):
Tel: +44 370 702 0110
Email: web.queries@computershare.co.uk
Online: www.investorcentre.co.uk/iag
IAG Investor relations team
UK: +44 20 8564 2900; or
Spain: +34 91 312 6440
Institutional investors: investor.relations@iairgroup.com
Private shareholders: shareholder.services@iairgroup.com
American Depositary Receipt program
IAG has a Sponsored Level 1 American Depositary
Receipt (ADR) facility that trades on the OTC market
in the US (see www.otcmarkets.com). Deutsche Bank
is the ADR depositary bank.
For shareholder enquiries, contact:
Deutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Company
Peck Slip Station
P.O. Box 2050
New York, NY 10272-2050, USA
Email: DB@amstock.com
Toll free: +1 800 301 3517
International: +1 718 921 8137
Online: www.adr.db.com
Financial calendar
Financial year end: December 31, 2015
Q1 results: April 29, 2016
Half year results: July 29, 2016
Q3 results: October 28, 2016
Other key dates can be found on our website:
www.iagshares.com
ShareGift
UK shareholders with a small number of shares may
like to consider donating their shares to charity under
ShareGift, administered by Orr Mackintosh Foundation. Details
are available from the UK Registrar.
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 set out in the risk management and risk factors section of the report.
SHAREHOLDER INFORMATION INTERNATIONAL
AIRLINES
GROUP
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