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INTERNATIONAL
AIRLINES
GROUP
Built to
succeed
Annual report and accounts
2017
Question and answers with the Chief Executive Officer
107 Consolidated balance sheet
Contents
Strategic Report
Chairman’s letter
Highlights
3
4
6
8
10
13
Our network
Chief Executive Officer’s review
Business model and strategy
14 Our strategy
16
18
Key performance indicators
British Airways
20
Iberia
22 Vueling
23 Aer Lingus
24
IAG Platform
26 Avios
27
IAG Cargo
28 Digital
29
35
36
38
47
Risk management and principal risk factors
Financial overview
Economic landscape
Financial review
Sustainability
Financial Statements
105 Consolidated income statement
106 Consolidated statement of other comprehensive income
108 Consolidated cash flow statement
109 Consolidated statement of changes in equity
111 Notes to the consolidated financial statements
165 Group investments
Statement of Directors’ Responsibilities
Independent Auditors’ Report
Additional Information
175 Alternative performance measures
178 Operating and financial statistics
179 Glossary
IBC Shareholder information
Corporate Governance
Management Report
58 Chairman’s introduction to corporate governance
60 Board of Directors
62 Corporate governance
73
76
79
Report of the Audit and Compliance Committee
Report of the Nominations Committee
Report of the Safety Committee
80 Report of the Remuneration Committee
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:
13
14
16
24
29
35
36
38
47
62
Business model and strategy
Our strategy
Key performance indicators
IAG Platform
Risk management and principal risk factors
Financial overview
Economic landscape
Financial review
Sustainability
Corporate governance
The Spanish Annual Corporate Governance Report is
part of this Management Report and it is available on
the Spanish Comisión Nacional del Mercado de Valores
website (wwww.cnmv.es).
“ IAG is like no other company in the
airline industry. We are uniquely
structured to deliver benefits others
cannot match – to the customers
of our individual airlines, to our
shareholders and to the talented
people working right across the Group.
S
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We consistently achieved our
financial targets, while upholding our
commitment to sustainable air travel
and demonstrating the necessary
flexibility to respond to a fast changing
and highly competitive environment. In
doing so, we have proved that we are a
group truly built to succeed.”
Willie Walsh
Chief Executive Officer
www.iairgroup.com
1
Strategic Report
In this section
3
4
6
8
Chairman’s letter
Highlights
Question and answers with the Chief Executive Officer
Our network
10 Chief Executive Officer’s review
13
Business model and strategy
14 Our strategy
16
18
Key performance indicators
British Airways
20
Iberia
22 Vueling
23 Aer Lingus
24
IAG Platform
26 Avios
27
IAG Cargo
28 Digital
29 Risk management and principal risk factors
35
36
38
47
Financial overview
Economic landscape
Financial review
Sustainability
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 2006.
Chairman’s letter
A strong expression of our
confidence in the future
“It is my great pleasure
to welcome you to our
Annual Report which
describes a year of very
strong performance by
International Airlines
Group and our continued
success in building a
platform for long-term
profitable growth.”
in Europe, and sustains jobs and wealth,
will be thrown away.
We comply with relevant ownership and
control regulations and are confident
that we will continue to do so, including
those which are expected to apply in the
UK post-Brexit. We have had, and will
continue having extensive engagement
with relevant regulators in order to ensure
that IAG’s interests are protected.
We are determined to lead our industry in
tackling climate change, recognising that
it is a major component in our work to
create a truly sustainable business.
We were the first airline group in the
world to set its own emissions targets,
which we are steadily moving towards
meeting. We also played an important
role in securing the first global carbon
offsetting scheme allowing the industry
to cut emissions in half by 2050 and
grow in a carbon-neutral way from 2020.
This year we become the only airline
company to be included in the Carbon
Disclosure Project’s prestigious Climate
A List of the top 5 per cent of global
companies and named the most
improved organisation in the UK. We
are very proud of these achievements.
At the end of an eventful and very
successful year I would like to say
thank you to all the people across our
business who have worked so hard
and with such skill to build IAG into
the business it is today.
We have achieved so much in the last
seven years. We have so much more
to do.
Antonio Vázquez
Chairman
3
2017 was a very good year for our
business where once again we
demonstrated our discipline, our agility
and our determination to achieve our
long-term goal: to build a healthy,
sustainable and value-creating global
airline business.
To report operating profits of €3.0 billion
on total revenues of €23.0 billion, is a
great achievement especially as all our
airlines, which carried around 105 million
passengers during the year, made a
record contribution to that result. That
was a tremendous highlight of the year
along with the launch of LEVEL, our low-
cost, longhaul airline brand.
Both demonstrate the unique strengths
of our business model, a model that
is being expertly put to work by our
management team, closely supported
by the Board within a rigorous system of
corporate governance.
At our Capital Markets Day in November
we explained our five-year financial goals
for the business to investors and our
message was well received. The targets
offer, I think, a very strong expression of
our confidence in the future.
We were delighted once again to
honour our commitment to create
sustainable value for our investors,
paying back €1 billion to them through
dividend payments and a share buyback
programme during the year. In addition,
we intend to carry out a share buyback of
€500 million during the course of 2018.
I would like to thank our shareholders for
their continued support.
The aviation market remains strong,
with the International Air Transport
Association forecasting that the global
industry’s net profit will rise by nearly
$4 billion to just over $38 billion in 2018,
with returns exceeding the average cost
of capital for the fourth consecutive
year. That is a picture that would have
been unrecognisable only a few years
ago, when destroying value was still the
industry norm.
Some challenges lie ahead – not least
uncertainty over the oil price – that could
disrupt the current levels of discipline
we are seeing in terms of managing
capacity and costs. We certainly believe
that there will be opportunities for
further consolidation in our industry,
both through combinations and through
acquiring assets from airlines that fail.
Consolidation is a major part of our raison
d’être and we will continue to look for
opportunities that make strategic and
financial sense for our business.
The future of European aviation policy
post-Brexit remains an area of obvious
focus, with important questions to be
answered on market access, ownership
and safety regulation.
It remains our conviction that a
comprehensive EU/UK transport
agreement will be agreed. It’s hard to
believe that an open skies policy that
benefits some 900 million travellers a year
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Highlights
Our highlights
Our model has grown
and matured since its
formation in January
2011. We have built
a unique structure
that drives growth
and innovation to
maximise sustainable
value creation.
Our strategic priorities have evolved:
1
Strengthening
a portfolio
of world-class
brands and
operations
2
3
Growing global
leadership
positions
Enhancing
IAG’s common
integrated
platform
Read more in Our strategy section on pages 14 – 15
Operating profit before exceptional items (€m)
Full year dividend per share (€ cents)1
+€480 million vly
+14.9% vly
2,335
2,535
3,015
2
0
1
5
2
0
1
6
2
0
1
7
20.0
23.5
27.0
2
0
1
5
2
0
1
6
2
0
1
7
RoIC2
+2.4 pts vly
16.0%
+2.5pts
ASK: 0.7%
23.1%
0.0pts
ASK: 12.1%
12.2%
+3.2pts
ASK: 2.2%
13.4%
+6.1pts
ASK: 1.5%
IAG Platform
INTERNATIONAL
AIRLINES
GROUP
16.0%
1 2017 includes recommended final dividend of 14.5 € cent per share
2 Iberia results exclude the allocation of LEVEL results
4
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Highlights of 2017
• All our airlines performed extremely well with their best ever individual
financial results, strong operational performances and commitment to
customer service. The turnaround in Vueling, following the challenges
of 2016, has been particularly outstanding.
• We grew our passenger unit revenue by 1.5 per cent at
constant currency.
• We established a consistent and comparable customer satisfaction
measure, Net Promoter Score across the airlines, showing our
commitment to deliver an unrivalled customer proposition.
• We introduced the New Distribution Capability (NDC) and we
launched LEVEL, our new longhaul low-cost brand.
• We achieved the Carbon Disclosure Project A List and we were
awarded the UK’s Most improved company.
• We returned €1 billion to our shareholders.
Our financial performance
Statutory results
Total revenue
Operating profit after exceptional items
Profit after tax and exceptional items
Basic earnings per share
Cash and interest-bearing deposits
Interest-bearing long-term borrowings
Alternative performance measures
Profit after tax before exceptional items
Adjusted earnings per share
Adjusted net debt
Adjusted net debt to EBITDAR
2017
2016
€ 22,972m € 22,567m
€ 2,727m € 2,484m
€ 2,021m € 1,952m
93.0 €c
€ 6,676m € 6,428m
€ 8,515m
€ 7,331m
95.8 €c
2017
2016
€ 2,243m € 1,990m
90.2 €c
102.8 €c
€ 7,759m € 8,159m
1.8 times
1.5 times
Versus
last year
1.8%
9.8%
3.5%
3.0%
3.9%
(13.9%)
Versus
last year
12.7%
14.0%
(4.9%)
(0.3pts)
Our scale
Passenger numbers
(thousands)
2017
104,829
Versus
last year
+4.1%
2016
100,675
Available seat kilometres
(million)
2017
306,185
Aircraft in service
2017
546
Versus
last year
+2.6%
2016
298,431
Versus
last year
(0.4%)
2016
548
Cargo tonne kilometres
(million)
2017
5,762
Versus
last year
+5.6%
2016
5,454
Average manpower equivalent
2017
63,422
Versus
last year
+0.1%
2016
63,387
See our KPIs on
pages 16 and 17
See the Glossary
on pages 179 and 180
See pages 38 – 46
for the Financial review
5
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Questions and answers
With Chief Executive Officer
Willie Walsh
IAG’s unique business
model is promoting record
growth in our airlines,
innovation and important
improvements in customer
service. Here Chief
Executive Officer Willie
Walsh highlights some of
the reasons why.
Willie Walsh
Chief Executive Officer
Q
A
What advantages does IAG’s
structure give you over your
peers?
We believe our structure is unique
in the airline industry and gives us a
huge advantage in the market.
It’s a combination of having very
focused operating companies,
with distinct brands and very clear
customer propositions, underpinned
by a strong support platform that can
do things much more efficiently at
the centre than the individual airlines
could ever do on their own.
It’s that combination that makes
IAG a great success.
See pages 18 – 28 for more about our
operating companies
Q
A
Can you give an example of where
IAG’s flexibility has enabled it to
respond quickly to market
conditions?
In 2017 we demonstrated just how
flexible we are when we launched
LEVEL, our new low-cost, longhaul
airline brand.
We brought a proposal to the board
in February, announced its launch
on March 17th and started flying on
June 1st.
This is unprecedented.
6
It could not have been done if it
wasn’t for the fact that we could call
on expertise from across IAG’s airlines
and pull together an enthusiastic team
with the ability to launch a completely
new brand in such a short period
of time.
Q
A
Why did you launch LEVEL and
how has it performed?
The launch of LEVEL has been a
fantastic success. We knew the
business model worked – that
combination of having a low cost base
and targeting an under-served market
with a great customer proposition is a
winning formula.
The success we’ve recorded so far
really has demonstrated that the
timing was right, the initiative was right
and that the brand is great.
It’s given us great confidence to
expand LEVEL and you are going to
see more of that in 2018.
See case study on next page
Q
A
How are you improving
customer experience?
During the year we introduced a
non-financial metric to ensure we had
a good balance between our focus
on the financial performance of the
business and our focus on serving our
customers.
We decided that using a Net
Promoter Score – based on direct
feedback from customers – was
the best measure to use and it has
made a big difference, changing the
discussion and the debate about
customer service within the business.
This measure is a very efficient
way of understanding whether our
customers like what we are doing.
It means we are able to target our
investment based on what they want
and can see the immediate impact
that investment is having.
It has given us a way to really home
in on everything we do for our
customers and we will continue
using it in all our airlines in 2018
and beyond.
See page 17 for more
about Net Promoter Score
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 LEVEL – IAG’s new longhaul low-cost brand
“ Making longhaul travel
more accessible for
the current and future
generation of travellers.”
LEVEL launch
2017 was an exciting year for the
Group which expanded its portfolio
of world-class brands with the
launch of LEVEL, IAG’s new longhaul
low-cost customer proposition.
LEVEL reflects IAG’s growing
confidence in the sustainable returns
that can be achieved through an
“unbundled” value longhaul offering
which addresses a customer
market previously underserved by
the Group.
Following the unveiling of LEVEL in
March 2017, services commenced
from Barcelona just three months later,
with the deployment of two Airbus
A330-200 aircraft operating to San
Francisco (Oakland), Los Angeles,
Punta Cana and Buenos Aires. The
LEVEL flights from Barcelona are
currently operated by Iberia which was
able to offer a competitive cost-base
from which the low-cost offering could
be launched.
IAG has been delighted by the early
success and the positive response to
its new brand and remains confident
in LEVEL’s continuing strong
performance. In the first six months of
operations under the LEVEL brand, it
has achieved load factors exceeding
90 per cent and delivered non-fuel
unit costs ahead of target enabling a
positive underlying profit result ahead
of expectations.
Looking forward
The LEVEL fleet will more than
double in 2018 with the addition of
a further three Airbus A330-200
aircraft. LEVEL’s second base will
be established in Paris with services
to New York (Newark), Montreal,
Guadeloupe and Martinique. From
Barcelona we will add frequencies
and launch a new route to
Boston. LEVEL will also become
an independent operating airline
within the Group with its own
management team.
Beyond 2018, IAG expects LEVEL to
grow to a minimum of 15 aircraft by
2022, with flexibility to increase its
fleet beyond this amount. Under both
scenarios, the business is projected
to perform in line with the Group’s
sustainable Return on Invested
Capital target of 15 per cent.
Distinct brand unlocks “dual
brand” strategy
During 2017, IAG undertook a
focused review of its customers’
emotional and functional needs,
identifying a clear view of
customer and travel occasion
segmentation.
This review supported IAG’s
decision to create LEVEL,
an airline focused solely on
delivering a price sensitive
leisure proposition, which is in
turn allowing the Group’s full-
service brands to focus on their
own customers’ demands and
expectations.
IAG is equipped to be a leader in low-cost longhaul
IAG’s business model has distinct features which LEVEL can exploit
to develop a global leadership position in low-cost longhaul travel:
• the Group’s common integrated platform allows LEVEL to achieve
“best in class” costs, either through pursuing greenfield costs or
leveraging IAG’s economies of scale;
• targeted commercial co-operation with IAG and partner airlines,
such as Vueling and American Airlines, and arrangements with
IAG’s associated businesses, such as Avios, ensure LEVEL can
deliver an unrivalled customer proposition and build connections
to drive additional demand;
• the Group structure affords LEVEL the autonomy needed
to execute its own business objectives, supported by expert
management experienced in overseeing a portfolio of world-class
operations and brands.
This is about improving our overall
performance – not just in terms of
customer service, but also financially.
It is going to be a priority for us as
we continue to draw on the skills
of our digital team and build on
initiatives like our Hangar 51 project,
where we are investing in tech start-
ups that can help us find new ways
to innovate.
See page 28 for more
information on digital
Q
A
How is IAG exploiting digital
technology?
We recognised very early on that
the future of our business was
going to be hugely influenced by
developments in digital technology.
So we brought together a small team
within IAG to try to exploit technology
for the benefit of customers.
We’ve done a lot of that already.
Self-boarding gates at Heathrow’s
Terminal 5, new automated Mototok
push back vehicles on our stands,
new ways of distributing our product
digitally – these are just a few
examples of how we are constantly
looking for better ways to do the
everyday things that make life easier
for our customers.
Watch the full interview on our
website www.iairgroup.com
7
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Our network
Our business
around the world
105million
passengers flown to
279
destinations on
546
aircraft
Our brands
8
See pages 18 – 19 for more
about British Airways
See pages 20 – 21
for more about Iberia
See page 22 for
more about Vueling
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 IAG combines leading airlines in the UK, Spain and Ireland,
enabling them to enhance their presence in the aviation
market while retaining their individual brands and current
operations. The airlines’ customers benefit from a larger
combined network for both passengers and cargo, and a
greater ability to invest in new products and services through
improved financial robustness.
See pages 14 – 15 for more about
our strategic objectives
See page 23 for more
about Aer Lingus
See page 7 for
more about LEVEL
See page 26 for
more about Avios
See page 27 for more
about IAG Cargo
9
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Chief Executive Officer’s review
Achieving the right balance to
generate long-term value
“Our overriding ambition
at IAG has always been
to create an airline
business that can generate
sustainable long-term value
for all its stakeholders – a
business built for success.
We made great progress
towards that goal in 2017,
but there’s still much more
we can do.”
Willie Walsh
Chief Executive Officer
This time last year we promised our
stakeholders that the best was yet
to come and I’m really pleased to
say that we were right to make that
confident prediction. 2017 was a very
good year for IAG and for all of its
operating companies.
We went into the year convinced that
we could do a lot more to improve our
performance, but it’s fantastic to see just
how far we’ve come. To report overall
operating profits of €3.0 billion compared
with €2.5 billion in 2016, is undoubtedly
a very powerful financial result, built on a
record performance by all of our airlines.
But what pleased me particularly during
the year was to see an equally strong
improvement in operational performance,
continued network expansion by all
our airlines and a clear and growing
commitment throughout the business to
customer service – something we will see
much more of in 2018.
The launch of LEVEL, our new, low-cost,
longhaul airline brand, also provided
dramatic proof of our ability to make
important strategic decisions at high
speed, thanks to the unique flexibility
of our business model which, in so
many ways, continues to offer us a real
competitive advantage.
We’ve gone into 2018 in very good shape,
and as determined as we were last year
to keep building on our success.
Some clear challenges lie ahead. Higher
oil prices will create some headwinds,
but we are now much better placed to
respond to this challenge than in the
past and our consistent fuel hedging
programme continues to provide
protection against volatility.
Elsewhere the global economic
environment looks favourable with
indicators pointing to growth in many of
our most important markets, notably the
US, Latin America, Europe and Japan.
The one exception is the UK where,
thanks to the uncertainty caused by
Brexit, growth is forecast to be slower
in the short-term, although this has had
little impact on our business so far.
Operating highlights
I was particularly pleased with the
turnaround achieved by the new
management team at Vueling. To recover
from a difficult 2016 and achieve record
financial, operational and customer
service results is a truly outstanding
performance and proves we were right
to have confidence in the team’s plans
to consolidate Vueling’s position in the
European market.
Iberia’s performance was very impressive
again, helped in part by a recovery in
Latin American markets, particularly
Brazil. But, above all, it reflects the
continuing benefits of its Plan de Futuro
restructuring programme, now in its
second phase. Iberia is now the world’s
most punctual network airline. But that’s
just one example of the extraordinary
transformation that has been achieved in
every part of the business.
Aer Lingus stormed ahead in its second
full year in the Group achieving strong
growth in all its markets, particularly
on transatlantic routes, and terrific
customer scores. We always knew that
the leadership team’s ambitious plans
for the airline were much more likely to
be realised within IAG and that’s proved
right. We are not just delivering what we
promised with Aer Lingus, but going well
beyond. The continued expansion of its
services to the US – including plans this
year to fly to Philadelphia and Seattle –
will give Irish travellers a level of choice
that Aer Lingus could never have offered
as a stand-alone airline.
British Airways’ performance
continues to improve and impress.
There has been a strong focus on
operational efficiency and integrity, and
punctuality improvements have been
particularly impressive.
10
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 British Airways faced two set backs
during the year. The power failure in May
and adverse weather in December both
caused significant disruption and were
a big disappointment for customers
and the airline. But it recovered well.
British Airways’ commitment to improve
customer service, both in the air and
on the ground, is backed by some very
stretching targets and that push to
continuously do better is clearly evident
in the airline now.
Despite an ongoing imbalance of supply
and demand in the global airfreight
market, IAG Cargo also had a very
strong year. Here our decision to target
the premium end of the market and to
increase efficiency through the smart use
of technology is paying huge dividends.
Measuring our investment in
customers
During 2017 we introduced the Net
Promoter Score (NPS) across all our
airlines as an important key performance
indicator. This use of a non-financial
metric reflects our desire to maintain
a balance between the financial
performance of the business and the
value we are delivering to our customers.
The scores allow us to track very
accurately how customers feel about the
investments we are making, for instance
in catering, in-flight entertainment or
new seating on our aircraft. Using NPS,
we can track sentiment very clearly,
spotting successes and failures. With all
our airlines using the same robust system
of measurement, it means we can test
ideas in one carrier and then share that
experience across the Group and it is
changing the way, as a management
team, we shape our investment plans for
the future.
LEVEL
The launch of LEVEL, offering low-cost
transatlantic flights from Barcelona to
destinations in the US and Latin America,
was a fantastic high point for us in 2017
and demonstrated how we can take
ideas from conception to realisation
at unprecedented speed. That’s highly
unusual for an organisation of our size.
We put a proposal to the Board in
February, announced its launch on March
17th and started flying on June 1st. Despite
the short lead-in time, we were able to
sell an incredible number of tickets and
fill the first flight we operated, with a
much better response from customers
than we had expected.
This was a truly cross-business initiative.
We drew on expertise from across all our
airlines to create a team full of passion
and enthusiasm and clearly relishing the
rare opportunity to launch a completely
new brand.
It’s early days. But the signs are that
by targeting cities poorly served by
affordable longhaul services and using
a very competitive cost base that allows
us to operate profitably, we have struck
on a winning formula and we are ready
to grow the operation. This year we will
add a third aircraft at Barcelona and, in
July, will launch a new two-aircraft base
at Paris Orly, where Vueling also has a
significant base. Longer term we will look
at other European cities that meet our
criteria for LEVEL and I am very excited
about the potential of the brand.
Consolidation
When we created IAG we said we
wanted to create a platform to facilitate
consolidation in the European market
and we’ve done just that throughout
our seven-year history. Opportunities for
mergers or outright acquisitions remain
relatively rare and, sadly, consolidation
sometimes comes from airlines failing in
the market.
Consolidation will continue. This is a
dynamic industry. Airlines that don’t
perform and do not deliver sustainable
results should not be supported
and we’ve always been critical of
governments that prop up failing carriers.
The plain truth is that efficient carriers will
step in to replace inefficient ones, and
that’s precisely what we have done.
The failure of Monarch last year provided
us with an opportunity to acquire
additional slots at Gatwick. We will use
the slots initially to continue building
British Airways’ shorthaul network at
the airport, but later there may be an
opportunity to explore new longhaul
destinations and some slots could be
used by other airlines in the Group.
Following the collapse of Air Berlin we
were disappointed not to acquire its
Austrian subsidiary, NIKI. We were very
clear about the value we could ascribe to
NIKI and the level of investment we were
prepared to make.
Technology and innovation
We realised early on that digital
technology and innovation would have
a significant impact on our business. We
moved quickly to make sure we have a
window on developments in this exciting
world that could help us improve our
efficiency and make our customers’
lives easier.
A great example is the introduction
of self-boarding gates at Heathrow’s
Terminal 5, and the introduction of
biometric, face recognition boarding at
Los Angeles, both of which are helping
to reduce queuing for our passengers,
potentially cutting boarding times in half
for even our largest aircraft. Customer
feedback has been excellent.
The introduction of fully automated
Mototok push back vehicles on the ramp
at Heathrow Terminal 5, are helping to
boost efficiency and cut costs, while an
affordable adaptation of a simple 3-D
scanning system, devised by our Digital
team, means we can now scan the size
and shape of the cargo we carry and
fit it more efficiently into the holds of
our aircraft.
Our Hangar 51 initiative, launched in
London last year, has brought us into
close contact with some exciting tech
start-ups eager to explore how they
might apply technology in our industry.
This year we launched a second round
of the accelerator programme in Spain,
attracting applications from more than
350 start-ups in 46 different countries
– a really fantastic response.
This is a great opportunity for young
companies to work closely with a big
organisation like ours and for us to learn
about their world, their way of working
and their ideas. Seeing the output
from the programme has been really
fascinating for me. We invested in two
companies in the first round – Esplorio
and Vchain – and will invest in Volantio
from round two.
11
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Chief Executive Officer’s review continued
New financial targets
At our Capital Markets Day in November
we presented investors with updated
financial targets for the business between
now and 2022.
Many of the targets remain unchanged
from the challenging goals that have
driven the business so successfully over
the last few years. However we did adjust
upwards our goals on EBITDAR, capital
spending, equity free cash flow and
capacity for the next five years.
We’ve maintained our target for return
on invested capital target at a consistent
and sustainable 15%, knowing that this
gives us the flexibility to invest long-term.
We’re clear if our target is too rigid it may
stop us making investments that will later
make great sense for the business.
Our industry has historically destroyed
value by making returns below the cost
of capital. We want to work in an industry
that generates value, offering real and
sustainable returns to our investors as we
are now so successfully doing.
These metrics are very important for the
business, and, as I’ve said, it’s important
to have the right balance between
financial and non-financial measures.
They drive the business forward and give
a clear signal that we are determined
to continue our quest for efficiency,
operational performance, excellent
customer service, and a very strong
financial performance, all the time being
focused on minimising our impact on
the environment.
Our targets underpin that overall
ambition and ensure we continue to do
the right thing for our business and for
all our stakeholders. I’m confident we are
very clearly set on that course.
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.
Robert Boyle
Director of Strategy
Ignacio de Torres Zabala
Director of Global Services
Julia Simpson
Chief of Staff
Chris Haynes
General Counsel
Alex Cruz
Chairman and Chief Executive
Officer of British Airways
Luis Gallego Martin
Chairman and Chief Executive
Officer of Iberia
Willie Walsh
Chief Executive Officer
Javier Sanchez Prieto
Chief Executive Officer of Vueling
Stephen Kavanagh
Chief Executive Officer of Aer Lingus
Andrew Crawley
Chief Executive Officer of Avios
Lynne Embleton
Chief Executive Officer of IAG Cargo
Executive Directors not pictured: Willie Walsh, Chief Executive Officer; Enrique
Dupuy de Lôme, Chief Financial Officer.
For a full biography of each member
please visit www.iairgroup.com
See page 60 for our Board of Directors.
12
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Business model and strategy
A Group portfolio built to
maximise value
IAG’s vision is to be the
world’s leading airline
group, maximising
sustainable value creation
for its shareholders and
customers. Its business
model makes it well-
positioned to achieve
this in an increasingly
competitive and fast-paced
environment.
At IAG we don’t believe in one-size-fits-all
and, through the Group structure, IAG’s
diverse set of airlines and associated
businesses can together deliver an
unrivalled customer proposition across
the full spectrum of travel occasions.
The Group portfolio sits on a common
integrated platform driving efficiency
and simplicity while still allowing each
operating company to achieve its
individual performance targets and
maintain its unique identity.
Unique operating companies
targeting specific customer needs
and geographies
The Group portfolio of world-class
operations and brands offers distinct
customer propositions, from full service
longhaul to low-cost shorthaul carriers,
each focused on identifiable geographies,
markets and customer segments. The
Group structure enables the operating
companies to enhance customer
centricity in their specific segments while
collectively providing strong competition
to other airlines in the market. This allows
IAG airlines to become leaders in their
respective markets with the flexibility to
adapt rapidly to changing dynamics.
The Group’s governance model further
supports portfolio delivery with IAG
setting financial targets, directing
corporate strategy and overseeing
performance while keeping financial
and operational accountability at the
individual company level.
Industry consolidation and leadership
IAG believes the industry is too
fragmented and that airline consolidation
will continue to be a critical enabler for
sustainable industry improvements on
both a European and a global scale.
Unrivalled
customer
propositions
1
Strengthening
a portfolio
of world-class
brands and
operations
2
Growing global
leadership
positions
3
Enhancing
IAG’s common
integrated
platform
Efficiency
and
innovation
Value
accretive
and sustainable
growth
IAG continually evaluates the market for
value accretive growth opportunities
to reinforce existing or develop new
leadership positions, further shareholder
returns and serve customer demand.
IAG actively responds through
acquisitions, partnerships, organic
growth and network development, as
demonstrated this year through the
launch of LEVEL, the commencement of
38 new routes and the acquisition of slots
at London Gatwick.
IAG is deliberately structured to allow
consolidation and organic options
associated with new operating
companies to be assessed and
developed without unnecessarily
distracting the existing operating
companies from executing their own
business objectives.
Common integrated platform
IAG continues to enhance its integrated
platform which enables the Group’s
airlines to share best practices effectively,
generate efficiencies and benefit from
standardised processes. IAG’s scale,
strength and strategic governance deliver
cost-effective and scalable systems that
support simplification and drive ongoing
revenue improvement opportunities
and enhanced service delivery.
Through a partnering approach with
the operating companies, IAG’s Global
Business Services (GBS) continues to
produce significant cost benefits for the
business through centralised and higher
quality back office functions. As a result,
IAG has successfully leveraged cost and
revenue opportunities and beaten its
synergy targets year-on-year, helping
the Group deliver consistently higher
returns to its shareholders. The platform
also supports additional Group revenue
generation and customer loyalty through
Avios, its shared global reward currency
and through IAG Cargo.
The integrated platform is actively
supported by IAG Digital, which
works across critical business areas to
identify, evaluate and implement digital
disruption opportunities that better
address customer needs (new services
and products) and drive step changes
in efficiencies.
See pages 14 – 15 for how we are
achieving our goals
13
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Our strategy
IAG’s strategic priorities
As the IAG model has both grown and matured since its formation in January 2011,
the Group has continued to evolve its strategic priorities which currently include:
1
Strengthening a portfolio of world-class brands and operations
We achieve this by
• ensuring our operating
companies collectively deliver
an unrivalled proposition able
to fulfil customers’ needs
across the full spectrum of
travel occasions;
• using consolidation and
developing organic options
to differentiate the Group
from its competitors and
ensure customer demands
are met where they are
currently underserved;
• deepening customer
centricity to win a
disproportionate share in
each customer segment.
Our priorities for 2018
IAG is committed to strengthening its
customer focus to ensure its operating
companies further adapt and focus
their business models to reflect
and meet customer expectations.
Customer product improvements
will be ongoing with full deployment
of premium economy across Iberia,
the opening of new lounges, entry
into service of new generation
aircraft, improved end-to-end digital
experiences and the continued roll-out
of Wi-Fi and seat power across the
Group’s fleet.
Additional LEVEL services from Paris
and Barcelona will also be introduced
in 2018 and LEVEL will be developed
into an independent operating
airline with its own management
team to ensure customer focused
development and growth.
Our activity in 2017
Throughout 2017 IAG undertook a focused
review of its customers’ emotional and functional
needs, identifying a clear view of customer and
travel occasion segmentation to better leverage
the Group portfolio and ensure each airline is
centred on fulfilling the needs and capturing a
disproportionate share of its respective markets.
Net Promoter Score (NPS) targets to provide
a consistent and comparable measure of our
customers’ satisfaction were also established
among the airlines.
With a greater understanding of customers’
needs and expectations, 2017 saw significant
investment in customer product across the
Group portfolio focused on strengthening
current customer propositions and positioning
IAG brands to be leaders in their respective
market segments. This investment included
commencing both shorthaul and longhaul Wi-Fi
roll-out, improved catering and amenity offerings,
aircraft refurbishment, the launch of premium
economy on Iberia, opening of new lounges,
updated apps and web-browser experiences
and transformations to the customer journey
at the airport including greater automation at
London Heathrow Terminal 5 to reduce queuing
and focused development of the Dublin hub
to support Aer Lingus’ market leading NPS
performance and future growth opportunities.
IAG also launched its new low-cost longhaul
airline brand, LEVEL, which successfully
started operations from Barcelona in June
2017. LEVEL has allowed IAG to address a new
customer segment by offering a price sensitive
leisure focused proposition that democratises
travel opportunities.
14
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 2
Growing global leadership positions
We achieve this by
• pursuing value accretive
organic and inorganic
growth options to reinforce
existing or pursue new global
leadership positions;
• attracting and developing the
best people in the industry;
• setting the industry
standard for environmental
stewardship, safety
and security.
Our activity in 2017
IAG reinforced its leadership positions in its home
markets of London, Madrid, Barcelona, Dublin
and Rome with the addition of 38 new routes
including the introduction of LEVEL longhaul
routes from Barcelona. The Group continued
to optimise its longhaul network and customer
proposition together with its joint business
partners and Iberia successfully joined IAG’s
Siberian joint business.
The Group was also able to strengthen its
position across Europe, taking advantage of
consolidation opportunities with the acquisition
of slots at London Gatwick. Disappointingly IAG
was unable to secure its acquisition of assets
from NIKI after insolvency proceedings moved
from Germany to Austria, but remains interested
in pursuing organic growth in the region.
Operational challenges for competitors also
boosted IAG airlines’ performance.
Following its successful campaigning for the
industry to agree on a global deal to address
carbon emissions and its initiatives to improve
its own efficiency, IAG was recognised by the
Carbon Disclosure Project as a global leader
for its actions to combat environmental risks
worldwide, working to cut emissions, mitigate
climate risks and develop a low-carbon economy.
The Group’s safety record in 2017 was also noted
with several IAG airlines listed in the top 20
safest airlines for their respective categories by
AirlineRatings.com.
Our priorities for 2018
Sustainable value accretive growth will
be a priority for the Group with the
launch of further new routes, aircraft
up-gauging, additional frequencies
and improved connections at hub
airports. Longhaul expansion is
focused on the Group’s key markets
in North and South America, but
will also see growing demand being
served in South East and North Asia,
and opportunities for growth are also
being explored in Africa.
British Airways will grow significantly
at London Gatwick following the
acquisition of slots, strengthening
and expanding its network offering
in Europe.
IAG will continue to prioritise
its assessment of consolidation
opportunities in Europe to further
enhance its existing portfolio and
shape industry consolidation
where value accretive targets are
identified. LEVEL’s operations will
also be developed and expanded
during 2018.
Our priorities for 2018
In 2018 IAG will focus on moving away
from order-centric airline systems to a
customer-centric process by building
on NDC and focusing on ‘shop, order,
pay’. It will focus on developing
capabilities to support data
customisation and data analytics, and
continue investment in on-demand
ancillaries, machine-driven pricing and
automating the business above and
below the wing.
3
Enhancing the common integrated platform
We achieve this by
• reducing costs and
improving efficiency by
leveraging Group scale and
synergy opportunities;
• engaging in Group-wide
innovation and digital mindset
to enhance productivity and
best serve our customers;
• driving incremental value
with external business-to-
business services.
Our activity in 2017
The Group renewed its focus on deepening and
accelerating cost reduction programmes whilst
also ensuring customer value creation. Further
efficiencies and cost savings from the common
platform were realised and both Aer Lingus
and Vueling were fully integrated into the GBS
platform. Vueling and Aer Lingus also adopted
Avios as their loyalty currency through the re-
launch of their respective loyalty programmes.
The Group continued to harmonise the fleet with
increased focus prior to the start of deliveries of
the Airbus A320neos. Maintenance opportunities
were pursued with simplified management
structures at British Airways and Iberia and
optimisation of external spend.
IAG Cargo successfully launched Zenda, a cross-
border shipping product for e-commerce, and
a new interactive and Wi-Fi connected in-flight
experience was launched on LEVEL services.
Digital innovation was promoted through the
launch of New Distribution Capability (NDC)
and two successful ‘Hangar 51’ accelerator
programmes, providing investment and
partnering opportunities with ambitious and
driven start-ups. Automated systems were also
tested and implemented effectively, such as the
Mototok aircraft tugs. Mototok is a high tech
electrical aircraft push back tug that uses radio
remote control.
15
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Key performance indicators
Focusing on sustainable returns
We delivered healthy results and we achieved our customer
satisfaction target. We are building on our strengths to
generate sustainable returns to our shareholders and to
exceed their expectations.
Measure linked
to our strategy
Unrivalled customer
proposition
RoIC (%)
Lease adjusted operating
margin (%)
Adjusted EPS (€ cents)
Value accretive and
sustainable growth
Efficiency and
innovation
Direct link
Indirect link
Long-term planning
goals 2018-2022
A
R
Alternative
performance measure
Measure linked to
remuneration of
Management
Committee
16.0%
Targeting
sustainable
15%
13.6%
12.7%
14.4%
15%
12%
12.3%
11.2%
12%+
average growth
per annum
102.8
90.2
71.4
+14%
+26%
2015
2016
2017
2015
2016
2017
2015
2016
2017
A
A
A
Definition and purpose
Definition and purpose
Definition and purpose
RoIC is defined as EBITDAR, less
adjusted aircraft operating lease
costs and less adjusted depreciation,
divided by invested capital. We use
12 months rolling RoIC2 to assess
how well the Group generates
cash flow in relation to the capital
invested in the business together
with its ability to fund growth and
to pay dividends.
Lease adjusted operating margin is
the Group operating result before
exceptional items adjusted for leases
as a percentage of revenue. We
use this indicator to measure the
efficiency and profitability of our
business and improvement in the
financial performance of the Group.
Adjusted earnings per share
represents the diluted earnings
for the year before exceptional
items attributable to ordinary
shareholders. This indicator 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.
R
Performance
R
Performance
R
Performance
In 2017, RoIC increased 2.4 points
to 16.0 per cent. The improvement
was due to an increase in earnings.
Invested capital grew 1.5 per cent
from an increase in the notional
capitalised value of aircraft
operating leases.
The result marked a significant step
in achieving a sustainable 15 per
cent RoIC.
Lease adjusted operating margin
improved 2.1 points to 14.4 per
cent. The improvement came
from revenue growth while
costs increased at a slower pace
benefiting from fuel tailwinds
and from management cost
saving initiatives. This reflects the
Group’s drive towards achieving a
competitive and efficient cost base
with improved productivity and non-
fuel cost savings.
We grew our adjusted earnings per
share by 14 per cent in 2017. This is a
strong performance.
Profit after tax before exceptional
items was €2,243 million, up 12.7
per cent versus 2016. The increase
reflects a very good operating profit
performance.
The adjusted EPS measure was also
improved by the share buyback
programme which decreased the
weighted average number of shares.
See pages 14 – 15 for
more about strategy
See pages 38 – 46 for the
financial review
See pages 175 – 177 for reconciliation of the measures to the closest
IFRS measure
See pages 80 – 103 for more
about remuneration
See the glossary
on page 179
See pages 47 – 56 for non-financial performance in our
Sustainability section
16
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 We use key performance indicators
(KPIs) to assess and to monitor the
Group’s performance against our
strategy and our long-term goals1. We
evaluate opportunities based on the
strategic objectives of the Group and
using the KPIs to identify and generate
sustainable value for our shareholders.
Our financial metrics are before
exceptional items and include lease
related adjustments commonly used
to analyse the airline industry.
These adjustments improve the
understanding of the Group’s
performance and the comparability
between periods.
A customer measure, Net Promoter
Score (NPS), was introduced in the 2017
annual incentive plan at the Group level.
We believe customer satisfaction is an
important lead indicator of the Group
financial performance and is now one
of the Group’s KPIs.
Through this year‘s business planning
cycle, we set out our targets for the
period 2018–2022. We reiterated our RoIC
and lease adjusted operating margin
targets in a higher growth environment.
We are aiming to generate on average
c.€6.5 billion EBITDAR and €2.5 billion
equity free cash flow per annum over the
period 2018-2022.
Adjusted net debt
to EBITDAR
EBITDAR (€m)
Equity free cash flow
(€m)
Net Promoter Score
Investment
grade zone
1.9
1.8
1.5
4,301
4,581
c€6,5bn
c€5.3bn*
5,087
20173
16.8
2,685
€2.5bn
2,055
1,481
2022 target
30.0
2015
2016
2017
2015
2016
2017 2018/22
(average
per annum)
2015
2016
2017
* Last year’s goals for 2016-2020
A
A
A
Definition and purpose
Definition and purpose
Definition and purpose
Definition and purpose
Adjusted net debt to EBITDAR is
calculated as long-term borrowings
plus capitalised operating aircraft
lease costs less current interest-
bearing deposits and cash and cash
equivalents divided by EBITDAR2.
We use this measure to monitor
our leverage and to assess financial
headroom through the same lens as
financial institutions.
EBITDAR is the Group operating
profit before exceptional items,
depreciation, amortisation and
impairment and aircraft operating
lease costs. It is an indicator of the
profitability of the business and
of the core operating cash flows
generated by our business model.
This measure is not impacted by the
financing structure of our aircraft.
Equity free cash flow is defined as
EBITDA before exceptional items
less cash tax, cash interest paid
and received and cash capital
expenditure net of proceeds
from sale of property, plant and
equipment and intangible assets. It
reflects the cash generated by the
business that is available to return
to our shareholders, to improve
leverage and to undertake inorganic
growth opportunities.
NPS is a non-financial metric
which measures the likelihood of
a customer recommending an
IAG operating carrier. Our goal is
not simply customer satisfaction,
but building a base of promoters.
Positive customer experience
and advocacy drive competitive
advantage, leading to faster organic
growth and lower costs.
Performance
Performance
Performance
In 2017 the Group’s financial
headroom rose as adjusted net debt
to EBITDAR decreased to 1.5 from 1.8
in 2016 with both adjusted net debt
and EBITDAR improving.
Adjusted net debt reduced by
€400 million to €7,759 million from
a stronger cash position and lower
long-term borrowings partially offset
by an increase in the notional aircraft
operating lease debt.
EBITDAR increased €506 million
versus last year reflecting the
Group’s profitable growth as the
EBITDAR margin improved circa 2
points with ASKs up 2.6 per cent
and contributing to increasing our
operating cash flows.
The Group’s equity free cash flow
rose €630 million to €2,685 million in
2017 due to the increase in EBITDAR
and EBITDA before exceptional
items and slightly lower net CAPEX.
The Group’s equity free cash flow
was above our long term planning
goal reflecting a low CAPEX year
with three aircraft delivered on
balance sheet. The Group continues
to focus on its capital discipline
and flexibility.
R
Performance
The IAG target has been reached
in 2017. Strong punctuality
performance across the Group,
in addition to customer service
initiatives have been key to
meeting the target.
1
IAG reviewed its long-term planning objectives as part of the Group’s Business Plan process and defined goals for the next five years for the Group and for each operating company.
For each of the objectives, 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, refer to the Risk management and principal risk factors section.
2 In 2015, the full year results of Aer Lingus were included in the calculation of RoIC and adjusted net debt to EBITDAR.
3 The Group measure is the weighted average of NPS scores from each airline based on passengers numbers. It is calculated from April 1, 2017.
17
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information British Airways
Creating a sustainable, customer
focused airline
Overview
2017 was the first year of Plan4, our
business plan to deliver our vision to
be the airline of choice. We delivered
another strong financial result in 2017
despite facing a number of challenges
– from industrial action and a significant
power outage in May causing mass
disruption to our customers, to extreme
weather conditions in December, terrorist
attacks and an increasing fuel price.
The fundamentals of our business are
strong. We are the number one carrier in
London, the world’s largest international
aviation market, and the number one
European carrier across the North
Atlantic. We have a strong brand and
have begun to invest significantly in
transforming the travel experience of
British Airways’ customers, in whichever
cabin they fly.
Operationally, despite the power
failure British Airways suffered in its
data centres in May that led to severe
disruption to customers and flights, a
small proportion of cabin crew going on
strike during the year and unexpected
snow disruption in December in
London, in 2017 we delivered the best
performance in British Airways’ recent
history. Within 15-minute punctuality
– a key industry measure – was the
highest since 2011, we have delivered a
25 per cent reduction in short-landed
baggage, and we have increased
engineering reliability to 98.7 per cent.
In spite of this improved operational
performance, we continue to invest in
our operation, and have commenced a
comprehensive programme of work to
enhance our operational resilience and
IT infrastructure, with a number of key
actions already implemented.
We have also started our transformation
into a truly customer-focused company
through improvements to the customer
experience. A new First wing at London
Heathrow Terminal 5 and New York JFK
has opened for our customers, and we
also opened new lounges at London
Gatwick and Boston. In September we
launched our new, restaurant-inspired
dining service in our Club World cabin,
which has transformed the food and
drink experience. This was swiftly
followed by the introduction of a new
partnership with The White Company
to offer the ‘best night’s sleep’ in the sky
in Business Class. These improvements
have already started to be rolled-out
across British Airways’ longhaul network.
Following the introduction of buy-on-
board catering on shorthaul flights in
January 2017, we continue to refine
the delivery of the new Euro Traveller
catering proposition to deliver a faster,
more engaged and better service for our
customers.
We continue to develop our longhaul
network, with three new longhaul routes
to commence in 2018 - Nashville from
London Heathrow and summer only
services to Toronto and Las Vegas
from Gatwick. Our shorthaul network
continues to evolve to provide increased
frequencies to peak summer destinations,
such as Malaga, Faro and Las Palmas.
Additionally, our fleet renewal continues
at pace in 2018, with five new Boeing 787
longhaul aircraft to enter service, with
10 Airbus A320neos and three Airbus
A321neos to be delivered.
Plan4 – unprecedented customer
investment
Plan4 targets a lease adjusted operating
margin of 15+ per cent each year and
the delivery of a sustainable RoIC of 15+
per cent through the business cycle. An
unprecedented level of investment in
the customer over the next five years is
critical to the success of Plan4.
Invest and innovate where customers
value it most
British Airways’ brand stands for premium
experience for all customers, across all
cabins. Over the next five years 70 new
aircraft will enter service, which will be
embodied with a superior product –
high speed Wi-Fi, in-seat power, new
entertainment systems, and from 2019 a
new top tier Club World seat on longhaul.
British Airways’ existing aircraft will also
British Airways targets aligned with IAG targets
2017
Lease adjusted
operating margin (%) 14.9% +1.4pts
2018-2022
15%+
RoIC
ASK growth
per annum
Fleet
16.0% +2.5pts
15%+
0.7%
293
2-3%
299
“The next five years will
see an unprecedented
level of investment as
we transform into a
truly customer-focused
company”
Alex Cruz
Chairman and Chief Executive Officer
of British Airways
2017
12,269
2,732
1,754
Higher/
(lower)
+7.2%
+13.8%
+19.1%
Performance
£ million
Revenue
EBITDAR1
Operating profit1
1 Before exceptional items.
Key statistics
Punctuality
80.0%
Fuel efficiency gCO2/pkm
97.8
18
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 go through a significant refurbishment
programme, with new cabins and in-flight
entertainment systems and the ongoing
roll out of Wi-Fi and in-seat power.
Consequently, by 2022 all longhaul wide-
bodied aircraft will either be new or have
a refurbished cabin.
The transformation of our catering
proposition across all cabins has begun.
This has started with the launch from
September of the new Club World
catering, which will be rolled out across
British Airways longhaul network
throughout 2018. From January 17, 2018
we launched our new World Traveller
catering, providing our customers with
greater quantity and quality of food,
and new and better snacks. Additionally,
through the use of technology, our staff
will be able to provide customers with a
more personalised service. All cabin crew
will be given tablets in order to deliver a
consistent service and empower them to
provide excellent customer care.
Be safe, reliable and responsible
Operational reliability is critical to our
continued success. British Airways was
again more reliable than key competitors
in 2017, with more on-time departures
from London than easyJet and Ryanair,
according to Civil Aviation Authority
(CAA) data. Punctuality will continue
to be improved with additional summer
aircraft availability, the use of real-time
data to provide early warning of potential
delays, and through the optimisation of
spare time between airports. Baggage
performance, already improved by 25
per cent in 2017, will be improved further
by focusing on transfer bags and British
Airways’ upcoming increase in bag
storage capacity at London Heathrow.
Following the operational disruption in
May 2017 that occurred due to a power
failure at the Group’s primary data
centre, we commenced a comprehensive
programme of work to enhance
our power and IT infrastructure and
resilience with a number of key actions
already implemented.
Improve capital efficiency and have
competitive costs
We are committed to reducing non-fuel
unit costs on average by 1 per cent over
the next five years. The restructuring
programme announced in 2016 will
deliver £250 million of annual benefits
by 2020. As part of this, technology
is being utilised that not only makes
British Airways more efficient, but also
has a positive impact on the customer
experience. Currently, there are 24 self-
service bag drops at London Heathrow,
which have accepted over 1 million bags
to date, reducing average customer
transaction times to around 80 seconds.
A further 20 will be installed by May 2018
and more in the second half of 2018. We
have installed 18 automated gates in the
connections zone at Terminal 5, which
has all but eradicated queues for our
20,000 customers who pass through it
every day. Remote controlled Mototoks
are also being used for our shorthaul
operation, which has reduced pushback
delays by 75 per cent on those gates.
The next step is to move to a longhaul
version of this technology. Our head
office has become more streamlined
as we have removed duplication and
eliminated non-value adding processes,
delivering a 23 per cent reduction in
headcount as a result.
We have also addressed our pension
challenges. The New Airways Pension
Scheme (NAPS) is the company’s largest
defined benefit scheme and had a
£2.8 billion funding deficit as of March
2015. During 2017 British Airways paid
more than £600 million into the NAPS
pension scheme. Following consultation
with our colleagues and the trade
unions on future pension provision, we
will be implementing a new pension
scheme for all UK colleagues from April
1, 2018. This will significantly reduce the
risk profile of British Airways and bring
our ongoing pension costs in line with
market rate. Active NAPS members will
also be offered a choice of transition
arrangements including a cash lump
sum, additional company pension
contributions or additional pension
benefits in NAPS prior to closure. The
overall financial impact on British Airways
will depend, in part, on the transition
arrangements members select.
Shorthaul fleet efficiency will be driven
by the up-gauging of our aircraft. The
number of Airbus A319s in our fleet will
reduce from 44 to 22 by 2022, being
replaced by larger Airbus A320neos and
Airbus A321neos. This will increase the
average seat count across the shorthaul
fleet which, coupled with the cost
benefits the Neo brings and the new
cabin configuration on existing aircraft,
will lead to a 7 per cent unit cost benefit.
Up-gauging the shorthaul fleet will free
up slots at Heathrow that we can convert
to longhaul flying, in order to continue to
expand our longhaul network. Longhaul
fleet efficiency will be driven by the
introduction of more new generation
aircraft. By 2022 37 new generation
aircraft will enter the longhaul fleet. These
aircraft are approximately 30 per cent
more fuel efficient than the Boeing 747s
that they replace.
Unleash our true potential
Our people are vital to the success of
British Airways and the delivery of Plan4.
We have a number of people-orientated
initiatives that will cultivate leaders at all
levels of the organisation and develop
an agile organisation with a dynamic
culture. Fundamental to this has been
communication and engagement with
colleagues. This year alone we have
explained our Plan4 strategy to over
3,500 managers and 2,500 cabin crew,
and we will shortly be communicating
our updated plan to all colleagues.
This is just one example of how we are
engaging with our colleagues in order to
deliver high levels of customer service
consistently across the business.
Digital
Digital underpins Plan4. Digital, and the
use of new technology, will enable British
Airways to provide our customers with
a seamless, stress-free travel experience.
For example, automation at the airport
is enabling our front line staff to focus
more on customer service. We have also
launched a new and updated ba.com,
which delivers a new look and feel, and
is supported by improved technology,
making it easier for customers to make
bookings. The new site is simple and
intuitive to use, meaning that in just a
few clicks, customers can book a flight,
check their upcoming journeys and pull
up their Executive Club account. In 2018,
customers can expect to see further
improvements, including an updated post
booking experience and new features for
the Executive Club.
Conclusion
Our fundamentals are strong. The
unprecedented levels of customer
investment we will make over the next
five years will enable British Airways
to deliver our vision to be the airline
of choice with personalised service,
exceptional reliability, a digital mind-set
and unique British style.
19
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Iberia
Improved profitability and
customer service
Overview
This year marks four years since we
launched Plan de Futuro, in order for
Iberia to adapt to new market challenges.
During this time, we have made
significant progress on all fronts:
customer satisfaction, our operations
and cost efficiencies, and, as a result, also
financially. It could appear that Iberia has
completed its transformation, but there is
a lot that still needs to be done.
2017: the consolidation of Phase 2 of
our Plan de Futuro
In 2017 Iberia celebrated its 90th
anniversary, marking its place in the
history of Spanish, European and global
aviation as one of the oldest airlines in
the world still in operation. The tool that
will allow us to go on for a further 90
years is Phase 2 of Plan de Futuro.
Phase 2 of Plan de Futuro required
rethinking even the most fundamental
aspects of how to improve each day.
While the original Plan de Futuro allowed
us to reach our objective of returning to
profitability, Phase 2 is the tool that will
help us achieve excellence. The Plan is
constantly evolving, with new initiatives
and projects that stem from the ideas
and determination of the members of
our organisation.
Towards the end of 2016 we defined the
first 200 projects of Phase 2 and in 2017
the execution of many of these projects
allowed us to come out stronger.
These efforts are having the desired
result. In relation to customer satisfaction,
our Net Promoter Score has improved
significantly. In 2017 we received our
fourth Skytrax star, which puts us on par
with the best airlines in the world, in-
terms of product and customer service.
We have also consolidated the routes we
“Plan de Futuro Phase
2 is proving to be the
perfect tool for growing
profitably and reaching
excellence”
Luis Gallego Martín
Chairman and Chief Executive
Officer of Iberia
Performance
€ million
Revenue
EBITDAR2
Operating profit2
20171
4,851
835
376
Higher/
(lower)
+5.8%
+13.1%
+38.7%
1 Excludes the allocation of LEVEL results.
2 Before exceptional items.
Key statistics
Punctuality
90.0%
Iberia targets aligned with IAG targets
20171
Lease adjusted
operating margin (%) 9.6% +1.7pts
2018-2022
10-14%
RoIC
ASK growth
per annum
Fleet
12.2% +3.2pts
15%
2.2%
98
c.8%
126
1 Excludes the allocation of LEVEL results.
Fuel efficiency gCO2/pkm
83.3
20
opened in 2016: Johannesburg, Shanghai
and Tokyo, with the last two being part
of our strategic plan in growing Asian
markets. We have launched our Premium
Economy cabin, offering our customers
a superior product at an adjusted fare.
We are very satisfied with its results
in all possible metrics. The NPS and
revenue performance of the cabin has
been higher than we had anticipated.
It is the confirmation that there was a
latent customer segment that we have
successfully attracted. We will continue
retrofitting our aircraft to make it
available in all our Airbus A330-300s
and Airbus A340-600s.
With regards to our cost efficiency we
have managed to considerably reduce
our non-fuel CASK since the launch
of Plan de Futuro, even including
incremental costs derived from our
Handling and Maintenance businesses.
A large part of our focus on costs in
Phase 2 depends on working very
closely with GBS, IAG’s platform to create
economies of scale in IT and contracts
with third party suppliers. Furthermore,
we are progressing on the restructuring
of our labour costs. The deal reached
in 2017 with the negotiation of a new
employee redundancy plan will allow
us to work more efficiently while further
reducing our personnel costs.
The challenge was clear: improve our
operations and our cost efficiency. In
2016 we were the most punctual airline in
the world and we are immensely proud
to have achieved this feat again in 2017,
with Iberia Express also again the most
punctual low-cost airline in the world.
In 2017, IAG selected Iberia to operate
the LEVEL services from Barcelona,
and our cost efficiency and operational
excellence have contributed to LEVEL’s
successful launch.
In relation to our other businesses, in
Handling we have consolidated our
operations to work towards increasing
efficiency and achieving our financial
targets. In Maintenance we continue
to work on transforming the business,
improving profitability and redesigning
all our processes, in order to excel in both
our operations and customer service.
Also in 2017 we supported IAG in the
launch of Hangar 51 in Spain, an essential
component of our digital transformation,
which is one of our main challenges for
2018. The launch of Hangar 51 has been a
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 real success, with more than 350 start-
ups applying to enter the programme,
of which we selected seven to develop
products and services that will improve
our revenue generation, efficiency and
customer experience.
A key initiative of Phase 2 is the flexibility
and improved use of capital. In 2016 we
believed it was necessary to reassess
our plans to grow given the context,
and we successfully adapted to this
change. However, in 2017 we have further
increased our cost effectiveness and
improved our revenues, and some of
our key markets have shown a clear
economic improvement.
Our people have been and still are
essential in our transformation.
Everything that we have achieved so far,
like being the most punctual airline in
the world two years in a row, earning the
fourth Skytrax star, opening new routes
and markets, and above all returning
to profitability, would not have been
possible without their commitment, their
hard work, their understanding of the
challenges that we have ahead of us, and
their ability to adapt to the changes that
the market demands. In this new phase
of Plan de Futuro, their contribution will
be crucial to continue moving forward
towards positioning Iberia where we all
want it to be.
In summary, 2017 has been a good year
for Iberia, but, as I mentioned earlier, this
is no coincidence. The drive of Phase 2
of Plan de Futuro has been fundamental
in a context in which our markets
have shown more rational and less
volatile behaviour.
Within this context and thanks to our
flexibility, we have revised our growth
projections upwards. Our cost base
allows us to compete efficiently and
because of this we are convinced we
can do so if the conditions are adequate.
To grow and continue to improve
profitability is a great challenge, but we
are convinced the Plan de Futuro Phase
2 has provided us with the basis for
success.
2018, growth, new aircraft and
digitalisation
We have proven in 2017 that when
we have an objective in mind we are
very capable of reaching it. We ended
2016 with the challenge of not taking
steps back, which we achieved in 2017.
However, 2018 has its own challenges:
ambitious growth while maintaining
the established profitability objectives,
receiving the new Airbus A350-900s
and Airbus A320neos in our fleet and
continue to innovate for our customers
and our efficiency, a task for which
digitalisation will be essential.
A return to growth is possible given the
right conditions
In longhaul we will open two new routes:
San Francisco, from April, and Managua,
in October, which will also allow us to fly
daily to Guatemala.
As well as exploring new routes we will
reinforce our key markets. In 2018 we will
grow in different routes in the US, Mexico,
Bogota, Buenos Aires, Santiago de Chile
and Rio de Janeiro.
We will also increase our Tokyo route
by two weekly frequencies, supported
by the joint business we have with
our partners.
With our short and medium haul routes,
Iberia and Iberia Express will follow the
same strategy, focusing on our main
markets. In 2018 we will grow in Rome,
Milan and Paris with an additional
daily frequency on each route and we
will also improve our product to Tel
Aviv, operating an Airbus A330-200.
Iberia Express will launch new routes
to Palermo and Mykonos, while also
growing its main markets, particularly
to the Canary and Balearic Islands, and
European routes in which we compete
with other low-cost carriers.
Growth is an important challenge but
we know that we can achieve it if the
market conditions are right and we
continue to improve our cost efficiency.
This year we must renew our collective
labour agreements, which we need to
be able to increase our productivity.
This improvement is a prerequisite for
profitable growth. Should conditions not
be ideal, given our great flexibility we will
be able to adapt accordingly as we have
done in the past.
New generation aircraft
arrive at Iberia
We are also ready to receive two new
types of aircraft in our fleet. The Airbus
A350-900 and the Airbus A320neo are
an important technological change. Our
customers will be able to enjoy the most
modern, efficient and environmentally
friendly aircraft of our fleet. The first
Airbus A350 will arrive in July this year
and will fly to London and New York.
The Airbus A320neo will begin operating
also in the summer.
In addition, as we have previously
announced, our Airbus A320 will be
modified to include new slim seats in
the economy cabin, which will improve
customer comfort by increasing
available legroom, while also allowing
for more seats and revenue within the
same aircraft.
Our customers continue to be our
main priority
Many of the projects we have been
working on for the last few years will
come to fruition this year enabling Iberia
to better deliver our premium focused
proposition to our target customers.
Digital transformation is a key driver and
will affect all aspects of our company:
we will become more efficient, more
agile and above all will be able to better
serve our customers. In particular, we are
working on the following projects:
• New Distribution Capability (NDC) is a
programme led by IATA to transform
the way airlines retail our products to
allow for product differentiation and a
transparent shopping experience. NDC
allows us to present our customers
with improved and personalised
information, radically improving their
purchasing experience.
• New CRM. With the new CRM solution
that we are implementing, we will
understand our customers and their
needs better allowing us to serve them
as they want to be served on their
journey from end to end.
• Experiencia Redonda. This project
consists in a 360° training programme
for all our customer-facing staff, so that
our customers can also experience
the cultural change at Iberia by being
delivered a new, immediate, and
personalised service.
The challenge we have ahead of us is
not an easy one but neither has been
the journey so far. At Iberia, we always
welcome the challenge and, as we
always say, we know that every day is
the first day.
21
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Vueling
Sustainable and
profitable growth
Overview
Vueling delivered on its 2017 objectives.
Phase 1 of Vueling NEXT has successfully
restored operational and financial
performance whilst also rebuilding
customer trust. Now we are evolving
the design of our business model
with Vueling NEXT 2.0, developing
further cost transformation while still
keeping our customer at the centre of
our business model. We will continue
focusing on modernising our product
and customer experience and further
evolving our operating platform to support
internationalisation. Finally, the NEXT
2.0 phase will see a return to consistent
and manageable capacity growth at
approximately 10 per cent per annum
from 2018.
What we have done in 2017
In 2017 we have delivered on our objectives,
being true to our four NEXT pillars:
1. Deliver a leading low-cost carrier
customer proposition, aligning with the
needs of the price sensitive consumers
2. Drive operational excellence and cost
discipline
3. Develop a high-performing organisation
4. Return to sustainable and profitable
growth
Operationally, we reengineered our
technical specifications (for example new
hand-luggage policy, improved turnaround
times, queuing predictive system) to drive
stronger resilience, to better manage
irregularity and to increase recoverability.
In our network, we focused on better
balancing depth and breadth across, and
identifying growth opportunities within our
core markets while also looking for selected
growth opportunities outside.
We improved our customer experience by
implementing a more efficient and effective
disruption management approach
(enhanced EU261-related procedures)
and by investing in leveraging digital and
innovation to achieve a stand-out product
(EVA virtual assistant, first adopter in
automatic payment methods, etc.).
We continued to reshape the company’s
structure and to attract international
talent to key roles, moving towards
an organisation more oriented
towards innovation, digital and data,
while at the same time increasing
employee engagement.
Vueling NEXT 2.0, preparing
for the future
As part of this strategy, we will continue
with our cost discipline policy, launching
the Costs 2.0 programme to promote
further savings beyond our current cost
levels. We will increase aircraft utilisation
and manage seasonality to improve crew
productivity and achieve an optimal use of
our other resources.
We will continue developing our network
by increasing the share of destinations
where we hold a leadership position, and
searching for new growth opportunities.
We will keep driving more digitalisation
and automation into our operations
and our customers’ journey, moving our
crews towards full connectivity and our
customers towards the smoothest possible
experience. We will further improve the
engagement of our people and keep
attracting the best talent, leveraging this as
a key competitive advantage.
We will deepen our efficiencies, and as we
deliver on Vueling NEXT 2.0, we expect
our results will continue contributing to our
key IAG targets
Conclusion
Vueling’s results in 2017 demonstrate a
remarkable turnaround for the company.
Going forward, we will continue to
place our customers at the centre of
what we do, engaging them in stronger
relationships and providing continuously
higher levels of reliability and punctuality.
These actions will be the foundation on
which we will build our future growth and
on which we will continue to deliver solid
financial results.
Vueling targets aligned with IAG targets
2017
Lease adjusted
operating margin (%) 12.7% +6.0pts
2018-2022
12-15%
RoIC
ASK growth
per annum
Fleet
13.4% +6.1pts
15%
1.5%
105
c.10%
150
“Vueling is ready
to continue with
its pan-European
expansion plans and
fully committed to
delivering results.”
Javier Sanchez-Prieto
Chief Executive Officer of Vueling
2017
2,125
456
188
Higher/
(lower)
2.9%
44.8%
213.3%
Performance
€ million
Revenue
EBITDAR
Operating profit
Key statistics
Punctuality
79.9%
Fuel efficiency gCO2/pkm
84.5
22
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Aer Lingus
A value model
rewarding investment
Overview
Through 2017 we built on the strong
foundations of our value carrier business
model, a model that is demand led, simple
by design; focused on cost, product
and service. We have developed the
growth opportunities enabled by a strong
non-fuel unit cost performance and a
clear focus on the needs of our guests.
In a highly competitive marketplace we
have successfully executed our value
model strategy and delivered strong
financial results as measured by operating
margin and RoIC, improved our cost
competitiveness through efficient and
profitable growth, and rewarded the
Group for its investment in our ambition.
That ambition is to be the leading
value carrier across the North Atlantic,
enabled by a profitable and sustainable
shorthaul network. Our strategy is
based on key fundamentals which
include a strong guest focused brand
and service, a network which offers
compelling connection propositions,
and a competitive and resilient cost
base. We believe that Aer Lingus is
delivering on our ambition and creating
future opportunities for profitable,
sustainable growth.
Our guest focused ethos
Aer Lingus maintained an industry
leading Net Promoter Score through 2017.
We are guided by our ‘Voice of Guest’
surveys in the design and delivery of our
product proposition, offering greater
choice and consistent service to an
increasing number of guests. Our on-
time performance placed us in the top 10
airlines globally and we remain the most
punctual major carrier at the Dublin hub.
Wide-body fleet growth enabled our
investment in frequency and capacity and
we served more than two million guests
(20 per cent increase from last year) on
our North Atlantic network for the first
time. Year round direct service to Miami
commenced and services to Philadelphia
and Seattle launched during the year.
Aer Lingus has a competitive product and
strongly resonating brand which puts us
at a significant advantage to other value
carriers serving the United States market.
We launched our ‘Saver Fare’ longhaul
product during the year, a product that
offers choice to those seeking seat only
options and improves our cost and price
relevance in the marketplace. Aer Lingus
now has a consistent fare and retail model
across both shorthaul and longhaul
networks and we continue to build the
direct digital platforms to empower and
reward our guests.
The virtuous circle
While we build and develop our guest
focused ethos, Aer Lingus also believes
that our cost competitiveness will
create opportunities for demand led
growth, which will in turn be managed to
deliver cost efficiencies, thus creating a
virtuous circle.
The people at Aer Lingus are central to
our service delivery and cost performance,
and I am pleased that a multi-year pay
agreement was reached in 2017 that will
reward their contribution and sustain our
position into the future.
New technology aircraft will play a role in
supporting the Aer Lingus growth ambition
and we reached agreement for the lease of
eight Airbus A321LR aircraft during the year.
First deliveries are scheduled for 2019 and
we are convinced that the cost efficiency
and mission flexibility provided by these
aircraft will create the network and service
opportunities to support our strategy and
leverage the geographic advantage of our
Dublin hub.
Conclusion
In 2018, Aer Lingus will continue to compete
for capital and investment within IAG and
will remain faithful to the strategy that has
created sustainable value for all of our
stakeholders; a commitment to our demand
led value carrier model will see us continue
to focus on cost, product and service.
Aer Lingus will progress the opportunities
for profitable growth across its European
and North Atlantic networks while
maintaining high levels of guest satisfaction.
We remain convinced that the successful
execution of this strategy will deliver
compelling and sustainable levels of RoIC.
23
Aer Lingus targets aligned with IAG targets
2017
Lease adjusted
operating margin (%) 16.2% +1.3pts
2018-2022
15%+
RoIC
ASK growth
per annum
Fleet1
23.1% +0.0pts
15%+
12.1%
52
c.5%
61
1
Includes 4 Boeing 757 on wet lease until 2019.
“2017 has been another
year of profitable
growth with high levels
of guest satisfaction
and demonstrates the
competitiveness of the
Aer Lingus value model.”
Stephen Kavanagh
Chief Executive Officer of Aer Lingus
2017
1,859
443
269
Higher/
(lower)
+5.3%
+11.0%
+15.5%
Performance
€ million
Revenue
EBITDAR
Operating profit
Key statistics
Punctuality
81.4%
Fuel efficiency gCO2/pkm
86.5
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information IAG Platform
Engaging in Group-wide
innovation and an agile mind-set
The IAG Platform has been established. We accomplished what we said we would do:
built a platform allowing us to exploit revenue and cost synergies that the operating
companies could not achieve alone. Whilst we have already extracted significant value
for the Group, the teams continue to develop innovative and agile initiatives.
IAG Platform
MRO / Fleet
IAG Connect
Digital
A key element of our business model
is the IAG Platform including the well-
established IAG Cargo and Avios,
businesses. The Platform also includes
IAG GBS, which delivers IT, procurement,
and finance support, and develops Group
initiatives in maintenance and digital.
Global Business Services (GBS)
Leveraging the benefits of an efficient
and competitive platform whilst
developing agility and innovation
IT
GBS Group IT achieved its target of
€90 million cost savings on a like for like
basis at the end of 2017, a year earlier
than anticipated. The first full year of
services has transformed the operating
model of end user computing, service
operations and networks in British
Airways, Iberia, Aer Lingus, IAG Cargo
and Avios.
As part of the strategy to introduce
cloud-based world-class solutions, a
contract has been signed for the co-
location of the Group hybrid cloud
platform with BT.
Group IT has introduced a new way of
working through product-based teams
with digital partners that will enable
speed to market through an iterative and
agile approach, and maximise the new
hybrid cloud infrastructure.
Cybersecurity is, and will continue to be,
a priority across the Group. In 2018, IT
will leverage the expertise of strategic
global partners to help ensure early
detection of risk threats through an
enhanced 24/7 Security Operations
Centre. Anti-robotic website protection,
penetration testing and scans for all
operating companies will be supporting
Payment Card Industry (PCI) compliance
and General Data Protection Regulation
(GDPR) readiness. The expertise of our
world-class global partners will help
to deliver resilience and a scalable IT
platform for the Group, enhancing our
disaster recovery service. This will include
the mitigation of obsolescence of the
technology stack and a stable, workable
plan for the migration of critical core
business applications.
Procurement
The transformation of procurement into
a centralised function was completed
in 2016. In 2017, the teams finalised the
integration of the requirements from
Vueling, Aer Lingus and LEVEL into the
Group model and continued to leverage
the Group scale. Group procurement
delivered more than €200 million (of
non-fuel) cost savings across the Group
in 2017.
Main achievements:
• the restructure of the Iberia Airbus
A340 engine maintenance contract
to provide more focused service
requirements and a reduction in costs;
• the set-up of global framework
agreements with several of our
strategic IT partners to deliver
application support to the Group,
improving resilience;
• the delivery of programmes to provide
harmonised seats in economy and
premium economy cabins for the
airlines, as well as delivery of business
class products for Iberia and Aer
Lingus. Group procurement also
continues to support British Airways in
its plans to replace its Club World seat.
In 2018, Group procurement will launch
new tools to drive further synergies,
and streamline and automate processes
such as a new procurement platform
and a supplier relationship management
system. These will provide a common and
more automated approach to assessing
our suppliers to better address Corporate
Social Responsibility, resilience and
legislative requirements.
Finance
GBS Finance continued to focus on
the simplification, harmonisation and
automation of processes, constantly
looking for cost synergies.
Main achievements include:
• the launch of a common system
platform for the Group;
• the development of a specific GBS risk
control matrix, improving transparency
of the service performance and
reporting framework;
• the renegotiation of the delivery of
services with Accenture for finance
and operational procurement activities.
IAG Connect
Launching .air
During 2017, the responsibility for the
Group’s in-flight connectivity strategy
and roll-out has moved to a new
subsidiary company, IAG Connect,
to bring scale and efficiency to the
Group’s in-flight connectivity through
an e-commerce platform. The Group’s
in-flight connectivity portal was
launched in June with the start of
LEVEL operations. The portal, named
‘.air’ offers entertainment, shopping and
Wi-Fi and allows customers to pair their
smartphone or tablet to the seatback
See page 26 for more information
on Avios
See page 27 for more information
on IAG Cargo
See page 28 for more information
on Digital
24
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Main achievements include:
• a 10 per cent headcount reduction
through productivity gains,
consolidation and outsourcing;
– the simplification of management
structures at British Airways and
Iberia;
– the implementation of lean
processes in British Airways and
Iberia to reduce cost and turnaround
times;
– the closure of British Airways paint
hangar and component facilities
activities in London;
– the consolidation of Iberia
component shops in Madrid Barajas
airport into Iberia owned premises;
– the outsourcing of line maintenance
activities in outstations (19 stations
in Europe); and the consolidation of
those activities in North America and
Group hubs;
• the reduction in supplier spend by
10 per cent jointly with GBS through
a review and alignment of contact
specification for the activities of line
maintenance and component repair.
In addition to the delivery of the current
strategy, the teams continue to evaluate
further consolidation and outsourcing
opportunities to ensure robustness and
market competitiveness going forward.
In Fleet, the Group continues
harmonisation plans with increased focus
on the Airbus A320neos which will be
delivered from 2018.
screen to pay for on-board purchases.
The .air portal started the initial roll-out
on Iberia and British Airways in the fourth
quarter of 2017, celebrated through a
partnership with Visa. By 2019, 90 per
cent of IAG’s airlines’ fleet will be fitted
with a high quality connection. The .air
portal will continue to evolve with new
functionality and partnerships. It is built
in a modular way, enabling the airlines
to tailor the offer to suit their individual
customer propositions.
Maintenance, repair and overhaul
(MRO) and Fleet
In MRO, the Group’s strategy has
been defined for each maintenance
activity and is in execution phase to
close the gap to market. Initiatives
delivered to date have closed half of
the gaps identified, focusing on three
areas: achievement of a best in class
performance, footprint reduction and
optimisation of supplier spend.
Aircraft Fleet
Number in service with Group companies
On
balance
sheet fixed
assets
Off
balance
sheet
operating
leases
Total
December 31,
2017
Total
December 31,
2016
Changes
since
December 31,
2016
Future
deliveries
Options
Airbus A318
Airbus A319
Airbus A320
Airbus A321
Airbus A330-200
Airbus A330-300
Airbus A340-600
Airbus A350
Airbus A380
Boeing 747-400
Boeing 757-200
Boeing 767-300
Boeing 777-200
Boeing 777-300
Boeing 787-8
Boeing 787-9
Boeing 787-10
Embraer E170
Embraer E190
Group total
1
22
71
28
7
5
11
–
12
36
1
8
41
9
9
7
–
6
9
–
42
147
23
10
10
6
–
–
–
2
–
5
3
–
9
–
–
6
283
263
1
64
218
51
17
15
17
–
12
36
3
8
46
12
9
16
–
6
15
546
2
65
227
47
14
14
17
–
12
37
3
8
46
12
8
16
–
6
14
548
(1)
(1)
(9)
4
3
1
–
–
–
(1)
–
–
–
–
1
–
–
–
1
(2)
As well as those aircraft in service the Group also holds 5 aircraft (2016: 9) not in service.
–
–
98
21
4
–
–
43
–
–
–
–
–
–
3
2
12
–
–
–
–
128
–
3
–
–
52
7
–
–
–
–
–
12
6
–
–
–
183
208
25
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Avios
Expanding and improving our
loyalty currency
Banco Galicia in Argentina have helped
further increase Avios’ global footprint.
Avios continues to simplify the way
customers can collect on their everyday
spending. The online e-store, featured on
the IAG airline websites, has increased in
popularity. Customers in the UK, France,
Italy, Spain and Ireland can now collect
Avios with over 1,000 retailers on the
eStore. Card linked collection, which
allows customers to register their credit
cards to automatically collect in store, has
made collection easier and unlocked new
partnership opportunities.
The Pay with Avios product, which
allows customers to use their Avios to
discount commercial tickets, has grown
and now accounts for 30 per cent of
total Avios redeemed. In January 2017,
Avios payment options were launched
to enable customers to use their Avios
for in-flight food and drink purchases
on British Airways. In November, Pay
with Avios went live for Vueling Club
and Iberia Plus customers who are now
able to pay for baggage and seating
using Avios.
Future
A Group loyalty strategic review was
conducted during 2017 that has shown
there are more opportunities to create
value through Avios. 2018 will mark the
start of the transformation journey for the
company, which will entail:
• The creation of a centre of excellence
for loyalty and the associated
data analytics. This will improve
customer propositions for the loyalty
programmes, benefiting the airlines as
well as driving Group synergies.
• Better segmented communications
strategy will encourage customers
to collect Avios with more partners
with a particular emphasis on
differentiating between frequent
flyers and frequent buyers.
• Launch of a single bank will consolidate
Avios balances for customers who
have multiple accounts resulting in a
simpler, easier customer experience
and enabling greater engagement.
Loyalty is already a key differentiator
for many consumer facing companies
and brands. With the threat of digital
disruption in retail and financial services,
loyalty will become even more important
in the coming years as companies
and brands look to differentiate and
personalise their offering to remain
relevant. We believe that Avios is well
placed to take advantage of these
developments as a provider of unrivalled
loyalty experiences available at great
value to our partners and highly
aspirational to customers.
Overview
Avios customers collectively spend over
£45 billon per year on purchases that
earn Avios. Customers are able to collect
Avios when they fly, when they spend on
their credit cards and when they shop in
our retail partners or in our online eStore.
They are then able to redeem Avios on
IAG, Avios partner airlines, oneworld
airlines, on leisure experiences or use
them to discount IAG airline fares using
the “Pay with Avios” product. Customers
used their Avios on over 7 million flight
bookings in 2017.
Key successes in 2017
Avios is now the exclusive loyalty
currency for IAG’s five brands as well
as non IAG airlines, Flybe, kulula and
Meridiana. Customers collect over two
hundred thousand Avios a minute whilst
flying to 317 destinations across the IAG
airline and non IAG airline network.
Avios delivered strong growth during
the year from improved airline partner
revenues and growth in non-airline
partners from increased credit card
penetration and consumer spend levels,
driving higher third party cash flows to
the Group. In the UK, the business has
focused on leveraging partnerships –
including American Express and Lloyds
Bank as well as diversifying across other
sectors such as retail.
In Spain, the new partnership with
Cepsa, allowing Iberia Plus customers
to earn Avios on their fuel purchases,
saw good adoption. In Ireland the
partnership with SuperValu has allowed
AerClub customers to collect Avios
at over 223 grocery stores. Growth in
partnerships with Banco de Chile and
Chase in America has helped to drive
acquisition and relevance of the currency
for customers internationally. New
partnerships with Trenitalia in Europe and
“2017 saw its third
consecutive year of
growth, since Avios’
formation three years
ago. We expect this
trend to continue as we
transform the business
throughout 2018.”
Andrew Crawley
Chief Executive Officer of Avios
26
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 IAG Cargo
Strategic focus on premium
products, growth and digital
“IAG Cargo adapted to
a buoyant market in
the second half of the
year, flexing operational
and commercial plans
to deliver strong cargo
results for the Group.”
Lynne Embleton
Chief Executive Officer of IAG Cargo
Overview
2017 saw market conditions strengthen
as the year progressed, culminating in
strong yields and unprecedented freight
volumes at the Group’s London, Madrid
and Dublin hubs.
The high demand was driven by the
Asia Pacific and European regions, and
we were able to take advantage of
IAG’s extensive network to flow freight
from these regions to LATAM and
North America.
IAG Cargo has continued to provide
a vital service to the global economy,
transporting pharmaceuticals, perishables,
machinery, auto-parts and industrial
goods worldwide. Alongside these core
shipments we have also moved chocolate
to North America, perfumes to New
Orleans and seeds from Punta Cana
to Barcelona.
While the strong 2017 performance
has been welcome, we acknowledge
that the underlying industry trend of
capacity increases from freighter and
new generation passenger fleets will
likely create pressure on the supply and
demand balance. It is therefore crucial
that we deliver excellent customer service
and adopt technology to modernise
our business.
Customer focus
Premium products have continued to be
at the fore this year. Our main premium
product, Prioritise, delivered revenues
up 22 per cent on the previous year.
Our emergency shipment product,
Critical, celebrated its first anniversary in
October by surpassing 3,000 shipments
since launch, seeing repeat business and
new bookings week on week. Building
on this success, we launched Constant
Climate Critical in July, extending our
most urgent, time-sensitive product to the
pharmaceutical sector. This has allowed
emergency medical shipments to benefit
from IAG Cargo’s highest priority service,
providing vital vaccines and lifesaving
medicines with a non-off loadable status.
With the launch of FWD.Rewards in May,
we introduced a loyalty programme
that rewards small & medium sized
freight forwarders through points that
are redeemable against flights, hotels
and cargo credit. This has improved
our customer engagement and to date,
we have more than 1,000 customers
participating in the scheme.
Investing in growth
The IAG Cargo facilities need to keep
pace with demand in order to maximise
the freight potential of the Group’s
aircraft. In 2017, continuous improvement
initiatives unlocked capacity to handle
more freight in our Madrid operation, and
on a larger scale 2017 saw the start of
construction of Premia, our new premium
freight building in London.
In parallel, we have continued to embrace
the Group’s expanding network and
develop new partnerships. IAG Cargo
played its part in rapidly integrating the
new airline, LEVEL, which has opened
up a new longhaul, wide-body cargo
gateway in Barcelona, offering routes
into the Americas and creating 52
additional connections on our narrow
body network.
Towards the end of the year, Air New
Zealand became the eighth carrier to join
IAG Cargo’s Partner Plus programme. This
extended our network to key destinations
in Oceania, allowing us to increase our
market share in a region underserved by
IAG Cargo.
Modernising the business
With the launch of our new website in
2017, we have streamlined our online
booking process with the potential to
save customers more than 500,000
administrative hours each year. Investing
in digital is central to the Group, and in
October we developed a new digital
platform, Zenda, which has created an
end-to-end logistics solution for cross-
border e-commerce. Looking ahead,
technology has a significant role to play
in driving productivity, optimising assets
and ensuring that IAG Cargo is easy to
do business with.
Conclusion
2017 was a busy, rewarding year for
IAG Cargo, fueled by strong regional
demand for air freight. We expect
underlying supply/demand market
conditions to be challenging in 2018 and
we are adapting our business accordingly.
We have ambitious plans centred around
investment in infrastructure, efficient
processes, and new customer solutions.
We see digital and technology as core
to the transformational changes that
will ensure IAG Cargo is a profitable and
sustainable business, delivering high
returns on investment.
27
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Digital
A digital approach to transforming
our business
Digital moves the focus
from the process to the
customer experience
Digital portfolio
During 2017, we maintained our focus on
five areas. Each operating company has
established its own digital team, and we
have collaborated across the
transformations.
Shop Order Pay
This focus area represents the
simplification of the customer journey.
It will apply a single retail platform
which removes IAG’s multiple Passenger
Services Systems (PSS). We need to
serve our customers, both current
and future, by offering flexibility and
personalisation in an intuitive and
unexpected way.
We have partnered with some of the
most disruptive companies in the market
to launch Group-wide proof of concepts
in this area. This strategy will continue,
taking us into 2018 and beyond.
Data
The launch of Nexus, IAG’s data
platform, has been a significant part of
our data transformation in 2017. Nexus
is delivering value in many ways, such
as tracking anomalies and identifying
trends in revenue management, as well as
optimising baggage arrival processes and
predicting aircraft maintenance.
We also created the first data centre of
excellence, which is driving our Group
data strategy.
We are unifying and simplifying our data
governance to comply with General
Data Protection Regulation (GDPR).
Marketplaces
IAG Digital played a key role in creating
two new business models: Zenda
and LEVEL. Zenda is a cross border
e-commerce solution which fills the void
between express and postal delivery,
giving customers full visibility of their
shipment. Zenda continues to build
capability and breadth as a brand-new
business model for IAG Cargo, following
its launch in 2017. Zenda will expand its
proposition to more IAG airlines and to
more locations around the world.
28
Shop Order Pay
Data
Marketplaces
Automation
Digital mindset
New Distribution
Capability (NDC)
On-demand
ancillaries
ONE Order
Payments
Machine
driven pricing
Autonomous
business
LEVEL
Zenda
Commercial
in-flight
Airports
Identity
Artificial
intelligence
Hangar 51
University
collaboration
Industry
change
Digital mindset
strengthens across IAG
As a new e-commerce channel, the
LEVEL website was built and launched in
under six months.
Automation
Airport pushback at London Heathrow
has experienced a significant change
with the introduction of Mototok vehicles.
Bristish Airways is the first airline in
Europe to introduce these remote-
controlled vehicles into a live operation.
British Airways has also transformed
passenger boarding by introducing
facial recognition in self-boarding gates
at Heathrow. We will see this efficiency
rolled out further in 2018.
Airports will see the introduction of
driverless buses, tugs and tractors over
the next five years. In collaboration with
London Heathrow Airport and British
Airways, IAG Digital has partnered with
Navya to launch an innovative trial of
an autonomous passenger bus. This trial
has given the project and the suppliers
significant data and insight which can
be taken forward into trials in more
congested areas across the airport.
Our concept of ONE Identity has
moved forward in 2017 from strategy to
implementation: we led the creation of
the first task force under IATA’s Passenger
Experience Management Group (PEMG)
to further this concept through trials that
will ultimately rationalise and simplify
the multiple checks that are currently
performed throughout the booking,
departure and arrival experience. This will
revolutionise the travel experience.
Digital mindset
A key achievement in our Digital
Mindset transformation was the launch
and delivery of our second Hangar 51
programme in Spain.
Working alongside IT GBS, Iberia, Iberia
Express, Vueling and our innovation
partners, start-ups from around the world
were invited to join. The response to the
programme was fantastic, with more than
350 applications received from over 46
countries. The seven successful finalists
were hosted in Madrid and Barcelona,
receiving 10 weeks of advice from our
team of experts from across all areas of
the business. The programme focused
on five key areas: data-driven business,
automation, connected airline, improve
customer experience and a wildcard
category, for any disruptive idea that
could bring value to our customers. We
showcased the start-ups’ achievements
on Demo Day, held in January 2018.
We have continued to expand our
collaboration with academic institutions
such as The Alan Turing Institute and
Berkeley. We have further established
our thought leadership in the airline and
innovation industries.
IAG Digital has established an investment
strategy for IAG through Hangar
51 Ventures. Our vision is to have a
diversified portfolio of investments with
four preferred sharing models, including
funds, acquisitions, strategic investments
and start-up options.
Leading the pack
We work closely with IATA to lead and develop industry innovations by
enhancing the customer experience and simplifying internal processes
for colleagues.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Risk management and principal risk factors
Building an effective risk
management culture
The Board of Directors has overall
responsibility for ensuring that IAG has an
appropriate risk management framework,
including the determination of the nature
and extent of risk it is willing to take to
achieve its strategic objectives. It has
oversight of the Group’s operations to
ensure that internal controls are in place
and operate effectively. Management
is responsible for the execution of the
agreed plans. IAG has an Enterprise Risk
Management (ERM) policy which has
been reviewed and approved by the
Board again in October 2017.
This policy sets the framework for 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 its best
practices are shared across the Group.
Risk owners are responsible for
identifying risks in their area of
responsibility. All risks are assessed
for likelihood and impact against the
Group Business Plan and strategy. Key
controls and mitigations are documented
including appropriate response plans.
Every risk has appropriate Management
Committee oversight.
Risk management professionals ensure
that the framework is embedded across
the Group. They maintain risk maps for
each operating company and at the IAG
Group level, and ensure consistency over
the risk management process.
Risk maps are reviewed by each
operating company’s 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. Each operating
company’s management committee
confirms to its operating company board
as to the identification, quantification and
management of risks within its operating
company as a whole annually.
The management committee of each
operating company escalates risks that
have Group impact or require Group
consideration in line with the Group
ERM framework.
At the Group level, key risks from the
operating companies, together with
Group-wide risks, are maintained in a
Risk management framework
IAG Board
IAG
Audit and Compliance Committee
IAG
Enterprise Risk Management
IAG
Management Committee
Operating companies
management committee
Risk owners
Risk policy and framework
Group risk map. The IAG Management
Committee reviews the Group risk map
twice during the year in advance of
reviews by the Audit and Compliance
Committee in accordance with the April
2016 UK Corporate Governance Code
and the Spanish Good Governance Code
for Listed Companies.
The IAG Board of Directors discussed risk
at a number of meetings in addition to
the risk map review, including a review of
the assessment of Group performance
against its risk appetite.
IAG has 19 risk appetite statements which
inform the business, either qualitatively
or quantitatively, on the Board’s appetite
for certain risks. Each risk appetite
statement formalises how performance
is monitored either on a Group-wide
basis or within major projects. These
statements were reviewed for relevance
and appropriateness of tolerances at
the year end and it was confirmed to
the Board that the Group continued
to operate within each of the risk
appetite statements.
The highly regulated and commercially
competitive environment, together
with the businesses’ operational
complexity, exposes the Group to a
number of risks. We remain focused on
mitigating these risks at all levels in the
business although many remain outside
our control; for example, changes in
political and economic environment,
government regulation, events outside
of our control causing operational
disruption, fuel price and foreign
exchange volatility.
Risks are grouped into four
categories: strategic, business and
operational, financial, and compliance
and regulatory risks.
Guidance is provided below on the key
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.
29
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Risk management and principal risk factors continued
Strategic risks
Open competition and markets are in
the long-term best interests of the airline
industry, consumers and IAG has a high
appetite for continued deregulation
and consolidation. The Group seeks
to minimise the risk that government
intervention or the regulation of
monopoly suppliers can have.
In general the Group’s strategic risk
was stable during the year with
continued competitor capacity growth
being monitored and assessed within
the Group.
Business and operational risks
The safety and security of customers and
employees is a fundamental value. The
Group balances the resources devoted
to building resilience into operations and
the impact of disruption on customers.
and profitability resulting from market
movements.
Cyber risk and data security continues to
be a risk focus area with new regulations
coming into force in 2018. The Group
has led the response to defences
and incident response plans for each
operating company.
However, the Group is also careful
to understand its hedging positions
compared to competitors to
ensure that it is not commercially
disadvantaged by being over-hedged in
a favourable market.
Financial risks
IAG balances the relatively high business
and operational risks inherent in its
business through adopting a low appetite
for financial risk. This conservative
approach involves maintaining adequate
cash balances and substantial committed
financing facilities. There are clear
hedging policies for fuel price and
currency risk exposure which explicitly
consider appetite for fluctuations in cash
In 2017 events in the political and
economic landscape continued to create
uncertainty, increasing the volatility of the
fuel price and foreign exchange.
Compliance and regulatory
The Group has no tolerance for breaches
of legal and regulatory requirements.
Key: Risk trend
Link to strategy
Increase
Stable
Decrease
1
2
3
Strengthening
a portfolio of
world-class brands
and operations
Growing
global leadership
positions
Enhancing
the common
integrated platform
See pages 14 – 15
for our Strategy
Risk context
Management and mitigation
IAG is dependent on and may be affected
by infrastructure decisions or changes in
policy by governments, regulators or other
entities which impact operations but
are outside of the Group’s control.
IAG is dependent on the oil industry
making sufficient investment in the
fuel supply infrastructure to ensure that
our flight operations can be delivered
as scheduled.
IAG is dependent on the performance
of suppliers such as airport operators,
border control and caterers.
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 the
Group’s leadership position with
customers and ultimately affect future
revenue and profitability.
If the Group does not meet the
expectations of its customers and does
not engage effectively to maintain their
emotional attachment, then the Group
may face brand erosion and loss of
market share.
London Heathrow has no spare runway capacity. In October 2016,
the UK government confirmed a third runway expansion proposal
at Heathrow and IAG continues to promote an efficient, cost
effective, ready to use and fit for purpose solution is developed.
The Group’s airlines participate in the slot trading market at
London Heathrow Airport; acquiring slots at reasonable prices
when available. IAG announced in November that it is completing
the acquisition of a new slot portfolio at London Gatwick.
The Group 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.
Capacity issues are regularly reviewed by the IAG Management
Committee and form part of the annual Business Plan.
Supplier performance risks are mitigated by active supplier
management and contingency plans.
Each brand is supported by initiatives within the
Group Business Plan, where capital expenditure is reviewed
and approved by the Board of Directors.
The Group has undertaken a significant review of the portfolio
of brands within IAG to understand customer preferences and
better position its offerings.
There are multiple product investments across the Group’s brands
to enhance on-board product, ancillaries, lounges and customer
experience. Success of these investments is measured, including a
review of Net Promoter Score (NPS).
The Group allocates substantial resources to safety, operational
integrity and new aircraft to maintain its market position.
Strategic
Risk
Airports and
infrastructure
1
3
Brand reputation
1
30
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Strategic
Risk
Competition
1
2
Risk context
The markets in which the Group operates
are highly competitive. The Group faces
direct competition on its 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 margins.
Some competitors have lower cost
structures or have other competitive
advantages such as government support
or benefits from insolvency protection.
Consolidation
and deregulation
2
Digital disruption
1
2
3
Government
intervention
2
3
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, JAL
and Qatar Airways 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.
The Group has a number of franchise
partners that feed traffic into our hubs or
major outstations. Any failure of a franchise
partner will reduce traffic feed.
The Group is reliant on the other members
of the oneworld alliance to help safeguard
the network.
Competitors, or new entrants to the travel
market, may use digital technology and
more effectively disrupt the Group’s
business model or technology disruptors
may use tools to position themselves
between our brands and our customers.
Some of the markets in which the Group
operates remain regulated by governments,
in some instances controlling capacity and/
or restricting market entry. Changes in such
restrictions may have a negative impact
on 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 the operational and financial
performance of the Group.
Management and mitigation
The IAG Management Committee devotes one weekly meeting
per month to strategic issues. The Board of Directors discusses
strategy throughout the year and dedicates two days per year to
review the Group’s strategic plans.
The Group strategy team supports the Management Committee
by identifying where resources can be devoted to exploit
profitable opportunities. The airlines’ revenue management
departments and systems optimise market share and yield
through pricing and inventory management activity.
The Group is continually reviewing its product offerings and
responds through initiatives to improve the customer experience.
IAG launched LEVEL in 2017, operating from Barcelona and with
operations planned from Paris in 2018.
The Group’s strong global market positioning, leadership in
strategic markets, alliances, joint businesses, cost competitiveness
and diverse customer base continue to address competition risk.
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, such as the acquisition of a
new slot portfolio at London Gatwick.
The portfolio of brands provides flexibility in this regard as
capacity can be deployed at short notice as needed.
The IAG Management Committee regularly reviews the
commercial performance of joint business agreements.
The Group maintains a leading presence in oneworld to ensure
that the alliance attracts and retains the right members, which is
key to ongoing development of the network.
The Group’s focus on the customer experience, together with the
Group’s exploitation of digital technology, reduces the impact
digital disruptors can have.
The Group continues to develop platforms such as the New
Distribution Capability, changing distribution arrangements and
moving from indirect to direct channels.
The Hangar 51 programme ran for the second year creating early
engagement and leverage new opportunities with start-ups and
digital technology disruptors.
The Group’s government affairs department monitors government
initiatives, represents the Group’s interest 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. The Group continues to monitor and discuss the
negative impacts of government policies such as the imposition
of Air Passenger Duty (APD).
31
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Risk management and principal risk factors continued
Business and operational
Risk
Risk context
Cyber attack and
data security
2
3
The Group could face financial loss,
disruption or damage to brand reputation
arising from an attack on the Group’s
systems by criminals, terrorists or foreign
governments.
If the Group does not adequately protect
customer and employee data, it could
breach regulation and face penalties and
loss of customer trust.
Event causing
significant
network
disruption
An event causing significant network
disruption may result in lost revenue and
additional costs if customers or employees
are unable to travel.
1
3
Failure of a
critical IT system
1
3
Landing fees and
security charges
Example scenarios include persistent air
traffic control industrial action; war; civil
unrest or terrorism; major failure of the
public transport system; the complete
or partial loss of the use of terminals;
adverse weather conditions or pandemic.
IAG is dependent on IT systems for most
key business processes. The failure of
a critical system may cause significant
disruption to the operation and lost revenue.
Increasingly the integration within IAG’s
supply chain means that the Group is
also dependent on the performance of
suppliers’ IT infrastructure, e.g. airport
baggage operators.
Airport charges represent a significant
operating cost to the airlines and have
an impact on operations. Whilst certain
airport and security charges are itemised
to passengers, others are not.
Management and mitigation
The IAG Management Committee regularly reviews cyber risk
and supports Group-wide initiatives to enhance defences and
response plans.
The Committee ensures that the Group is up to date with industry
standards and addresses identified weaknesses.
There is oversight of critical systems and suppliers to ensure that
the Group understands the data it holds, that it is secure and
regulations are adhered to.
A GDPR programme is in place and actions are underway to
confirm compliance with the new regulations effective May 2018.
The fast moving nature of this risk means that the Group will
always retain a level of vulnerability.
Management has business continuity plans to mitigate this risk to
the extent feasible.
In May, British Airways suffered a power failure to its primary data
centre, which led to severe disruption to its customers and flights.
Management have identified the root causes of the incident
and reviewed their business operations and continuity plans to
increase resilience.
System controls, disaster recovery and business continuity
arrangements exist to mitigate the risk of a critical system failure.
The Group will continue to identify world class partners to
work with and increase resilience through migration to a hybrid
cloud platform.
The Group engages in regulatory reviews of supplier pricing, such
as the UK Civil Aviation Authority’s periodic review of charges at
London Heathrow and London Gatwick airports.
The Group is active both at an EU policy level and in consultations
with airports covered by the EU Airport Charges Directive.
In some cases, regulation provides some assurance that such
costs will not increase in an uncontrolled manner.
The Group has a large unionised workforce
represented by a number of different
trade unions.
Collective bargaining takes place on a regular basis with the
Group’s human resources departments with a significant level of
negotiation across the Group’s operating companies.
Any breakdowns in the bargaining process
with the unionised workforces may result in
subsequent strike action which may disrupt
operations and adversely affect business
performance.
Management focuses on leveraging employee expertise and
ensuring the development of talent. Succession planning is in
place across all operating companies and we aim to move our
best people across our businesses.
2
3
People and
employee
relations
1
3
32
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Business and operational
Risk
Risk context
Political and
economic
conditions
IAG remains sensitive to political and
economic conditions in the markets globally.
Deterioration in either a domestic market
or the global economy may have a material
impact on the Group’s financial
position, while foreign exchange and interest
rate movements create volatility.
1
2
Safety/security
incident
The safety and security of our customers
and employees are fundamental values for
the Group.
A failure to prevent or respond effectively to
a major safety or security incident may
adversely impact the Group’s brands,
operations and financial performance.
2
Financial
Debt funding
2
3
Financial risk
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.
Volatility in the price of oil and petroleum
products can have a material impact on our
operating results.
2
3
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.
Management and mitigation
The IAG Board of Directors 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 Board of Directors and IAG Management Committee
as part of the monitoring of financial and business performance.
There is continued uncertainty in 2018 with upward pressure on fuel
price and the changing political landscape.
Following the UK’s decision to leave the EU, the Group continues
to evaluate potential changes to ensure that all airlines within
the Group are able to operate effectively during any transition.
The Group believes that a comprehensive EU/UK air transport
agreement will be agreed. The Group has had extensive
engagement with all relevant regulators/governments and is
confident that it will comply with the EU and the UK ownership
and control rules post-Brexit. IAG is a Spanish company, its airlines
have long-established AOCs and substantive businesses in Ireland,
France, Spain and the UK and IAG has had other structures and
protections in its by-laws since it was set up in 2011. At this stage, the
Group does not believe that Brexit will have a significant impact on
the business in the long-term. However, as for many other industries,
there will continue to be some uncertainty, particularly if an EU/UK
transitional deal is not agreed. Among other things, this could have a
negative impact on investor sentiment towards the European airline
sector.
The corresponding safety committees of each of the airlines of the
Group satisfy themselves that it has the appropriate resources and
procedures which include compliance with Air Operator Certificate
requirements. Incident centres respond in a structured way in the
event of a safety or security incident.
The IAG Management Committee regularly reviews the Group’s
financial position and financing strategy.
The Group continues to have good access to a range of financing
solutions. The Group’s high cash balances and committed financing
facilities mitigate the risk of short-term interruptions to the aircraft
financing market.
Fuel price risk is partially hedged through the purchase of oil
derivatives in forward markets. The objective of the hedging
programme is to increase the predictability of cash flows and
profitability. The IAG Management Committee regularly reviews its
fuel and currency positions.
The Group seeks to reduce foreign exchange exposures arising
from transactions in various currencies through a policy of matching
and actively managing the surplus or shortfall through treasury
hedging operations.
The approach to financial risk management is set out in note 25 to
the Group 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.
33
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Risk management and principal risk factors continued
Financial
Risk
Financial risk
2
3
Tax
2
3
Risk context
Management and mitigation
Interest rate risk arises on floating rate debt
and floating rate leases.
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 impact of rising interest rates is mitigated through structuring
selected new debt and lease deals at fixed rates throughout
their term. The approach to interest rate risk management and
proportions of fixed and floating debt is set out in note 25 to the
Group financial statements.
The approach to financial risk management, interest rate risk
management, proportions of fixed and floating debt management
and financial counterparty credit risk management and the
Group’s exposure by geography is set out in note 25 to the Group
financial statements.
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 or other representative bodies.
The Group adheres to the Tax Policy approved by the IAG
Board and is committed to complying with all tax laws, to acting
with integrity in all tax matters and to working openly with tax
authorities. Tax risk is managed by the IAG Tax Department and
is overseen by the Board through the Audit and Compliance
Committee.
Compliance and regulatory
Group
governance
structure
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 route and operating
licences.
The governance structure is being extended to other Group
airlines.
IAG will continue to engage with the relevant regulatory bodies as
appropriate regarding the Group structure.
3
IAG could face a challenge to its
ownership and control structure.
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.
The Group has clear frameworks in place including comprehensive
Group-wide policies designed to ensure compliance.
There are mandatory training programmes in place to educate
employees in these matters.
Compliance professionals specialising in Competition Law and
Anti-Bribery legislation support and advise our businesses.
Non-compliance
with key
regulation
including
competition,
bribery and
corruption law
2
3
Viability statement
The directors have assessed the viability
of the Group over the five years to
December 2022.
The directors have determined that
a five-year period is an appropriate
timeframe for assessment as it is in line
with the Group Business Plan strategic
planning period.
The directors have evaluated the impact
of severe but plausible downside
scenarios on the Group Business Plan
and assessed the likely effectiveness
of the mitigations that management
reasonably believes would be available
and effective over this period. Each
scenario considered the impact on
liquidity, solvency and the ability to
raise financing over the period to
December 2022.
The scenarios modelled considered the
potential impact of a global economic
downturn, fuel price shock and the
impact of strikes and operational
disruption. These scenarios considered
the principal risks which could have the
greatest potential impact on viability in
that period.
Based on this assessment, the directors
have a reasonable expectation that
the Group will be able to continue in
operation and meet its liabilities as
they fall due over the period to
December 2022.
34
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial overview
Delivering on our commitment
“The strength and
uniqueness of the IAG
business model allowed
the Group to take
full advantage of the
opportunities this year.”
Operating profit before
exceptionals (€m)
3,015
3,500
3,000
2,500
2,000
1,500
1,000
500
0
770
2013
2014
2015
2016
2017
Total unit revenue
(€cents)
8.35
100
95
90
85
80
75
7.70
2013
2014
2015
2016
2017
Unit increase / decrease at ccy indexed to 2013
Non-fuel unit costs (€cents)
100
5.34
5.21
95
90
85
80
75
2013
2014
2015
2016
2017
Unit increase / decrease at ccy indexed to 2013
Fuel unit costs (€cents)
2.64
100
90
80
70
60
50
40
30
20
10
0
1.48
2013
2014
2015
2016
2017
Unit increase / decrease at ccy indexed to 2013
35
The Group’s financial performance in
2017 has been quite strong, the macro-
economic environment for the Group and
the industry was better than in 2016 and
demand has been improving through the
year. We achieved an operating profit of
€3,015 million before exceptional items,
with adjusted margin of 14.4 per cent in
line with our key performance metric.
Net profit after tax before exceptional
items was €2,243 million and adjusted
earnings per share increased by 14.0 per
cent, higher than our 12+ per cent average
growth target.
The strength and uniqueness of the IAG
business model allowed the Group to
take full advantage of the opportunities
this year, through the launch of LEVEL
addressing the needs of an underserved
market and strategic capacity increases as
the economic environment improved.
In the last quarter of 2016, our revenue
and yield performance showed signs of
improvement. This trend continued into
2017, and from the second quarter onwards
our passenger revenues measured on a unit
basis and at constant currency consistently
increased versus last year. Passenger
revenues were strong in our main strategic
markets, while IAG Cargo, MRO, BA
Holidays and Avios increased as well.
Although 2017 saw our non-fuel unit cost
metric increase, we remain committed to
improving our cost performance. Despite
cost initiatives developed during the
year, our costs rose for several factors
including operational disruption, variable
pay awards and pensions. The Group
recognised the right timing to address the
cost challenges of British Airways’ defined
benefit schemes and has launched a
pension scheme consultation with all
affected employees. The impact of the
arrangement is expected to be known in
March 2018. We also saw increases in our
costs related to the implementation of
our new distribution model, which will also
result in higher revenues – an important
change in our selling model which is
bringing us closer to our customers. Over
the years, the underlying trend of non-fuel
unit costs has been decreasing and this
will continue to be our focus in 2018.
Our plans support investment, our aim
is to continue to improve operational
resilience and customer experience in
part through digitalisation. We continue
to invest in Hangar 51 and introduced Net
Promoter Score as a new performance
indicator for the Group. In this first
year we achieved our target with a
16.8 recommend score for the Group
companies.
The Group’s financial metrics were
strong coming into 2017 and improved
in the year reflecting the EBITDAR
performance and a lower than average
aircraft delivery schedule. We will continue
to evaluate organic and inorganic
growth opportunities that align to our
strategic priorities. In 2017, delivering on
our commitment of sustainable returns
we returned in excess of €1 billion
to shareholders.
Enrique Dupuy de Lôme Chávarri
Chief Financial Officer
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Economic landscape
Growing consumer demand in
improved conditions
stable rate of GDP growth is expected,
with +2.5 per cent forecast by the IMF
and +2.1 per cent by the OECD. However,
current OECD forecasts were compiled
before the US tax cuts were passed in
December 2017, and therefore do not
include an assumption of fiscal stimulus
from the cuts. However, IMF forecasts
were updated after the US tax cuts with
the IMF forecasting an acceleration to
+2.7% due to the expected impact of the
US tax reform.
Latin America GDP growth
Actual 2017
IMF forecast (January 2017)
Actual 2016
+1.3%
+1.2%
-0.9%
Latin America emerged from recession
in 2017, with GDP growth versus 2016
contraction, in line with IMF forecasts.
The economic divergence of previous
years was less prevalent in 2017, with
South America, Central America and
the Caribbean all reporting positive
economic growth. South America
showed the biggest improvement with
GDP growth of +0.6 per cent in 2017
compared to -2.6 per cent in 2016.
Both Brazil and Argentina emerged
from recession, Colombia reported a
similar level of growth to 2017 and whilst
Venezuela remained in recession, the rate
of contraction was smaller in 2017 than
in 2016. In growth rate terms, Argentina
reported the largest improvement with
GDP growth of +2.5 per cent in 2017
compared to -2.2 per cent in 2016, with
Brazil reporting +0.7 per cent in 2017
compared to -3.6 per cent in 2016. For
2018, the IMF currently forecast another
improvement in the rate of growth
(+1.9 per cent) for Latin America, with
every single country in the region with
exception of Venezuela expected to
report positive GDP growth – although
Venezuela’s GDP contraction is expected
to be smaller in 2018 than in 2017.
Global GDP growth
Actual 2017
IMF forecast (January 2017)
Actual 2016
+3.7%
+3.4%
+3.2%
Global GDP came in ahead of
expectations in 2017, in contrast to
the past two years where global GDP
has underperformed expectations.
For 2017, the IMF highlighted stronger
than expected growth in advanced
economies, particularly the Eurozone, as
a key driver. For 2018, the IMF expects the
overall rate of growth to increase, with
the same advanced economy growth
supplemented by faster emerging market
and developing economy growth.
UK GDP growth
Actual 2017
IMF forecast (January 2017)
Actual 2016
+1.7%
+1.5%
+1.8%
UK GDP growth came in at +1.7 per cent,
slightly down on the performance in
2016, but 0.2 percentage points better
than the IMF forecast issued in January
2017. However, the rate of GDP growth
decelerated during the year, with the
economy growing +2.1 per cent in the
first quarter, +1.9 per cent in the second
quarter, +1.7 per cent in the third quarter,
and +1.5 per cent in the fourth quarter.
The GfK Consumer Confidence Index
remained in negative territory, and
progressively worsened throughout
2017, starting the year at -5 per cent in
January and falling to -13 per cent in
December 2017. The index has now not
been in positive territory since January
2016, and is only slightly higher than July
2016 where it was -12 per cent following
the UK’s Referendum vote to leave the
EU. In contrast, the unemployment rate
fell through the year from 4.8 per cent
in December 2016 to 4.3 per cent in
November 2017. For 2018, both the OECD
and IMF forecast a slowdown in UK GDP
growth; +1.2% and +1.5% for the OECD
and IMF respectively. In its forecast, the
OECD stated “the growth slowdown
is expected to continue through 2018,
due to continuing uncertainty over the
outcome of negotiations around the
decision to leave the European Union
and the impact of higher inflation on
household purchasing power”. Like last
year, there continues to be a very large
divergence in UK GDP growth forecasts
from the various forecasting bodies with
36
a range for 2018 of +0.5 per cent to +2.2
per cent.
Eurozone GDP growth
Actual 2017
IMF forecast (January 2017)
Actual 2016
+2.4%
+1.6%
+1.8%
Economic growth in the Eurozone
accelerated 0.3 points to 2.1 per cent
compared to 2016. Over the year, the rate
of growth accelerated with +2.1 per cent
in the first quarter, +2.4 per cent in the
second quarter, +2.6 per cent in the third
quarter, and +2.7 per cent in the fourth
quarter. The pickup in 2017 growth was
the opposite of the dip in GDP growth
that both the OECD and IMF had
forecast at the beginning of 2017. The IMF
stated that “the increase in growth in
2017 mostly reflects an acceleration in
exports in the context of the broader
pick-up in global trade and continued
strength in domestic demand growth
supported by accommodative financial
conditions amid diminished political risk
and policy uncertainty”. Most political
risks for 2017 did not eventuate, and
where they did, did not weigh on the
Eurozone economy. The unemployment
rate continued to fall, beginning the year
at 9.6 per cent in December 2016 and
falling to 8.7 per cent by November 2017.
For 2018, the OECD forecast remains
unchanged and the IMF forecast a slight
dip in rate of GDP growth; +2.1 per cent
and +2.2 per cent for the OECD/IMF
respectively.
US GDP growth
Actual 2017
IMF forecast (January 2017)
Actual 2016
+2.3%
+2.3%
+1.5%
The US GDP growth rate accelerated 0.6
points to +2.3 per cent in 2017, broadly
in line with IMF forecasts for the year.
Momentum in the US economy increased
through the year, with GDP growth of
+2.0 per cent in the first quarter, +2.2 per
cent in the second quarter, +2.3 per cent
in the third quarter, and +2.5 per cent in
the fourth quarter. Consumer confidence
remained high, with the University of
Michigan Consumer Sentiment Index for
each month remaining above the highest
level in 2016. The labour market also
remained strong with the unemployment
rate falling slightly to 4.7 per cent by
the end of 2017 compared 4.9 per cent
at the end of 2016. For 2018, a broadly
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Industry outlook
IATA is forecasting global industry
operating margins to fall slightly to +8.1
per cent in 2018 from +8.3 per cent in
2017, and +9.2 per cent in 2016. Seat
capacity is forecast to increase +5.1 per
cent in 2018, with ASKs up +5.7 per cent,
both lower than the growth rates seen
in 2017 or 2016. Passenger load factor is
expected to increase slightly to 81.4 per
cent compared to 81.2 per cent in 2017,
and passenger yield is expected to be flat
compared to 2017.
IATA expects Africa to generate the
lowest margin and remains the only region
with negative net post-tax margins in 2018
at -0.3 per cent. As in the past four years,
IATA attributes these losses to regional
conflict and the impact of low commodity
prices. North American airlines are once
again expected to generate the highest
margins, although they are expected to
be slightly below 2017. Asia Pacific is the
only other region that IATA expects to
report lower margins compared to 2017.
For Europe, IATA forecasts net post-tax
margins of +5.2 per cent, higher than +4.8
per cent in 2017, and the second highest
overall region behind North America.
Regulatory controls
The airline sector is among the most
heavily regulated industries in the
world and IAG continues to monitor the
development of national, regional and
globally-applied regulatory developments
including the implementation of
environmental regulations. In a key
development in 2017, the European
Commission confirmed that the
exemption of international flights from the
EU ETS will remain until 2023, in light of
the planned commencement of the ICAO-
led global regulatory system, CORSIA, in
2021. For further details see the section on
Sustainability.
UK’s Referendum vote to leave the EU
IAG continues to believe that the UK’s
exit from the EU will not have a significant
impact on our business and in 2017 we
engaged extensively with the relevant
authorities to ensure our views on
post-Brexit aviation arrangements are
understood and taken into account. This
included dialogue with the UK, Spanish
and Irish governments, as well as the
European Commission and we remain
optimistic about future UK-EU aviation
relations. During the year there has also
been good progress on post-Brexit
arrangements between the UK and third-
country markets currently governed by
EU agreements, such as the US, where
we expect current open, liberal regimes to
continue seamlessly after the UK leaves
the EU.
Air Passenger Duty (APD)
The UK Government continues to
impose the heaviest aviation taxes
in the world on airlines and, whilst its
November 2017 budget has frozen
APD on economy class tickets from
2018, it further increased the burden
on tickets for premium cabins. IAG will
continue to oppose vigorously this
ill-conceived tax on the UK’s ability to
trade and attract business and tourism.
Meanwhile, the Scottish Government’s
Air Departure Tax originally planned for
April 2018 that envisaged reducing tax
at Scottish airports by up to 50 per cent
has been delayed, with no firm date
for implementation.
UK visa policy
We believe that progress in this policy
area has become more likely, given the
increased emphasis by government
on trade with non-EU countries post-
Brexit. We believe that the introduction
of a ten year visa will improve the UK’s
attractiveness to visitors from key
markets such as China and India and will
continue to make the case for this over
the coming year.
UK airports
During 2017 the UK Government
conducted two consultations on its
Airports Draft National Policy Statement
(the Statement) which recommends a
new runway should be constructed to
the north west of London Heathrow,
and presented new traffic forecasts
supporting its proposals.
IAG believes that expansion of Heathrow
represents a very positive development
for its business and for the wider UK
economy, but continues to challenge
the excessive costs of the proposals
put forward by London Heathrow’s
operator, HAL, and argues that costs
must be kept down to current levels in
real terms for the new capacity to be
commercially viable.
The government’s new traffic forecasts
indicate that connecting traffic will
increase at London Heathrow and IAG
has also urged the government to ensure
that operational flexibility is maintained
at the airport so that hub connections,
including those to vital trade routes,
remain viable. IAG will continue to
engage actively with policy makers and
regulators to explain the benefits of hub
operations, and to support an imaginative
and cost effective approach to
Heathrow’s expansion as the Statement
is put to a vote in UK Parliament in
mid-2018.
Irish National Aviation Policy
IAG broadly welcomed the publication
of the Irish Government’s National
Policy Statement on Airport Charges
Regulation which concluded that
economic regulation of Dublin Airport
should continue. IAG, through Aer Lingus,
continues to participate actively in the
Irish Government’s National Civil Aviation
Development Forum to ensure its views
on Irish aviation regulatory matters,
aviation policy and Brexit are heard at the
highest levels.
Spanish policy environment
IAG is following the political implications
of the new government that will be
formed in Catalonia during 2018. IAG
remains confident that underlying
economic conditions in Spain support
future growth as evidenced by the
unemployment rate decrease in Spain
to the lowest rate for the last eight
years and the Spanish Government’s
economic growth forecast in 2018, as
it did the previous year. In this context
IAG welcomed the decision in April 2017
by the Spanish Supreme Court not to
impose restrictions on operations at
Madrid Barajas.
European aviation policy
IAG continues to engage with EU
institutions and Member States to ensure
its interests are taken into account in
aviation policy development, working
closely with Airlines for Europe. In
particular, IAG continues to encourage
governments to act to reduce the
impact of air traffic controller strikes on
consumers, to seek the reform of the
out of date and ineffective regulation on
airport charges and to discourage the
proliferation of taxes on aviation that
hamper economic growth.
European Union Emissions
Trading System (EU ETS)
Intra-European flights have been subject
to the EU ETS since 2012. A global
system to regulate international aviation
emissions was agreed at the ICAO
General Assembly in October 2016, to
commence from 2021. Details of the
scheme were released in December
2017 enabling airlines to comply from
January 2019.
The EU made an announcement during
2017 that intra-EU scope coverage of the
EU ETS will continue until 2023.
IAG is opposed to double regulation
of these flights in two separate
market-based mechanisms and will
be supporting the implementation of
CORSIA to ensure that it becomes the
pre-eminent market based measure
for aviation.
37
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Financial review
IATA market growths
The air travel industry had another strong year, with above-trend
growth. Momentum increased over the year following on from a
weak six months in 2016.
Overall capacity increased 6.3 per cent and the fastest growing
regions were the Middle East, Europe and Asia, with passenger
load factors down in the Middle East. Europe saw the highest
load factor, up 1.5 points, followed by North America, although
the latter’s load factor was broadly flat against last year. Overall
passenger load factor improved 0.9 points to 81.4 per cent,
having improved for more than five consecutive years.
IATA market growths
Year to December 31, 2017
Europe
North America
Latin America
Africa
Middle East
Asia Pacific
ASKs
higher/(lower)
6.2%
4.1%
5.5%
2.9%
6.5%
8.4%
Passenger
load factor
(%)
83.9
83.6
81.8
70.9
74.5
81.0
Higher/
(lower)
1.5 pts
0.1 pts
1.0 pts
2.3 pts
(0.2) pts
1.3 pts
Total market
6.3%
81.4
0.9 pts
Source: IATA Air Passenger Market Analysis
IAG capacity
In 2017, IAG increased capacity, measured in available seat
kilometres (ASKs) by 2.6 per cent including the launch of LEVEL
in June. Capacity was higher at all airlines and through each
region except for Europe. This partially reflects new longhaul
routes at British Airways, Aer Lingus and LEVEL as well as the
full year impact of Iberia and Aer Lingus routes launched in 2016.
Vueling increased capacity in off-peak quarters to reduce its
seasonality in line with its strategy.
IAG passenger load factor was one point higher than last
year and at 82.6 per cent, was 1.2 points higher than the
IATA average.
IAG Network by region
8.7%
6.7%
12.8%
16.1%
26.1%
29.6%
Domestic
Europe
North America
Latin America and Caribbean
Africa, Middle East and South Asia
Asia Pacific
Market segments
In IAG’s Domestic markets capacity was higher by 5.4 per cent
with increases at Vueling and Iberia. As part of its NEXT strategy,
Vueling increased frequencies on existing routes and launched
five new routes. Capacity in Iberia’s domestic market was
increased with growth in the Balearics and Canaries. This was
partially offset by the introduction of the Club Europe product
on British Airways domestic flights in April 2017, reducing the
number of seats. Passenger load factor performance was strong,
almost two points higher versus last year.
IAG capacity
Year to December 31, 2017
Domestic
Europe
North America
Latin America and
Caribbean
Africa, Middle East and
South Asia
Asia Pacific
Total network
ASKs
higher/(lower)
5.4%
(0.2%)
4.2%
3.2%
Passenger
load factor
(%)
83.2
82.0
82.3
84.0
Higher/
(lower)
1.9 pts
2.1 pts
(0.7) pts
0.9 pts
4.0%
80.8
1.3 pts
1.0%
2.6%
84.6
82.6
2.1 pts
1.0 pts
The Group’s European capacity was broadly flat year on year.
Increases at Aer Lingus, including a new service to Split and
additional winter flying were offset by reductions at Iberia and
Vueling. Load factor rose two points, with improvements at
British Airways, Vueling and Iberia.
North America continued to represent the largest part of the
IAG network at almost 30 per cent. Capacity was increased
mainly at Aer Lingus, with a new route connecting Dublin and
Miami and the full year impact of the routes launched in 2016,
and through the launch of LEVEL’s routes to Oakland (San
Francisco) and Los Angeles. British Airways also increased its
capacity, with three new routes to New Orleans, Fort Lauderdale
and Oakland (San Francisco), although this was partially offset
by cancellations related to the adverse weather. Passenger
numbers increased at a slightly slower pace than capacity, and
seat factor for the region remained high at 82.3 per cent.
IAG increased its capacity to Latin America and Caribbean with
British Airways’ new route to Santiago de Chile and LEVEL’s new
routes to Buenos Aires and Punta Cana. Iberia increased
frequencies to Mexico City and Buenos Aires during the year,
although it had an overall decrease in capacity from frequency
reductions on other routes including Brazil and Costa Rica.
Passenger load factor in this region improved and was almost
two points ahead of the industry average.
After decreases in 2016, Africa, Middle East and South Asia
capacity was up in 2017, with British Airways’ increases in the
Middle East from de-tagged routes (Doha/Bahrain, Muscat/Abu
Dhabi) and the full year impact of Iberia’s route to
Johannesburg. Passenger load factor improved 1.3 points.
In Asia Pacific, the capacity increase was driven by the full year
impact of Iberia’s routes to Shanghai and Tokyo, partially offset
by a decrease in British Airways’ capacity, through the
discontinuation of Chengdu and gauge changes in Japan.
Passenger load factors rose 2.1 points, and continued to be the
highest in the IAG network.
LEVEL launch
On March 17th, IAG launched LEVEL, a new longhaul low-cost
airline brand that started its operations in June 2017 with flights
from Barcelona to Los Angeles, Oakland (San Francisco),
Buenos Aires and Punta Cana. LEVEL is flying two new Airbus
A330 aircraft fitted with 293 economy and 21 premium economy
seats. From March 2018, LEVEL will also fly between Barcelona
and Boston.
38
38
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial review
Year to December 31, 2017
higher/(lower)
IATA market growths
IAG capacity
The air travel industry had another strong year, with above-trend
growth. Momentum increased over the year following on from a
weak six months in 2016.
Overall capacity increased 6.3 per cent and the fastest growing
regions were the Middle East, Europe and Asia, with passenger
load factors down in the Middle East. Europe saw the highest
load factor, up 1.5 points, followed by North America, although
the latter’s load factor was broadly flat against last year. Overall
passenger load factor improved 0.9 points to 81.4 per cent,
having improved for more than five consecutive years.
IATA market growths
Domestic
Europe
North America
Latin America and
Caribbean
South Asia
Asia Pacific
Total network
Year to December 31, 2017
higher/(lower)
ASKs
5.4%
(0.2%)
4.2%
3.2%
Passenger
load factor
(%)
83.2
82.0
82.3
84.0
Higher/
(lower)
1.9 pts
2.1 pts
(0.7) pts
0.9 pts
1.0%
2.6%
84.6
82.6
2.1 pts
1.0 pts
Africa, Middle East and
4.0%
80.8
1.3 pts
ASKs
6.2%
4.1%
5.5%
2.9%
6.5%
8.4%
6.3%
Passenger
load factor
(%)
83.9
83.6
81.8
70.9
74.5
81.0
81.4
Higher/
(lower)
1.5 pts
0.1 pts
1.0 pts
2.3 pts
(0.2) pts
1.3 pts
0.9 pts
Europe
North America
Latin America
Africa
Middle East
Asia Pacific
Total market
IAG capacity
Source: IATA Air Passenger Market Analysis
In 2017, IAG increased capacity, measured in available seat
kilometres (ASKs) by 2.6 per cent including the launch of LEVEL
in June. Capacity was higher at all airlines and through each
region except for Europe. This partially reflects new longhaul
routes at British Airways, Aer Lingus and LEVEL as well as the
full year impact of Iberia and Aer Lingus routes launched in 2016.
Vueling increased capacity in off-peak quarters to reduce its
seasonality in line with its strategy.
IAG passenger load factor was one point higher than last
year and at 82.6 per cent, was 1.2 points higher than the
IATA average.
IAG Network by region
Market segments
In IAG’s Domestic markets capacity was higher by 5.4 per cent
with increases at Vueling and Iberia. As part of its NEXT strategy,
Vueling increased frequencies on existing routes and launched
five new routes. Capacity in Iberia’s domestic market was
increased with growth in the Balearics and Canaries. This was
partially offset by the introduction of the Club Europe product
on British Airways domestic flights in April 2017, reducing the
number of seats. Passenger load factor performance was strong,
almost two points higher versus last year.
38
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
The Group’s European capacity was broadly flat year on year.
Increases at Aer Lingus, including a new service to Split and
additional winter flying were offset by reductions at Iberia and
Vueling. Load factor rose two points, with improvements at
British Airways, Vueling and Iberia.
North America continued to represent the largest part of the
IAG network at almost 30 per cent. Capacity was increased
mainly at Aer Lingus, with a new route connecting Dublin and
Miami and the full year impact of the routes launched in 2016,
and through the launch of LEVEL’s routes to Oakland (San
Francisco) and Los Angeles. British Airways also increased its
capacity, with three new routes to New Orleans, Fort Lauderdale
and Oakland (San Francisco), although this was partially offset
by cancellations related to the adverse weather. Passenger
numbers increased at a slightly slower pace than capacity, and
seat factor for the region remained high at 82.3 per cent.
IAG increased its capacity to Latin America and Caribbean with
British Airways’ new route to Santiago de Chile and LEVEL’s new
routes to Buenos Aires and Punta Cana. Iberia increased
frequencies to Mexico City and Buenos Aires during the year,
although it had an overall decrease in capacity from frequency
reductions on other routes including Brazil and Costa Rica.
Passenger load factor in this region improved and was almost
two points ahead of the industry average.
After decreases in 2016, Africa, Middle East and South Asia
capacity was up in 2017, with British Airways’ increases in the
Middle East from de-tagged routes (Doha/Bahrain, Muscat/Abu
Dhabi) and the full year impact of Iberia’s route to
Johannesburg. Passenger load factor improved 1.3 points.
In Asia Pacific, the capacity increase was driven by the full year
impact of Iberia’s routes to Shanghai and Tokyo, partially offset
by a decrease in British Airways’ capacity, through the
discontinuation of Chengdu and gauge changes in Japan.
Passenger load factors rose 2.1 points, and continued to be the
highest in the IAG network.
LEVEL launch
On March 17th, IAG launched LEVEL, a new longhaul low-cost
airline brand that started its operations in June 2017 with flights
from Barcelona to Los Angeles, Oakland (San Francisco),
Buenos Aires and Punta Cana. LEVEL is flying two new Airbus
A330 aircraft fitted with 293 economy and 21 premium economy
seats. From March 2018, LEVEL will also fly between Barcelona
and Boston.
Revenue
€ million
Passenger revenue
Cargo revenue
Other revenue
Total revenue
Higher/(lower)
Per ASK at
ccy
1.5%
2017
20,245
1,084
1,643
22,972
Year over year
at ccy
4.1%
8.0%
5.6%
4.4%
Passenger revenue
On a reported basis, passenger revenue for the Group rose 1.6
per cent versus the prior year, with 2.5 points of adverse
currency, while capacity was increased 2.6 per cent. At constant
currency (‘ccy’), passenger unit revenue (passenger revenue per
ASK) increased 1.5 per cent with slightly higher yields (passenger
revenue/revenue passenger kilometre) up 0.3 per cent and a 1
point rise in passenger load factor.
Continuing the upward trend in revenues reported at the end of
2016, passenger unit revenues improved throughout the year
with increases versus last year in all quarters except quarter one.
The performance was based on stronger yields and higher
passenger load factors. In the Domestic market, the Group’s
passenger unit revenues were down due to capacity increases
at Vueling aimed to reduce seasonality peaks in its schedule.
Europe performed strongly for the Group with significant unit
revenue improvements at Iberia and Vueling on slightly
lower capacity.
Capacity growth in North America impacted the Group’s year
over year passenger unit revenue performance, with declines
at Iberia and Aer Lingus, and the dilutive impact of the
introduction of LEVEL. At British Airways, passenger unit
revenues increased. North America unit revenue trends were
positive during the period.
Latin America and Caribbean and Asia Pacific passenger unit
revenues showed the strongest signs of recovery with increases
at both British Airways and Iberia. Latin American economies
such as Brazil and Argentina improved, while demand in Asia
Pacific rose with lower terrorist activity in Europe.
Africa, Middle East and South Asia passenger unit revenue was
broadly flat versus last year with mixed performance throughout
the year and across the Group’s network.
The Group carried over 104 million passengers, an increase of
4.1 per cent from 2016, with strong demand at LEVEL and
passenger load factor improvement at three of the other four
airlines. The Group’s Net Promoter Score was 16.8 per cent,
achieving our on target performance of 16.5. This was a new
metric for the Group this year.
In November 2017, IAG announced the opening of LEVEL’s
new base in Paris-Orly. Flights will begin in July 2018 and will
connect the French airport with Montreal, New York,
Guadaloupe and Martinique with two additional aircraft.
Exchange impact before exceptional items
Exchange rate movements are calculated by retranslating
current year results at prior year exchange rates. The reported
revenues and expenditures are impacted by translation currency
from converting results from currencies other than euro to the
Group’s reporting currency of euro, primarily British Airways and
Avios. From a transaction perspective, the Group performance is
impacted by the fluctuation of exchange rates, primarily
exposure to the pound sterling, euro and US dollar. The Group
generates a surplus in most currencies in which it does business,
except the US dollar, as capital expenditure, debt repayments
and fuel purchases typically create a deficit. At constant
currency, the Group’s operating profit before exceptional items
would have been €35 million higher.
The Group hedges its economic exposure from transacting in
foreign currencies. The Group does not hedge the translation
impact of reporting in euros.
€ 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)
(1,057)
467
(590)
930
(375)
555
(127)
92
(35)
The annual weighted average exchange rates from a
translation and transaction perspective are set out as follows.
Translation – Balance sheet
(weighted average)
£ to €
Translation – Profit and loss
(weighted average)
£ to €
Transaction (weighted average)
£ to €
€ to $
£ to $
2017
Higher/
(lower)
1.13
(4.6%)
1.14
1.14
1.14
1.29
(6.3%)
(5.9%)
2.5%
(3.7%)
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Financial review continued
Cargo revenue
Following a competitive trading environment in 2016, IAG Cargo
adapted to an unexpectedly buoyant market in 2017 particularly
in the second half of the year. Cargo revenue for the period
increased by 8.0 per cent at constant currency, with volume
measured in tonne kilometres (CTK) increasing by 5.6 per cent
on a capacity increase of 4.8 per cent. Trading conditions were
challenging in certain regions, however benefitted from a strong
performance in Asia Pacific, following a weak performance in the
same period last year. Yield benefitted in the final part of the
year as demand on key IAG Cargo markets exceeded supply.
Strategic focus continued to be on premium products, investing
for growth and modernising the business.
Other revenue
Other revenue includes activity from the BA Holidays
programme, Avios revenue from points issued and from product
redemptions, maintenance and handling activity. Other revenue
rose 1.4 per cent, 5.6 per cent at constant currency primarily from
an increase in Iberia’s third party maintenance (MRO) and
handling businesses. The MRO business performed more heavy
maintenance in 2017 versus 2016. BA Holidays and Avios
revenues also increased reflecting additional points sold to
finance partners and from higher product redemptions.
Total revenue for the Group rose 1.8 per cent with increases in
passenger, cargo and other revenue. At ccy, total revenue was
stronger up 4.4 per cent.
Expenditure before exceptional items
Employee costs
On a reported basis, employee costs for the Group were up
0.2 per cent and up 4.6 per cent at ccy. On a unit basis and
at ccy, employee unit costs increased 2.0 per cent with
productivity gains partially offsetting performance awards
and inflation on salaries.
Employee unit costs rose at British Airways while productivity
increased through efficiency improvements. The employee unit
cost rise was from a higher pension charge due to lower AA
bond yields, an increase in variable pay awards from achieving
2017 performance targets and inflation on wages. Vueling’s
employee unit costs also rose from an increase in variable pay
awards and due to a significant rise in average manpower
equivalents (MPEs) in line with Vueling’s NEXT programme. The
increase in MPEs reflects the full year impact of the shift in 2016
to strengthen its internal workforce on relatively low full year
capacity growth, as it de-peaks its schedule. Aer Lingus and
Iberia reported strong employee unit cost performance versus
last year from efficient growth, also improving productivity.
Overall Group productivity improved 2.5 per cent with a slight
increase in MPEs versus last year (up 0.1 per cent); the Group
employed on average 63,422 MPEs in 2017.
Employee costs
€ million
Employee costs
Higher/(lower)
2017
4,740
Year over year
at ccy
4.6%
Per ASK at
ccy
2.0%
40
40
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
Productivity
Productivity
Average manpower equivalent
Higher/(lower)
2017 Year over year
2.5%
0.1%
4,828
63,422
See note 7 in our Financial statements for more information on our
employee costs and numbers.
Fuel, oil and emissions costs
Total fuel costs for the year decreased 5.4 per cent, at ccy and
on a unit basis fuel costs are down 9.1 per cent. Fuel benefitted
from lower average fuel prices net of hedging and efficiencies
from the new fleet and improved operational procedures. The
foreign exchange transaction impact on fuel costs net of
hedging was adverse 5.9 percentage points for the Group,
reflecting the stronger US dollar primarily against the pound
sterling.
Fuel, oil and emissions costs
€ million
Fuel, oil costs and
emissions charges
Higher/(lower)
Year over year
at ccy
2017
Per ASK at
ccy
4,610
(6.8)%
(9.1)%
See note 25 in our Financial statements for more information on our
hedging policy.
Supplier costs
Total supplier costs for the year increased 1.8 per cent and
benefitted from 4.2 points of currency exchange. At ccy and on
a unit basis, supplier costs rose 3.4 per cent. In 2017, the Group’s
non-ASK related businesses, such as MRO, BA Holidays and
Avios grew, increasing supplier costs, in particular Handling,
catering and other operating costs and Engineering and other
aircraft costs with a corresponding increase in Other revenue.
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)
Year over year
at ccy
2017
Per ASK at
ccy
3.4%
2,700
6.5%
2,151
1,773
915
982
14
2.0%
6.1%
9.4%
11.8%
–
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial review continued
Cargo revenue
Productivity
Following a competitive trading environment in 2016, IAG Cargo
adapted to an unexpectedly buoyant market in 2017 particularly
in the second half of the year. Cargo revenue for the period
increased by 8.0 per cent at constant currency, with volume
measured in tonne kilometres (CTK) increasing by 5.6 per cent
on a capacity increase of 4.8 per cent. Trading conditions were
challenging in certain regions, however benefitted from a strong
performance in Asia Pacific, following a weak performance in the
year as demand on key IAG Cargo markets exceeded supply.
Strategic focus continued to be on premium products, investing
for growth and modernising the business.
same period last year. Yield benefitted in the final part of the
Fuel, oil and emissions costs
Other revenue
Other revenue includes activity from the BA Holidays
programme, Avios revenue from points issued and from product
redemptions, maintenance and handling activity. Other revenue
rose 1.4 per cent, 5.6 per cent at constant currency primarily from
sterling.
handling businesses. The MRO business performed more heavy
maintenance in 2017 versus 2016. BA Holidays and Avios
revenues also increased reflecting additional points sold to
€ million
finance partners and from higher product redemptions.
an increase in Iberia’s third party maintenance (MRO) and
Fuel, oil and emissions costs
Total revenue for the Group rose 1.8 per cent with increases in
passenger, cargo and other revenue. At ccy, total revenue was
stronger up 4.4 per cent.
Expenditure before exceptional items
Employee costs
On a reported basis, employee costs for the Group were up
0.2 per cent and up 4.6 per cent at ccy. On a unit basis and
at ccy, employee unit costs increased 2.0 per cent with
productivity gains partially offsetting performance awards
and inflation on salaries.
Employee unit costs rose at British Airways while productivity
increased through efficiency improvements. The employee unit
cost rise was from a higher pension charge due to lower AA
bond yields, an increase in variable pay awards from achieving
2017 performance targets and inflation on wages. Vueling’s
employee unit costs also rose from an increase in variable pay
awards and due to a significant rise in average manpower
equivalents (MPEs) in line with Vueling’s NEXT programme. The
increase in MPEs reflects the full year impact of the shift in 2016
to strengthen its internal workforce on relatively low full year
capacity growth, as it de-peaks its schedule. Aer Lingus and
Iberia reported strong employee unit cost performance versus
last year from efficient growth, also improving productivity.
Overall Group productivity improved 2.5 per cent with a slight
increase in MPEs versus last year (up 0.1 per cent); the Group
employed on average 63,422 MPEs in 2017.
Employee costs
€ million
Employee costs
Higher/(lower)
2017
4,740
Year over year
Per ASK at
at ccy
4.6%
ccy
2.0%
40
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
Productivity
Average manpower equivalent
Higher/(lower)
2017 Year over year
4,828
63,422
2.5%
0.1%
See note 7 in our Financial statements for more information on our
employee costs and numbers.
Total fuel costs for the year decreased 5.4 per cent, at ccy and
on a unit basis fuel costs are down 9.1 per cent. Fuel benefitted
from lower average fuel prices net of hedging and efficiencies
from the new fleet and improved operational procedures. The
foreign exchange transaction impact on fuel costs net of
hedging was adverse 5.9 percentage points for the Group,
reflecting the stronger US dollar primarily against the pound
Higher/(lower)
Year over year
Per ASK at
2017
at ccy
ccy
4,610
(6.8)%
(9.1)%
See note 25 in our Financial statements for more information on our
Fuel, oil costs and
emissions charges
hedging policy.
Supplier costs
Total supplier costs for the year increased 1.8 per cent and
benefitted from 4.2 points of currency exchange. At ccy and on
a unit basis, supplier costs rose 3.4 per cent. In 2017, the Group’s
non-ASK related businesses, such as MRO, BA Holidays and
Avios grew, increasing supplier costs, in particular Handling,
catering and other operating costs and Engineering and other
aircraft costs with a corresponding increase in Other revenue.
Supplier costs
€ million
Supplier costs:
Handling, catering
and other operating
costs
Landing fees and
en-route charges
aircraft costs
Property, IT and
other costs
Selling costs
Currency differences
Higher/(lower)
Year over year
Per ASK at
2017
at ccy
ccy
3.4%
2,700
6.5%
2,151
915
982
14
2.0%
6.1%
9.4%
11.8%
–
Engineering and other
1,773
British Airways’ airline supplier unit costs at ccy are up, impacted
by compensation fees related to the operational disruption
following the power outage in May 2017, higher maintenance
costs from additional flying hours and price escalation on pay-as-
you-go engine contracts and the new distribution model (NDM)
increasing both costs (and revenues). Iberia airline supplier unit
cost at ccy increased from NDM and in marketing related to its
90th anniversary campaign, provisions related to VAT litigation
and net accounting impact from acquisition of four Airbus A340-
600s at the end of their lease term. Vueling supplier unit costs are
favourable, cycling over compensation costs related to
operational disruption in 2016 including a reduction in engineering
costs, from fewer wet leases. Aer Lingus had a favourable supplier
unit cost performance from cost saving initiatives and efficient
growth.
By supplier cost category:
0.2%
11.5%
10.7%
31.6%
20.8%
25.2%
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
Handling, catering and other operating costs rose 6.5 per cent
excluding currency. Costs increased from higher Cargo volumes
and additional product purchases at BA Holidays and
redemptions at Avios with a corresponding rise in revenues. The
increase also reflects higher compensation fees and baggage
claims related to the operational disruption at British Airways. In
addition, the Group carried 4.1 per cent more passengers during
the year.
Landing fees and en-route charges were higher by 2.0 per cent
excluding currency. Costs rose from higher activity, with flying
hours up 1.6 per cent and sectors flown up 1.2 per cent, partially
offset by price reductions in Europe and Africa. The Group also
recognised certain elements of airport recharges as a cost
(c.2pts) in the year, rather than against revenues as in prior
years, following a change in contractual agreements with no net
impact in margin.
Engineering and other aircraft costs were up 6.1 per cent
excluding currency. Increases are driven by additional third party
maintenance activity at Iberia (c.3.5 points) from higher flying
hours and price escalation on pay-as-you-go engine contracts.
These increases were partially offset by cost saving efficiencies
including sub-contracted maintenance and global logistics.
Property, IT and other costs were up 5.2 per cent, 9.4 per cent
excluding currency. The increase reflects lower capitalised IT
charges reflecting the completion of internal projects, a
provision related to exercising options on leased aircraft and
legal settlements including a VAT audit.
Selling costs increased 11.8 per cent excluding currency. Costs
rose c.4pts from the new distribution model, which increased
both expenses and revenues while allowing the Group to bring
more direct access to the customer. Selling costs were also
higher from the increase in passenger bookings and from
marketing initiatives including Iberia’s 90th year anniversary.
Ownership costs
The Group’s ownership costs were up 4.1 per cent excluding
currency. Depreciation costs were down due to the retirement of
Iberia’s Airbus A340-300s and from a number British Airways’
longhaul Boeing aircraft being disposed of or becoming fully
depreciated during the year. Aircraft operating lease costs were
up due to a tax provision release which benefitted the base and
from additional aircraft on operating lease (Boeing 787-9s and
Airbus A330s) in the period.
Ownership costs
€ million
Ownership costs
Higher/(lower)
2017
2,072
Year over year
at ccy
4.1%
Per ASK at
ccy
1.5%
See note 5 in our Financial statements for more
on our ownership costs.
Number of fleet
Number of aircraft in fleet
Shorthaul
Longhaul
Higher/(lower)
2017 Year over year
(0.6)%
357
–
189
(0.4)%
546
See page 25 for our detailed fleet table.
Non-fuel unit costs
At constant currency, total non-fuel unit costs increased 2.7 per
cent. Adjusted for non-airline businesses (such as MRO,
handling, BA Holidays) and currency, the increase was 2.1 per
cent with increases at British Airways and Iberia. Aer Lingus non-
fuel unit costs were down from efficient growth and Vueling
improved with a better operational performance and through
cost saving initiatives.
Operating profit
In summary, the Group’s operating profit before exceptional
items for the year was €3,015 million, a €480 million
improvement from last year. The Group’s adjusted operating
margin also improved 2.1 points to 14.4 per cent. These results
reflect a good revenue performance from a better macro-
economic environment with improvements in our main strategic
markets, in particular North America and South America.
Management continued to focus on customer proposition,
operational resilience and delivery of cost savings. This was
partially offset by higher costs from disruption, variable pay
awards and an increase in pension costs. This performance
reflects the Group’s drive towards achieving a competitive cost
base with improved productivity and management initiatives,
aligned with an improved focus in customer satisfaction, brand
value and resilience of our operational model.
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Financial review continued
Financial performance by Brand
Capacity
Financial performance by Brand
Aer Lingus
British Airways
Iberia
Vueling
11.2%
8.6%
21.4%
58.8%
Operating profit before exceptionals
6.2%
8.9%
6.2%
12.5%
Aer Lingus
British Airways
Iberia
Vueling
Other Group
companies
66.2%
For the full year, Aer Lingus operating
profit was €269 million, an improvement
of €36 million over last year. Capacity was
increased 12.1 per cent with the
introduction of an additional Airbus A330
and the full year impact of Airbus A330s
delivered during 2016 to support Aer
Lingus’ longhaul expansion.
Passenger revenues increased, although
on a unit basis were down from lower
yields due to the significant capacity
growth, and competitive pressure. Aer
Lingus’ adjusted operating margin
increased 1.3 points to 16.2 per cent.
Aer Lingus achieved significant cost
savings through efficient growth with
higher productivity and from cost
initiatives. This included areas such as
maintenance, selling and IT.
See page 23 for more on Aer Lingus’
performance and future plans.
ASKs (millions)
Seat factor (per cent)
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
(€ cents or £ pence/RPK)
Passenger unit revenue
(€ cents or £ pence/ASK)
Total unit revenue
(€ cents or £ pence/ASK)
Fuel unit cost (€ cents or £
pence/ASK)
Non-fuel unit costs (€ cents or £
pence/ASK)
Total unit cost
(€ cents or £ pence/ASK)
Aer Lingus
€ million
Higher/
(lower)
12.1%
(0.5)pts
British Airways
£ million
Higher/
(lower)
0.7%
0.6pts
2017
180,070
81.8
2017
26,386
81.1
1,799
48
12
1,859
316
345
755
443
174
269
16.2%
5.4%
6.7%
(14.3%)
5.3%
(0.9%)
5.3%
4.7%
11.0%
4.8%
15.5%
1.3pts
11,054
683
532
12,269
2,553
2,573
4,411
2,732
978
1,754
14.9%
8.40
(5.6%)
7.50
6.82
(6.1%)
7.05
(6.1%)
1.20
(11.5%)
6.14
6.81
1.42
4.83
(6.4%)
4.42
6.03
(7.6%)
5.84
6.9%
15.9%
3.5%
7.2%
3.4%
5.3%
6.8%
13.8%
5.2%
19.1%
1.4pts
5.3%
6.1%
6.4%
2.6%
5.4%
4.7%
British Airways operating profit was
£1,754 million, excluding exceptional items,
an improvement of £281 million over the
prior year on a capacity increase of 0.7
per cent. Despite a strong financial result
British Airways faced some challenges in
2017 including a power failure in May
causing significant customer disruption.
Improving the customer experience
remains a key focus for the airline.
Passenger revenue rose for the year,
with improvements in both yield and
passenger load factors. Premium
yields improved with strong
business sector performance.
British Airways’ non-fuel unit costs
increased during the year impacted by
compensation fees, NDM, airport charges
and also from growth at BA Holidays and
Cargo. 2017 saw the first full year of British
Airways Plan4; savings were made in
several areas including the head office
function, engineering through outsourcing
and property rationalisation.
Overall, British Airways’ adjusted
operating margin improved 1.4 points to
14.9 per cent.
See pages 18 – 19 for more on British
Airways' performance
Capacity
Financial performance by Brand
Iberia’s operating profit was €376
Operating profit before
million, up €105 million versus last year,
exceptional items
achieving an adjusted operating margin
Adjusted operating margin
ASKs (millions)
Seat factor (per cent)
Passenger revenue
Cargo revenue
Other revenue
Total revenue
charges
Employee costs
Supplier costs
EBITDAR
Ownership costs
Fuel, oil costs and emissions
Passenger yield
(€ cents/RPK)
Passenger unit 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’s results exclude LEVEL.
Operating profit before exceptionals
of 9.6 per cent. Capacity for the year
was up 2.2 per cent, with an increase
in passenger unit revenues and
improvements across most regions.
In 2017, Iberia’s MRO business also
increased its external revenues by
approximately €90 million, while
continuing to provide services to other
Group companies.
On the cost side, airline non-fuel unit
costs rose from an increase in provisions
including VAT litigation, the accounting
impact of the acquisition of the leased
Airbus A340-600s and higher selling
costs partially due to NDM. Employee unit
costs and productivity improved through
efficiency initiatives as part of Iberia’s Plan
de Futuro II.
See pages 20 – 21 for more on Iberia’s
performance
Iberia*
€ million
Higher/
(lower)
2.2%
2.1pts
2017
63,660
84.1
2017
34,378
84.7
5.5%
0.4%
8.1%
5.8%
(7.7%)
1.9%
12.4%
13.1%
(1.7%)
38.7%
1.7pts
0.8%
3.4%
3.5%
2,103
–
22
2,125
428
233
1,008
456
268
188
12.7%
7.22
6.12
6.18
3,581
254
1,016
4,851
926
1,052
2,038
835
459
376
9.6%
6.69
5.63
7.62
1.46
5.57
Vueling
€ million
Higher/
(lower)
1.5%
1.9pts
2.6%
–
37.5%
2.9%
(15.1%)
8.9%
(2.3%)
44.8%
5.1%
213.3 %
6.0pts
(1.2%)
1.2%
1.5%
(9.7%)
1.25
(16.2%)
4.8%
4.39
(0.9%)
7.03
1.4%
5.63
(4.8%)
Vueling’s operating profit was €188
Vueling’s non-fuel unit cost decreased
million with an adjusted operating margin
with savings in supplier unit costs
of 12.7 per cent, up 6.0 points versus last
from lower maintenance fees and
year. Through its NEXT programme
compensation costs. Employee unit
Vueling has restored operational and
costs rose from the increase in MPEs as
financial performance. Capacity was up 1.5
part of its NEXT programme to improve
per cent with increases in the first and
operational resilience and from variable
fourth quarter with the aim to reduce the
pay awards linked to this year’s results.
seasonality of its network.
Vueling’s passenger unit revenue
improved versus last year with lower
Vueling’s performance reflects a
significant turnaround from last year both
operationally and financially with stronger
yields but higher passenger load factors.
margins and operating profit, allowing it
Vueling’s improvement in Europe was
to return to its growth strategy.
partially offset by decreases in domestic,
impacted by growth in quarter one
and four.
See page 22 for more information on
Vueling’s performance and future plans.
42
42
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
43
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial review continued
Capacity
Operating profit before exceptionals
For the full year, Aer Lingus operating
profit was €269 million, an improvement
of €36 million over last year. Capacity was
increased 12.1 per cent with the
delivered during 2016 to support Aer
Lingus’ longhaul expansion.
Passenger revenues increased, although
on a unit basis were down from lower
yields due to the significant capacity
growth, and competitive pressure. Aer
Lingus’ adjusted operating margin
increased 1.3 points to 16.2 per cent.
Aer Lingus achieved significant cost
savings through efficient growth with
higher productivity and from cost
initiatives. This included areas such as
maintenance, selling and IT.
See page 23 for more on Aer Lingus’
performance and future plans.
ASKs (millions)
Seat factor (per cent)
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
Aer Lingus
€ million
Higher/
(lower)
2017
26,386
2017
12.1%
180,070
81.1
(0.5)pts
81.8
British Airways
£ million
Higher/
(lower)
0.7%
0.6pts
1,799
48
12
1,859
316
345
755
443
174
269
16.2%
5.4%
6.7%
(14.3%)
5.3%
(0.9%)
5.3%
4.7%
11.0%
4.8%
15.5%
1.3pts
11,054
683
532
12,269
2,553
2,573
4,411
2,732
978
1,754
14.9%
Passenger unit revenue
(€ cents or £ pence/ASK)
Total unit revenue
(€ cents or £ pence/ASK)
Fuel unit cost (€ cents or £
pence/ASK)
Non-fuel unit costs (€ cents or £
pence/ASK)
Total unit cost
6.82
(6.1%)
7.05
(6.1%)
1.20
(11.5%)
6.14
6.81
1.42
4.83
(6.4%)
4.42
(€ cents or £ pence/ASK)
6.03
(7.6%)
5.84
British Airways operating profit was
British Airways’ non-fuel unit costs
£1,754 million, excluding exceptional items,
increased during the year impacted by
an improvement of £281 million over the
compensation fees, NDM, airport charges
prior year on a capacity increase of 0.7
and also from growth at BA Holidays and
per cent. Despite a strong financial result
Cargo. 2017 saw the first full year of British
British Airways faced some challenges in
Airways Plan4; savings were made in
2017 including a power failure in May
several areas including the head office
causing significant customer disruption.
function, engineering through outsourcing
Improving the customer experience
remains a key focus for the airline.
Passenger revenue rose for the year,
with improvements in both yield and
passenger load factors. Premium
yields improved with strong
business sector performance.
and property rationalisation.
Overall, British Airways’ adjusted
operating margin improved 1.4 points to
14.9 per cent.
See pages 18 – 19 for more on British
Airways' performance
6.9%
15.9%
3.5%
7.2%
3.4%
5.3%
6.8%
13.8%
5.2%
19.1%
1.4pts
5.3%
6.1%
6.4%
2.6%
5.4%
4.7%
introduction of an additional Airbus A330
Passenger yield
and the full year impact of Airbus A330s
(€ cents or £ pence/RPK)
8.40
(5.6%)
7.50
Financial performance by Brand
Financial performance by Brand
Capacity
Financial performance by Brand
Aer Lingus
British Airways
Iberia
Vueling
11.2%
8.6%
21.4%
58.8%
Operating profit before exceptionals
6.2%
6.2%
8.9%
12.5%
66.2%
Aer Lingus
British Airways
Iberia
Vueling
Other Group
companies
Iberia’s operating profit was €376
million, up €105 million versus last year,
achieving an adjusted operating margin
of 9.6 per cent. Capacity for the year
was up 2.2 per cent, with an increase
in passenger unit revenues and
improvements across most regions.
In 2017, Iberia’s MRO business also
increased its external revenues by
approximately €90 million, while
continuing to provide services to other
Group companies.
On the cost side, airline non-fuel unit
costs rose from an increase in provisions
including VAT litigation, the accounting
impact of the acquisition of the leased
Airbus A340-600s and higher selling
costs partially due to NDM. Employee unit
costs and productivity improved through
efficiency initiatives as part of Iberia’s Plan
de Futuro II.
See pages 20 – 21 for more on Iberia’s
performance
ASKs (millions)
Seat factor (per cent)
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
(€ cents/RPK)
Passenger unit 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
Higher/
(lower)
2.2%
2.1pts
2017
63,660
84.1
2017
34,378
84.7
5.5%
0.4%
8.1%
5.8%
(7.7%)
1.9%
12.4%
13.1%
(1.7%)
38.7%
1.7pts
0.8%
3.4%
3.5%
2,103
–
22
2,125
428
233
1,008
456
268
188
12.7%
7.22
6.12
6.18
3,581
254
1,016
4,851
926
1,052
2,038
835
459
376
9.6%
6.69
5.63
7.62
1.46
5.57
Vueling
€ million
Higher/
(lower)
1.5%
1.9pts
2.6%
–
37.5%
2.9%
(15.1%)
8.9%
(2.3%)
44.8%
5.1%
213.3 %
6.0pts
(1.2%)
1.2%
1.5%
(9.7%)
1.25
(16.2%)
4.8%
4.39
(0.9%)
7.03
1.4%
5.63
(4.8%)
* Iberia’s results exclude LEVEL.
Vueling’s operating profit was €188
million with an adjusted operating margin
of 12.7 per cent, up 6.0 points versus last
year. Through its NEXT programme
Vueling has restored operational and
financial performance. Capacity was up 1.5
per cent with increases in the first and
fourth quarter with the aim to reduce the
seasonality of its network.
Vueling’s passenger unit revenue
improved versus last year with lower
yields but higher passenger load factors.
Vueling’s improvement in Europe was
partially offset by decreases in domestic,
impacted by growth in quarter one
and four.
Vueling’s non-fuel unit cost decreased
with savings in supplier unit costs
from lower maintenance fees and
compensation costs. Employee unit
costs rose from the increase in MPEs as
part of its NEXT programme to improve
operational resilience and from variable
pay awards linked to this year’s results.
Vueling’s performance reflects a
significant turnaround from last year both
operationally and financially with stronger
margins and operating profit, allowing it
to return to its growth strategy.
See page 22 for more information on
Vueling’s performance and future plans.
42
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
43
43
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Financial review continued
Exceptional items
For a full list of exceptional items, refer to note 4 of the Financial
statements. Below is a summary of the significant exceptional
items recorded.
The Group recognised an exceptional charge of €288 million
during the year related to restructuring costs. In 2017, Iberia
reached an agreement with employees for a collective
redundancy programme, as part of their transformation plan
Plan de Futuro II which is voluntary for both the employees and
the company and aimed at improving productivity. In the year,
€180 million of restructuring costs were recognised in relation
to this.
British Airways’ Plan4 transformation initiatives began in 2016,
aimed at improving non-fuel unit cost performance, particularly
through employee costs and increased productivity. During
2017, this resulted in headcount reductions throughout the
business, from back office functions to engineering and sales,
and resulted in a €108 million exceptional charge (2016:
€144 million).
The Group also made changes to the US PRMB (Post-
Retirement Medical Benefits) at British Airways during the prior
year to bring the level of benefits in line with national trends in
the US. These changes resulted in the recognition of a one-off
gain in employee costs of €51 million.
The exceptional item in 2016 recorded 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 in the reported column.
Non-operating costs and taxation
Net non-operating costs after exceptional items were €234
million, up from €122 million last year. The increases are non-
recurring in nature and are due to a:
• €97 million negative difference in profit or loss on the sale
of property plant, equipment and investments, due to the
sale of an Airbus A340 by Iberia with an accounting loss of
€11 million, and the prior year benefiting from a €30 million
gain on the sale and lease back of 12 Airbus A319s;
• €81 million negative swing from unrealised gains in 2016 to
losses in 2017 on derivative instruments not qualifying for
hedge accounting; and
• €52 million swing in net foreign exchange on the
retranslation of monetary non-current assets and liabilities.
• These increases were partially offset by a €66 million
reduction in net financing costs following a reduction in
net debt.
See note 8 in our Financial statements for more
on our non-operating costs.
Taxation
The vast majority of the Group’s activities are taxed in the
countries of effective management of the main operations (UK,
Spain or Ireland, with corporation tax rates during 2017 of 19.25
per cent, 25 per cent and 12.5 per cent respectively). The Group’s
effective tax rate for the year was 18.9 per cent (2016: 19.6
per cent) and the tax charge was €472 million (2016: charge
€410 million).
The Group continues to offset prior year tax losses and other
tax assets against its current year taxable profit, in 2017 the
Group paid corporation taxes of €237 million (2016: €318 million).
See note 9 in our Financial statements for more information on our tax.
Profit after tax and Earnings per share (EPS)
Profit after tax before exceptional items was €2,243 million, up
12.7 per cent. The increase reflects a very good operating profit
performance. Fully diluted earnings per share before exceptional
items is one of our key performance indicators and increased by
14 per cent also benefitting from the positive impact of the share
buyback programme.
Profit after tax and exceptional items was €2,021 million, up
3.5 per cent.
See note 10 in our Financial statements for more
information on our EPS.
Dividends
The Board is proposing a final dividend to shareholders of
14.5 euro cents per share, which brings the full year dividend to
27.0 euro cents per share. The final dividend will be paid, on July
2, 2018, subject to shareholder approval at the Annual General
Meeting to shareholders on the register on June 29, 2018.
Dividend policy statement
In determining the level of dividend in any year, the Board
considers several factors, including:
• Earnings of the Group;
• On-going cash requirements and prospects of the Group
and its operating companies;
• Levels of distributable reserves by operating company and
efficiency of upstreaming options;
• Dividend coverage; and
• Its intention to distribute regular returns to its shareholders
in the medium and long-term.
The Company received distributions from each of the four main
airlines in 2017, although due to accumulated losses in certain
companies they were not all recorded as distributable income.
Distributions may trigger additional pension contributions
if higher than pre-agreed thresholds, see note 31 of the
Financial statements.
Notwithstanding these factors, the Company’s distributable
reserves position was strong, with €6.1 billion available at
December 31, 2017 (2016: €6.1 billion).
Acquisition of PPE and
(1,490)
(3,038)
1,548
Liquidity and capital risk management
Cash flow
IAG’s objectives when managing capital are to safeguard the
€ million
Group’s ability to continue as a going concern, to maintain an
optimal capital structure to reduce the cost of capital and to
provide sustainable returns to shareholders.
The Group monitors capital using adjusted gearing, adjusted net
debt to EBITDAR and liquidity. In 2017 the Group’s financial
headroom rose as adjusted net debt to EBITDAR decreased to
1.5 from 1.8 in 2016 with both adjusted net debt and EBITDAR
improving. Adjusted net debt reduced by €400 million to
€7,759 million from a stronger cash position and lower long-term
borrowings, partially offset by an increase in the notional aircraft
operating lease debt. EBITDAR increased €506 million versus
last year reflecting the Group’s profitable growth as the
EBITDAR margin improved 2 points with ASKs up 2.6 per cent.
Adjusted gearing of 51 per cent in 2016 was within the Group’s
investment grade aim, and improved by an additional 6 points
to 45 per cent from higher profit after tax.
The Group’s equity free cash flow (EqFCF) rose €630 million
in 2017 due to the increase in EBITDAR and EBITDA before
exceptional items and lower net CAPEX. Net CAPEX is
acquisition and sale of PPE and intangible assets (2017:
€1,184 million; 2016: €1,301 million).
In 2017, the Group CAPEX included delivery of three new
aircraft, one Boeing 787-8 and two Airbus A330s. This capital
expenditure has been partially offset by €287 million of
proceeds from the sale and leaseback of seven new aircraft
(four Airbus A321 and three Airbus A330).
EBITDAR before
exceptional items
Rentals
EBITDA before
exceptional items
Net interest
Taxation
intangible assets
Sale of PPE and
intangible assets
Equity free cash flow
Working capital and
other non-cash
Pensions and
restructuring
Proceeds from long-
term borrowings
Repayments of long-
term borrowings
Dividend paid
Share buyback
Other investing
Other financing
Cash inflow
In comparison, in 2016 the Group CAPEX included delivery of 11
new aircraft, two Airbus A380s, two Boeing 787-9s, four Airbus
A330s, and three aircraft from the Airbus A320 family. This
capital expenditure was partially offset by €1,582 million of
Opening cash and
deposits
Net foreign exchange
proceeds from the sale and leaseback of 26 new aircraft (nine
Cash and deposits
Airbus A321, eight Airbus A330 and nine Boeing 787-9s). The
Group also received proceeds for the sale and leaseback of 12 of
its owned Airbus A319s, which were divested to reduce any
residual value risk. Due to the timing of aircraft deliveries in 2017,
CAPEX was low and below the planning target of an average of
€2,100 million per annum.
Movements in Working capital and other non-cash generated
€558 million in free cash flow (2016: €235 million) primarily from
the Group’s growth with higher sales in advance of carriage and
impacted by the timing of prepayments and tax payments.
Pension and restructuring payments reflect payments made to
the British Airways APS and NAPS plans and restructuring
payments made under British Airways’ Plan4 and Iberia’s Plan de
Futuro II.
In 2017, the cash Dividend paid reflects the 2016 final dividend
and the 2017 interim dividend.
€ million
British Airways
Iberia
Aer Lingus
Vueling
IAG and other Group
companies
Cash and deposits
2016
Movement
4,581
506
2017
5,087
(888)
4,199
(93)
(237)
(759)
3,822
(148)
(318)
306
1,737
(1,431)
2,685
558
2,055
235
(914)
(946)
178
1,317
(1,139)
(973)
(1,130)
157
(512)
(500)
72
(21)
573
6,428
(325)
6,676
2017
3,182
1,167
1,025
681
621
6,676
(442)
–
2
(45)
1,046
5,856
(474)
6,428
2016
2,958
1,179
855
648
788
6,428
(129)
377
55
81
630
323
32
(70)
(500)
70
24
(473)
572
149
248
Higher/
(lower)
224
(12)
170
33
(167)
248
44
44
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
45
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial review continued
Exceptional items
Taxation
For a full list of exceptional items, refer to note 4 of the Financial
The vast majority of the Group’s activities are taxed in the
statements. Below is a summary of the significant exceptional
items recorded.
The Group recognised an exceptional charge of €288 million
during the year related to restructuring costs. In 2017, Iberia
reached an agreement with employees for a collective
redundancy programme, as part of their transformation plan
countries of effective management of the main operations (UK,
Spain or Ireland, with corporation tax rates during 2017 of 19.25
per cent, 25 per cent and 12.5 per cent respectively). The Group’s
effective tax rate for the year was 18.9 per cent (2016: 19.6
per cent) and the tax charge was €472 million (2016: charge
€410 million).
Plan de Futuro II which is voluntary for both the employees and
The Group continues to offset prior year tax losses and other
the company and aimed at improving productivity. In the year,
€180 million of restructuring costs were recognised in relation
tax assets against its current year taxable profit, in 2017 the
Group paid corporation taxes of €237 million (2016: €318 million).
to this.
British Airways’ Plan4 transformation initiatives began in 2016,
aimed at improving non-fuel unit cost performance, particularly
through employee costs and increased productivity. During
2017, this resulted in headcount reductions throughout the
business, from back office functions to engineering and sales,
and resulted in a €108 million exceptional charge (2016:
€144 million).
See note 9 in our Financial statements for more information on our tax.
Profit after tax and Earnings per share (EPS)
Profit after tax before exceptional items was €2,243 million, up
12.7 per cent. The increase reflects a very good operating profit
performance. Fully diluted earnings per share before exceptional
items is one of our key performance indicators and increased by
14 per cent also benefitting from the positive impact of the share
Profit after tax and exceptional items was €2,021 million, up
The Group also made changes to the US PRMB (Post-
Retirement Medical Benefits) at British Airways during the prior
year to bring the level of benefits in line with national trends in
the US. These changes resulted in the recognition of a one-off
gain in employee costs of €51 million.
buyback programme.
3.5 per cent.
The exceptional item in 2016 recorded 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
Dividends
See note 10 in our Financial statements for more
information on our EPS.
price in the reported column.
Non-operating costs and taxation
Net non-operating costs after exceptional items were €234
million, up from €122 million last year. The increases are non-
recurring in nature and are due to a:
• €97 million negative difference in profit or loss on the sale
of property plant, equipment and investments, due to the
sale of an Airbus A340 by Iberia with an accounting loss of
€11 million, and the prior year benefiting from a €30 million
gain on the sale and lease back of 12 Airbus A319s;
• €81 million negative swing from unrealised gains in 2016 to
losses in 2017 on derivative instruments not qualifying for
hedge accounting; and
• €52 million swing in net foreign exchange on the
retranslation of monetary non-current assets and liabilities.
• These increases were partially offset by a €66 million
reduction in net financing costs following a reduction in
net debt.
See note 8 in our Financial statements for more
on our non-operating costs.
The Board is proposing a final dividend to shareholders of
14.5 euro cents per share, which brings the full year dividend to
27.0 euro cents per share. The final dividend will be paid, on July
2, 2018, subject to shareholder approval at the Annual General
Meeting to shareholders on the register on June 29, 2018.
Dividend policy statement
In determining the level of dividend in any year, the Board
considers several factors, including:
• Earnings of the Group;
• On-going cash requirements and prospects of the Group
and its operating companies;
• Levels of distributable reserves by operating company and
efficiency of upstreaming options;
• Dividend coverage; and
• Its intention to distribute regular returns to its shareholders
in the medium and long-term.
The Company received distributions from each of the four main
airlines in 2017, although due to accumulated losses in certain
companies they were not all recorded as distributable income.
Distributions may trigger additional pension contributions
if higher than pre-agreed thresholds, see note 31 of the
Financial statements.
Notwithstanding these factors, the Company’s distributable
reserves position was strong, with €6.1 billion available at
December 31, 2017 (2016: €6.1 billion).
Liquidity and 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 to reduce the cost of capital and to
provide sustainable returns to shareholders.
The Group monitors capital using adjusted gearing, adjusted net
debt to EBITDAR and liquidity. In 2017 the Group’s financial
headroom rose as adjusted net debt to EBITDAR decreased to
1.5 from 1.8 in 2016 with both adjusted net debt and EBITDAR
improving. Adjusted net debt reduced by €400 million to
€7,759 million from a stronger cash position and lower long-term
borrowings, partially offset by an increase in the notional aircraft
operating lease debt. EBITDAR increased €506 million versus
last year reflecting the Group’s profitable growth as the
EBITDAR margin improved 2 points with ASKs up 2.6 per cent.
Adjusted gearing of 51 per cent in 2016 was within the Group’s
investment grade aim, and improved by an additional 6 points
to 45 per cent from higher profit after tax.
The Group’s equity free cash flow (EqFCF) rose €630 million
in 2017 due to the increase in EBITDAR and EBITDA before
exceptional items and lower net CAPEX. Net CAPEX is
acquisition and sale of PPE and intangible assets (2017:
€1,184 million; 2016: €1,301 million).
In 2017, the Group CAPEX included delivery of three new
aircraft, one Boeing 787-8 and two Airbus A330s. This capital
expenditure has been partially offset by €287 million of
proceeds from the sale and leaseback of seven new aircraft
(four Airbus A321 and three Airbus A330).
In comparison, in 2016 the Group CAPEX included delivery of 11
new aircraft, two Airbus A380s, two Boeing 787-9s, four Airbus
A330s, and three aircraft from the Airbus A320 family. This
capital expenditure was partially offset by €1,582 million of
proceeds from the sale and leaseback of 26 new aircraft (nine
Airbus A321, eight Airbus A330 and nine Boeing 787-9s). The
Group also received proceeds for the sale and leaseback of 12 of
its owned Airbus A319s, which were divested to reduce any
residual value risk. Due to the timing of aircraft deliveries in 2017,
CAPEX was low and below the planning target of an average of
€2,100 million per annum.
Movements in Working capital and other non-cash generated
€558 million in free cash flow (2016: €235 million) primarily from
the Group’s growth with higher sales in advance of carriage and
impacted by the timing of prepayments and tax payments.
Pension and restructuring payments reflect payments made to
the British Airways APS and NAPS plans and restructuring
payments made under British Airways’ Plan4 and Iberia’s Plan de
Futuro II.
In 2017, the cash Dividend paid reflects the 2016 final dividend
and the 2017 interim dividend.
Cash flow
€ million
EBITDAR before
exceptional items
Rentals
EBITDA before
exceptional items
Net interest
Taxation
Acquisition of PPE and
intangible assets
Sale of PPE and
intangible assets
Equity free cash flow
Working capital and
other non-cash
Pensions and
restructuring
Proceeds from long-
term borrowings
Repayments of long-
term borrowings
Dividend paid
Share buyback
Other investing
Other financing
Cash inflow
Opening cash and
deposits
Net foreign exchange
Cash and deposits
€ million
British Airways
Iberia
Aer Lingus
Vueling
IAG and other Group
companies
Cash and deposits
2017
5,087
(888)
4,199
(93)
(237)
(1,490)
2016
4,581
Movement
506
(759)
3,822
(148)
(318)
(3,038)
(129)
377
55
81
1,548
306
1,737
(1,431)
2,685
558
2,055
235
(914)
(946)
630
323
32
178
1,317
(1,139)
(973)
(1,130)
157
(512)
(500)
72
(21)
573
6,428
(325)
6,676
2017
3,182
1,167
1,025
681
621
6,676
(442)
–
2
(45)
1,046
5,856
(474)
6,428
2016
2,958
1,179
855
648
788
6,428
(70)
(500)
70
24
(473)
572
149
248
Higher/
(lower)
224
(12)
170
33
(167)
248
44
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
45
45
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Off balance sheet arrangements and capital commitments
The Group has entered into commercial leases on certain
property and equipment but primarily for aircraft. Contracts
cover primarily a 21 year period with total payments of €7,642
million (2016: €8,314 million); see note 23 for further details on
the timing. The Group’s adjusted net debt metric includes an
estimation for the debt related to the aircraft operating leases
(‘capitalised aircraft lease costs’) by taking the current year’s
aircraft operating lease cost multiplied by 8.
Capital expenditure authorised and contracted for amounted to
€12,137 million (2016: €14,022 million) for the Group. Most of this
is in US dollars and includes commitments until 2023 for 113
aircraft from the Airbus A320 family, 17 Boeing 787s, 43 Airbus
A350s, and 4 Airbus A330s.
Overall, the Group maintains flexibility in its fleet plans with the
ability to defer, to exercise options and to negotiate different
renewal terms. IAG does not have any other off-balance sheet
financing arrangements.
See pages 16 – 17 for our key performance indicators.
See pages 175 – 177 for our alternative performance measures.
Financial review continued
During the year IAG carried out a share buyback programme
as part of its corporate finance strategy to return cash to
shareholders while reinvesting in the business and managing
leverage. The programme total was €500 million and IAG
acquired 74,999,449 ordinary shares, which were
subsequently cancelled.
In addition to the share buyback programme, the Group
generated sufficient equity free cash flow to support the
recommendation of an interim and final cash dividend of €554
million for its shareholders with cash coverage of 4.0 times. The
Group returned over €1 billion to shareholders in 2017.
In February 2018, the Group also announced its intention to
carry out a €500 million share buyback programme during the
course of 2018.
Taking these factors into consideration, the Group’s cash inflow
for the year was €573 million and after net foreign exchange
differences, the increase in cash net of exchange was €248
million. Each operating company holds adequate levels of cash
with balances exceeding 20 per cent of revenues, and sufficient
to meet obligations as they fall due.
Net debt, adjusted net debt and adjusted gearing
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
Decrease/(increase) in net
debt from regular financing
Exchange and other non-cash
movements
Net debt at December 31
Capitalised aircraft lease costs
Adjusted net debt at
December 31
2017
(8,515)
2016 Movement
115
(8,630)
6,428
(2,087)
5,856
(2,774)
572
687
248
572
(324)
973
1,130
(157)
(178)
(1,317)
1,139
795
(187)
982
389
(655)
(7,104)
302
(2,087)
(6,072)
87
1,432
(1,032)
(7,759)
(8,159)
400
Net debt at December 31, 2017 was €655 million, a reduction
of €1,432 million in the year from the stronger cash position.
Net debt from regular financing activities decreased €795
million, with new borrowings below the current year’s regular
debt and lease repayments. The level of 2017 and 2016 new
borrowings and finance leases reflect the timing of fleet
deliveries for the Group.
Capitalised aircraft lease costs rose during the year from the
full year impact of aircraft financed through operating leases
delivered in 2016 such as the Boeing 787s and Airbus A330s.
46
46
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Financial review continued
Sustainability
During the year IAG carried out a share buyback programme
Off balance sheet arrangements and capital commitments
as part of its corporate finance strategy to return cash to
shareholders while reinvesting in the business and managing
leverage. The programme total was €500 million and IAG
acquired 74,999,449 ordinary shares, which were
subsequently cancelled.
In addition to the share buyback programme, the Group
generated sufficient equity free cash flow to support the
recommendation of an interim and final cash dividend of €554
million for its shareholders with cash coverage of 4.0 times. The
Group returned over €1 billion to shareholders in 2017.
In February 2018, the Group also announced its intention to
carry out a €500 million share buyback programme during the
course of 2018.
Taking these factors into consideration, the Group’s cash inflow
for the year was €573 million and after net foreign exchange
differences, the increase in cash net of exchange was €248
million. Each operating company holds adequate levels of cash
with balances exceeding 20 per cent of revenues, and sufficient
to meet obligations as they fall due.
Net debt, adjusted net debt and adjusted gearing
The Group has entered into commercial leases on certain
property and equipment but primarily for aircraft. Contracts
cover primarily a 21 year period with total payments of €7,642
million (2016: €8,314 million); see note 23 for further details on
the timing. The Group’s adjusted net debt metric includes an
estimation for the debt related to the aircraft operating leases
(‘capitalised aircraft lease costs’) by taking the current year’s
aircraft operating lease cost multiplied by 8.
Capital expenditure authorised and contracted for amounted to
€12,137 million (2016: €14,022 million) for the Group. Most of this
is in US dollars and includes commitments until 2023 for 113
aircraft from the Airbus A320 family, 17 Boeing 787s, 43 Airbus
A350s, and 4 Airbus A330s.
Overall, the Group maintains flexibility in its fleet plans with the
ability to defer, to exercise options and to negotiate different
renewal terms. IAG does not have any other off-balance sheet
financing arrangements.
See pages 16 – 17 for our key performance indicators.
See pages 175 – 177 for our alternative performance measures.
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
leases
New borrowings and finance
Decrease/(increase) in net
debt from regular financing
Exchange and other non-cash
movements
Net debt at December 31
2017
2016 Movement
(8,515)
(8,630)
6,428
5,856
(2,087)
(2,774)
115
572
687
248
572
(324)
973
1,130
(157)
(178)
(1,317)
1,139
795
(187)
982
389
(655)
302
(2,087)
(6,072)
87
1,432
(1,032)
Capitalised aircraft lease costs
(7,104)
Adjusted net debt at
December 31
(7,759)
(8,159)
400
Net debt at December 31, 2017 was €655 million, a reduction
of €1,432 million in the year from the stronger cash position.
Net debt from regular financing activities decreased €795
million, with new borrowings below the current year’s regular
debt and lease repayments. The level of 2017 and 2016 new
borrowings and finance leases reflect the timing of fleet
deliveries for the Group.
Capitalised aircraft lease costs rose during the year from the
full year impact of aircraft financed through operating leases
delivered in 2016 such as the Boeing 787s and Airbus A330s.
46
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
Our commitment to sustainability
achieves recognition
“It’s great to see
our sustainability
programme evolving.
We’re strengthening our
governance and have
made important progress
towards our long term
goals to tackle climate
change. Last year we
were pleased to win
recognition for our
carbon disclosures.”
We have had another strong year
as we continue to develop our
sustainability programme.
On the operational front, our flight
carbon efficiency improved by 2.6%
during 2017 putting us on track to deliver
our 2020 target of 87.3 grammes of CO2
per passenger kilometre. During 2017 we
also began implementing the Honeywell
GoDirect Fuel Efficiency software,
supporting further group-wide reductions
in fuel use and carbon emissions. We
also acquired 13 new aircraft with at least
20 per cent lower carbon emissions and
50 per cent lower noise levels than the
aircraft they replace.
In September, we welcomed the UK
Government’s announcement to include
Sustainable Aviation Fuels within the UK
incentive policy framework, something
we have long advocated. It makes the UK
one of the most attractive locations to
develop this emerging technology.
Soon after we announced our
partnership with Velocys, a leading
global biofuels technology company,
to construct a waste-to-fuels plant in
the UK. We believe there is significant
opportunity to produce sustainable
alternative fuels from waste that would
otherwise be destined for landfill.
In 2016 we were delighted that the global
industry agreed to a common carbon
offset and reduction scheme called
CORSIA. For many years we have led
calls for just such an agreement. In early
December details of the CORSIA scheme
were released enabling our airlines to
begin their implementation plans. IAG
will continue its support for CORSIA and
we will also be helping other airlines in
their preparations.
Our industry-leading work on climate
change was recognised in October when
we achieved the Carbon Disclosure
Project (CDP) ‘A’ List for our Climate
disclosures, placing us amongst the top
5 per cent of global leading companies.
We were also named as the UK’s Most
Improved company.
These are fantastic achievements. We
believe that disclosure is an important
driver of any organisation’s climate
protection efforts. To strengthen our
focus we are pleased to have signed up
to support the Task Force on Climate
Related Financial Disclosure, which
matches up with and builds on the
CDP framework.
During autumn 2017, we carried out a
Materiality Assessment with our key
stakeholders to seek their views on what
our sustainability priorities should be. The
results have provided valuable insights
and some of the key feedback we
received is reflected in the structure and
focus you’ll find in the following pages.
We are also working closely with all our
businesses to ensure that we comply
with the new disclosure obligations under
Directive 2014/95/EU on non-financial
reporting and the relevant legislation in
the UK and Spain. This report has been
prepared taking these new requirements
into account and, as in previous years,
we are presenting our non-financial
information in an integrated format
throughout our strategic report.
We’ve achieved a great deal on
sustainability in 2017 and look forward
to making further, tangible progress
this year, not least with our Sustainable
Aviation Fuels projects and beginning
the first action to implement CORSIA
in preparation for emissions monitoring
from January 2019.
Above all we want to continue our efforts
to be the leading airline group with
regard to sustainability.
Antonio Vázquez
Chairman
47
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
• Linked our performance on our most
material sustainability issues to relevant
UN Sustainable Development Goals.
• Improved our data presentation to
show five year trends and indicated
whether progress is positive or
negative versus the planned direction.
In the medium-term we’ll be focusing
on improving external communications
on sustainability, including on-board our
aircraft, and continuing to improve the
alignment on levels of commitment and
performance on sustainability across our
Group.
During 2018 we will be working with
GRI and the International Air Transport
Association (IATA), to identify material
issues across the industry and develop
a GRI Sectorial Guidance Handbook for
airlines which will improve consistency
and opportunities to benchmark our
performance with other airlines.
Carbon disclosures
IAG achieved double A with the coveted
global ‘A List’ status in the 2017 CDP
ratings. This recognition for our corporate
response to climate change comes from
CDP which hosts the largest registry of
corporate greenhouse gas (GHG) data in
the world. We were also awarded “most
improved” organisation in the UK in 2017
on climate disclosure. IAG is the only
airline group to make the Climate A List
in 2017. A third award came with us also
achieving A List status for engaging our
supply chain on climate change. In 2018
we will report under the new CDP format
for transportation sector disclosures.
UN Sustainable
Development Goals
In our 2016 report, we identified four
priority UN Sustainable Development
Goals (SDGs, numbers 5, 7, 8 and
13) which align closely with our core
business strategies and our sustainability
programmes. In 2017 we benchmarked
our priority SDGs with those of IATA and
Sustainable Aviation1 and listened to our
stakeholders’ feedback on the desire to
see clearer links between our material
issues, our actions and the UN SDGs. In
response, we have this year drawn links in
our performance report to a wider set of
9 SDGs, listed below.
Goal 3:
Good health and wellbeing
Goal 4:
Quality education
Goal 5:
Gender equality
Goal 7:
Affordable and clean energy
Goal 8:
Decent work and economic
growth
Goal 9:
Industry, innovation and
infrastructure
Goal 11:
Sustainable cities and
communities
Goal 12:
Responsible consumption
and production
Goal 13:
Climate action
1 Sustainable Aviation – consortium of leading UK
aviation companies.
Sustainability continued
Sustainability overview
Sustainability governance
Our sustainability programmes are co-
ordinated at Group level to develop
and implement sustainability policy
and strategy, establish targets and
programmes and ensure appropriate
governance and accountability across all
our operating companies.
The IAG Management Committee
provides the forum for review, challenge
and setting strategic direction. Further
oversight and direction is provided by the
IAG Board and the Audit and Compliance
Committee. In 2017, the IAG Group Head
of Sustainability reported four times to
the Management Committee, twice to
the Board and once to the Audit and
Compliance Committee.
Materiality and stakeholder
engagement
In autumn 2017 IAG completed an
assessment of the most material
sustainability issues through a materiality
analysis performed according to Global
Reporting Initiative Sustainability
Reporting Guidelines (GRI version G4),
as well as benchmarking with other
materiality frameworks. We engaged
a range of our principal external
stakeholders including investors,
corporate customers, suppliers and
NGOs, with a total of 15 participants in
three external workshops as well as 12
interviews with internal stakeholders.
The charitable trust Business in the
Community was appointed to provide
objective oversight of the process;
facilitating workshops, reviewing
interview feedback and preparing a
materiality matrix.
The sample of stakeholder opinions
have been used to cross check our
sustainability strategies and identify our
primary sustainability issues.
Immediate actions we’ve taken resulting
from the exercise are:
• Included additional performance
measures on workforce and energy
efficiency in this report.
• Created clearer read-across between
our material issues, strategies,
performance measures and actions
–these are now reflected in our risk
and opportunities table and our
sustainability performance table on the
following pages.
48
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Sustainability risks
Sustainability risks and opportunities are assessed in line with IAG Enterprise Risk Management (ERM) methodology and are
summarised in the table below. Risks have owners within IAG and our operating companies and we work with them to ensure
risks and opportunities are appropriately managed. For more detail on our enterprise risk management process see the Risk
management and principal risk factors section.
Summary of key sustainability risks and management methods
Risk or opportunity, potential impact
Climate regulation – regional application risk
CORSIA has been agreed internationally however the risk
remains of regional regulatory duplication and/or inconsistent
application of agreed Monitoring Reporting and Verification
(MRV) requirements and eligible offsets which would create
inequitable costs and competitive distortion.
Sustainable aviation fuels – production opportunity
Lack of policies have discouraged investment in innovative,
first-of-kind technologies to develop sustainable aviation
fuels (SAF).
Sustainable aviation fuels – regulation risk
EU proposal to mandate proportion of sustainable aviation
fuels would drive production but force airlines to purchase
SAF at premium price compared to conventional fuels
creating competitive distortion.
How we manage it
• Supporting implementation of CORSIA through IATA and
ICAO and mentoring other airlines to ensure CORSIA can
be adopted successfully.
• Supporting development of robust rules for CORSIA on
Monitoring Reporting and Verification and emissions unit
eligibility criteria.
• IAG lobbying for single tier adoption of CORSIA directly
with UK and EU governments as well as through industry
groups IATA, A4E2 and Sustainable Aviation.
• Lobbying for sustainable aviation fuel inclusion in
renewable fuel policies at the Global, EU, and UK levels.
• British Airways investing with partners in
waste-to-fuel projects.
• Lobbying to ensure UK policy proposal converted
into regulation.
• Lobbying to prevent mandates both directly and as part of
industry organisations at EU and UK levels and supporting
policy incentives that help deliver SAF at prices competitive
with conventional fuels.
Environment regulation – compliance risk
• Adopting group-wide Environmental Management System,
An inadvertent breach of compliance requirements with
associated reputational damage and fines.
Supply chain CSR – compliance risk
Potential breach of sustainability, corporate social
responsibility or anti-bribery compliance by an IAG supplier
or third party resulting in financial, legal, environmental, social
and/or reputational risk.
Operational noise restrictions and charges risk
Airport operators and regulators apply operational noise
restrictions and charging regimes which may restrict our
ability to operate especially in the night period and/or may
introduce additional cost.
Consumer behaviour risk and opportunity
Trend in ethical and sustainability concerns being a factor in
consumer choices.
the IATA IEnvA programme.
• Internal governance, awareness and assigning ownership for
environmental compliance obligations.
• Engaging with carbon market advisors to understand and
mitigate compliance risks and identify future opportunities.
• Know Your Counterparty due diligence, Supplier Code of
Conduct, supplier compliance audits.
• Internal governance including training and workshops to
identify risks and mitigation.
• Installing new supplier management IT system, due to
complete early 2018.
• Investing in new quieter aircraft.
• Continually improving operational practices including
continuous descents, slightly steeper approaches, low
power low drag approaches and optimised departures.
• Internal governance and training and external advocacy in
UK and Spain to manage risks.
• Set mission to be the world’s leading airline group on
sustainability with ambitious goals on carbon efficiency.
• Using all the tools at our disposal: modern aircraft, efficient
technology, best operational practice and sustainable fuels,
as well as influencing global policy and driving industry-
wide action, to minimise our carbon footprint and mitigate
other sustainability risks.
• Effective communication of our practices to customers
and suppliers.
2 A4E- Airlines for Europe, European Air Transport Industry Association.
49
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Sustainability continued
Sustainability performance
This performance summary should be considered along with measures reported across the Strategic Report and Management
Report to collectively understand our performance against our most material sustainability matters. We follow the Greenhouse Gas
Protocol: A Corporate Accounting and Reporting Standard (revised edition) applying an operational control boundary and also
indicators from GRI Sustainability Reporting Guidelines. The scope of our sustainability performance data includes all our airline and
air cargo operations but currently excludes Avios and GBS functions which comprise less than one per cent of our most material
aspects. Our emissions data is calculated using UK and Spanish Government GHG conversion factors for company reporting. In the
charts below, the 2017 bar is colour coded: green for in-line with desired direction and red for against desired direction.
Aspect and
link to SDGs
Performance
indicator
Climate
Jet fuel
(Million tonnes)
Average age of
aircraft fleet
(years)
Description
2017 highlights
As commercial aircraft remain reliant
on liquid kerosene for the foreseeable
future, IAG’s climate change focus is on
purchasing newer more fuel efficient
aircraft, developing sustainable jet fuel,
pursuing operational fuel efficiency
and supporting CORSIA global carbon
offsetting scheme.
Average age of all aircraft in our fleet
calculated at the end of the reporting year
and based on aircraft age from date of
manufacture.
As newer aircraft are typically 15-20% more
fuel efficient than the aircraft they replace,
this metric is a proxy for showing the
penetration and retention of new aircraft in
our fleet.
Flights only CO2
emissions intensity
(gCO2/pkm)
Target: 10% improvement by 2020
compared to 2014. Grammes of CO2 per
passenger kilometre is a standard industry
measure of flight efficiency. Individual
airline performance is reported on the
relevant pages in this report.
• Our jet fuel use increased 1.8%
compared to 2016 however this was a
slower rate of growth than our business
operations (RPK up 3.8%) reflecting an
improvement in operating efficiency.
9.6
7.2
• UK Government proposes Sustainable
Aviation Fuels (SAF) in policy
incentives.
• British Airways announced SAF UK
production partnership.
• The slight increase in the
average age is due to the reduced
turnover of new and retired aircraft
during 2017. This turnover will improve
in 2018 as we increase the rate of new
aircraft deliveries.
• 13 new aircraft delivered
• 15 aircraft retired
• Total aircraft fleet at end of
December 2017: 546
• IAG achieved 2.6% improvement in
annual fuel efficiency, continuing to
exceed industry target of 1.5%.
• This improvement is due to a
combination of higher load factors,
better cargo performance particularly
at British Airways and Aer Lingus and
an increased mix of longhaul flying at
Aer Lingus.
4.8
2.4
0.0
12
10
8
6
4
2
0
100
80
60
40
20
0
• Scope 1 CO2e emissions have increased
but at a lower rate than activity of the
airlines.
35
• IAG contributed 3 million tonnes
of carbon reductions through our
compliance with the EU ETS, bringing
our net CO2 emissions down to around
25.8 million tonnes (provisional figure
pending EU ETS verification).
Performance
Million tonnes fuel
4
4
7
.
3
9
7
.
8
2
8
.
6
8
8
.
2
0
9
.
%
8
.
1
+
2013
2014
2015
2016
2017
Years
1
.
1
1
.
5
0
1
.
8
0
1
.
8
0
1
4
.
1
1
%
6
5
+
.
2013
2014
2015
2016
2017
gCO2/pkm
.
7
9
9
2020
target:
87.3
.
5
7
9
.
6
5
9
.
8
4
9
.
3
2
9
%
6
2
-
.
2013
2014
2015
2016
2017
Million tonnes CO2e
6
6
3
2
.
.
2
2
5
2
0
4
6
2
.
6
2
8
2
.
.
8
7
8
2
%
8
.
1
+
2050 net
target: 11.62
0
2013
2014
2015
2016
2017
• Fluctuations in trend are influenced by
airline acquisitions as well as the trend
towards less carbon intensive electricity
180
across Spain, the UK and Ireland.
144
• 54% of Group electricity use in 2017 was
108
from renewable sources, mainly wind.
• Renewable electricity use across the
Group in 2017: British Airways 81%,
Aer Lingus 49% and Iberia and Vueling
18.5% each.
72
36
0
• British Airways electricity tariff
was changed to renewables in
December 2017.
Thousand tonnes CO2e
.
6
7
5
3
1
7
6
7
1
1
.
7
0
7
1
1
.
2
1
.
3
0
1
.
9
3
6
8
.
%
2
6
1
-
2013
2014
2015
2016
2017
Million tonnes CO2e
7
8
4
.
8
1
.
5
2
4
5
.
4
6
7
.
8
8
7
.
%
1
.
3
+
2013
2014
2015
2016
2017
Direct emissions associated with our flying.
In line with industry commitments which
we were instrumental in securing in 2009,
we have two targets designed to address
our direct CO2 emissions over different
timescales:
• To achieve carbon neutral growth for
our international aviation from 2020.
• 50% net reduction in CO2 emissions
by 2050 versus 2005 baseline
(23.24 million tonnes).
Buildings electricity.
Scope 2 emissions reported here reflect
national (location based) grid mix for UK,
Spain and Ireland. Aer Lingus included from
acquisition in August 2015.
In 2017 we improved our Scope
2 methodology by applying the most
appropriate Spanish Government
conversion factors for our electricity use
in Spain. We have therefore updated our
annual reporting and back-dated to 2013
with the new methodology to provide
consistent trend information.
Scope 1
Direct GHG emissions
(Million tonnes CO2e)
Scope 2
Indirect GHG
emissions
(Thousand
tonnes CO2e)
Scope 3
Other indirect GHG
emissions
(Million tonnes CO2e)
50
This includes other indirect emissions such
as from supply chain, production and
transport of materials, staff commuting etc.
IAG actively engages with our suppliers
to manage and reduce our scope 3 CO2
emissions.
• The Scope 3 emissions increased by
3.2% in 2017 compared to 2016. This was
10
mainly due to expanding the scope of
9
8
our emissions calculations to achieve
7
fuller accounting.
6
5
4
3
2
1
0
suppliers on climate.
• 2017 CDP Climate A for engaging
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Aspect and
link to SDGs
Performance
indicator
Description
Economic
return versus
climate impact
Revenue per
tonne CO2e
(€/tonne CO2e
for scope 1 and
2 emissions
combined)
This metric is a long-term measure
to track the connection between
economic growth and climate impact
of our operations. As we work with GRI
during 2018 we hope to develop this
as an indicator to benchmark IAG with
other airlines and airline groups.
Noise
Average noise
(Based on Quota
Count and number
of Landing and
Take Off cycles
per year)
This metric measures average noise
per flight taking into account arrival
and departure noise for each aircraft
type (using UK Government Quota
Count values which are a relative
categorisation based on certified
noise levels) and the number of flights
operated in a year. Note: for a single
flight a Boeing 747 score would be
6.0 whereas an Airbus A320 (current
engine option) would be 1.0.
Aircraft fleet
noise certification
(ICAO Chapter 4
and 14)
ICAO Chapter 4 noise certification
comprises limits of a combination
of lateral, approach, and flyover
noise levels.
The ICAO Chapter 4 technology
standard for aircraft noise applies to
new aircraft certified from January 1,
2006 and Chapter 14 applies to new
aircraft certified from January 1, 2017.
Energy
efficiency
Energy efficiency per
passenger kilometre
(gCO2e/pkm)
This is a new metric designed to
monitor our energy efficiency (Scope
2) as a function of our business
activity (passenger kilometres). It
complements our flight only emissions
intensity metric.
Waste
Average aircraft
cabin waste
(kg/passenger)
During 2017 we have been working
to establish average aircraft cabin
waste baselines to enable us to begin
reporting Group performance. Further
work is required to enable consistent
split across the group for longhaul and
shorthaul operations.
2017 highlights
• Revenue per tonne of CO2 has maintained
the same level during 2017 as revenue
has increased at the same level as CO2
emissions.
1000
Performance
€/tonne CO2e
5
8
7
6
9
7
2
6
8
6
9
7
6
9
7
%
0
800
600
400
200
0
2013
2014
2015
2016
2017
• Continuous descent operations further
Average noise QC/LTO cycle
improved with all IAG carriers now achieving
over 80% compliance at London Heathrow.
• Modifications to aircraft flight planning
software to improve aircraft climb and
descent profiles to mitigate noise.
1.2
1.0
0.8
2020
target:
1.0
1
1
.
1
8
0
.
1
6
0
.
1
%
9
.
1
-
2015
2016
2017
• All our fleet except three Airbus A321 aircraft
meet ICAO Chapter 4 noise certification.
• During 2018 we expect further increase in
the proportion of our fleet meeting Chapter
14 noise standard as new aircraft such as
the Airbus A320neo and Airbus A350 join
our fleet.
100
80
60
40
20
0
0.6
0.0
• British Airways Paint Bay was mothballed,
new energy saving lighting projects on the
Heathrow Operations base and substantial
closure of British Airways Component
Engineering facility in Hayes have made
significant contributions to energy
reductions.
• Iberia relocated jobs to consolidate office
space, and raised awareness among
employees to regulate the air conditioning
and heating thermostats.
• Against the IAG general trend general,
Vueling electricity use has increased
since 2014 due to new 24/7 departments,
improved air conditioning and increase of
35% employees and longer opening of the
canteen facilities at the headquarters.
• British Airways had significant reductions in
cabin waste in 2017 due to the introduction
of the new Buy-on-Board product in
shorthaul as well as changes to longhaul
second service and improved catering
loading.
2.0
1.5
• Iberia continue to lead EU catering waste
project targeting zero cabin waste.
• Vueling began collecting data on cabin
waste and reported average 0.085kg per
passenger (all shorthaul).
1.0
0.5
0.0
% ICAO noise standard
.
7
8
9
9
9
9
9
1
.
3
9
8
4
9
9
%
0
6
4
6
4
%
0
2013
2014
2015
2016
2017
Chapter 4
Chapter 14
Energy efficiency per passenger
kilometre (gCO2e/pKm)
6
4
0
.
3
4
0
.
5
3
0
.
8
2
0
.
.
%
0
0
2
-
2014
2015
2016
2017
kg/passenger (British Airways
data only)
9
3
.
1
7
5
.
1
6
1
.
0
6
1
.
0
7
0
.
1
%
8
.
1
3
-
.
)
%
0
0
5
-
(
8
0
0
.
2015
2016
2017
Shorthaul
Longhaul
51
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Sustainability continued
Aspect and
link to SDGs
Performance
indicator
Description
2017 highlights
Performance
Air quality
Aircraft fleet
that meet ICAO
CAEP standard for
NOx emissions
(%)
Customers
Customer
satisfaction
(average Net
Promoter Score)
Punctuality
(within 15 minutes)
ICAO CAEP is a standard for NOx
emissions from aircraft engines. The
standards have become increasingly
stringent and the CAEP 8 certified
engines must emit less than half the
NOx emitted by engines certified to
the original CAEP standard. The CAEP
4 NOx standard applied to engines
manufactured from 1 January 2004,
CAEP 6 applied from 2008 and CAEP 8
applied from 2014.
• As 96% of our aircraft meet CAEP 4
NOx, we now focus on meeting the more
stringent CAEP 6 and 8 standards.
• Incremental fleet renewals are driving a
gradually improving trend.
• 2016 figures for CAEP 6 and 8 have
increased 1% due to new data on engine
allocation.
• Reduced engine taxiing across our Group
and limiting use of auxiliary power units is
helping minimise our NOx emissions.
ICAO is also developing a standard for
particulate matter from aircraft engines,
expected to come in to force in 2020.
• British Airways deployed electric aircraft tug
in Heathrow Terminal 5 and installed electric
vehicle charging at their head office.
We are reporting average Net Promoter
Score (NPS) for the first time this year.
NPS is a non-financial metric which
measures the likelihood of a customer
recommending an IAG operating carrier.
Customer satisfaction with a company’s
products or services is key to a
company’s success and long-term
competitiveness (see Key performance
indicators section).
• We have established consistent
methodology across our Group to achieve a
single blended score.
• The Voice of Customer (VoC) survey is
the main tool of the customer experience
programme and provides valuable feedback
that helps to identify actionable insights to
improve the customer proposition.
• Strong punctuality performance across
the Group, in addition to customer service
initiatives have supported the 2017 score.
% ICAO NOx standards
0
7
2
6
5
6
65
6
5
1
7
%
4
.
1
+
6
2
%
0
4
+
.
5
2
0
2013
2014
2015
2016
2017
CAEP 6
CAEP 8
Average Net Promoter Score
16.8
2022
target
30.0
Punctuality is defined as the percentage
of flights that depart within 15 minutes
of their published departure time. The
moment of departure is defined as
the moment the aircraft’s brakes are
released in preparation for pushback.
• British Airways has improved operating
procedures across the network, achieving
their highest punctuality since 2011.
• Operational improvements at Vueling
have resulted in an increase in on time
performance of 11.3% versus last year.
As a major driver of customer
satisfaction, we strive to consistently
improve our punctuality.
• Punctuality – within 15 minutes – across our
airlines (British Airways 80%, Iberia 90%,
Vueling 79.9%, Aer Lingus 81.4%).
Within 15 minutes %
.
2
9
7
.
9
0
8
.
2
0
8
.
2
7
7
8
.
1
8
%
0
6
+
.
2013
2014
2015
2016
2017
90
84
78
72
66
60
Workforce
Employment
(Average
manpower
equivalent)
Manpower equivalent is the number of
employees adjusted to include part-
time workers, overtime and contractors.
We seek workforce efficiencies to
maintain a competitive cost base
but recognise number of employees
is a positive economic and social
metric that will fluctuate with
passenger demand, business growth
and acquisitions.
• Participated in the pilot programme of the
Average manpower equivalent
Workforce Disclosure Initiative (WDI).
• British Airways won Gold accreditation
by Fair Train for quality work experience
placements, 417 placements hosted in 2017
(350 in 2016).
75
• British Airways recruited 184 new
apprentices (38% female) in 2017 reflecting
the importance of recruiting new talent.
9
8
0
0
6
,
4
8
4
9
5
,
2
9
8
0
6
,
7
8
3
3
6
,
2
2
4
3
6
,
%
1
.
0
+
40
2013
2014
2015
2016
2017
Workforce turnover
(% voluntary
and non-voluntary)
IAG recognises the importance of
retaining experience and talent in
relation to the success of the business
and we report turnover as a measure of
the stability of our workforce.
Workforce turnover is measured as
the number of leavers as a percentage
of the average number of Group
employees in the year.
• Non-voluntary turnover decreased across
the group reflecting the completion of
workforce efficiency projects.
16
% voluntary and non-voluntary
6
4
8
.
%
3
3
3
+
.
%
0
0
5
-
2
0
2016
2017
Voluntary
Non-Voluntary
52
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Aspect and
link to SDGs
Performance
indicator
Workforce
(Continued)
Gender diversity
(% Female at Board,
Senior Executives,
& Group level)
Age diversity
(%)
Description
2017 highlights
IAG encourages greater gender equality
at all levels in the workplace.
We have published an objective to
reach at least 33% women on the Board
by the end of 2020.
• IAG held internal roadshows to raise
awareness and inspire action on gender
equality and established a Sponsorship
Programme matching senior women with
Management Committee members.
We also have an aspirational goal of
reaching 33% women across our senior
executive levels by 2025.
During 2017 we improved our tracking
of gender diversity and amended our
definition of senior managers. We have
therefore updated the 2016 figure to
reflect this new definition (changes from
27% reported previously to 23%).
• Iberia developed a Diversity Plan to embed
diversity management in the company
strategy.
• British Airways STEM work experience
attracted 22% per cent females in 2017,
versus 19% in 2016 and 10% in 2015; we held
‘Women in Engineering’ event and worked
to improve diversity among pilots.
• British Airways and Avios are covered by the
Gender Pay Gap reporting legislation and
will report in April 2018.
IAG is reporting age diversity for the first
time in 2017. An age diverse workforce
balances the need for experienced
individuals with maintaining a plan for
succession through the recruitment of
new talent.
• IAG reviews age diversity in the following
ranges: less than 30 years, 30-50 years, over
50 years.
• Further, we have also reported age diversity
for staff in managerial and non-managerial
roles.
Performance
% Women
45
0
43
43
44
44
44
23
23
25
24
25
23
25
24
24
17
2013
2014
Board
2015
Group
Senior Executives
2016
2017
% of employees per age group
17%
32%
6%
29%
65%
51%
Age diversity
<30
30-50 50+
Management
Other Staff
% of employees covered by
collective bargaining agreement
8
8
8
8
%
0
Social Dialogue
and Trade
Unions
(% of employees
covered by
collective
bargaining
agreement)
Employee Relations are an extremely
important factor in improving and
maintaining workforce engagement.
All Group employees have the right
to representation through a collective
bargaining agreement.
• In 2017 IAG established a European
Works Council which covers all Group
employees within the European Economic
Area, representing over 95% of the total
workforce.
Average hours
of training
(hours per year,
per employee)
Calculated by translating training data
for airlines per FTE to show as training
hours per Group Average Manpower
Equivalent (AME)
• In 2017 our average hours of training
increased significantly due to British
Airways’ investment in new Club World
product and the introduction of the Buy on
Board service. In addition, Vueling training
increased with further focus on customer
service.
2016
2017
Average hours training per
employee per year
45
.
6
5
3
.
3
7
3
1
.
6
3
.
9
4
3
.
8
5
4
%
2
.
1
3
0
2013
2014
2015
2016
2017
Future focus – our priorities for 2018 and beyond
In 2018 we look forward to making further progress with:
• Our Sustainable Aviation Fuels projects.
• Beginning the first action to implement CORSIA in preparation for emissions monitoring from January 2019.
• Using our new fuel efficiency software to identify more opportunities for fuel efficiency.
• Improving our external communications regarding sustainability initiatives.
• Driving continual improvement of our sustainability disclosures including exploring options for science based target
recognition which, for aviation, requires acknowledgement of carbon offsetting as a viable, legitimate and necessary part
of the pathway to decarbonisation.
• Continuing the roll-out of our environmental management system IEnVA.
53
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Sustainability continued
Sustainability in action
Global aviation carbon offsetting scheme
In 2017 IAG’s representatives working
with IATA and ICAO helped deliver
further progress with the global
aviation carbon offsetting scheme
CORSIA. In December 2017, the
release of the document, known
as the CORSIA Package, provided
details of the Monitoring, Reporting
and Verification requirements for
All airlines are required to prepare
Emissions Monitoring Plans by
September 30, 2018 and to begin
emissions monitoring from January
1, 2019. As well as beginning our own
preparations, we are also supporting
airlines and clarified how Sustainable
Alternative Fuels will be credited within
the scheme.
Sustainable aviation fuel
IAG has been instrumental in driving
progress on sustainable aviation fuels
in CORSIA, with UK Government
policy development and with partners
to develop sustainable aviation fuel
production facilities in the UK.
In 2017, British Airways entered a
partnership with Velocys to design
a series of waste plants that convert
household waste into renewable jet
fuel. The first plant will take hundreds
of thousands of tonnes of household
waste per year, otherwise destined
for landfill or incineration, and convert
it into sustainable fuels that provide
60% reduction in CO2 compared to
fossil-based jet fuel.
The UK’s Department for Transport
has indicated that future regulation
will prioritise the production of
sustainable aviation fuel beyond
2020 and intends to implement new
legislation to support this during
2018. The UK government has also
established a new Special Interest
Group to support new research
and development programmes for
sustainable aviation fuels. These
important policy incentives are
vital for us to be able to invest in
sustainable fuel production in the UK.
Fuel efficiency
During 2017 we procured Honeywell
GoDirect Fuel Efficiency software to
help identify further fuel efficiency
opportunities and enable group-
wide benchmarking and reporting on
aircraft fuel efficiency performance.
During 2018 we will be implementing
the tool across the Group and
identifying priorities for future work.
Examples of fuel efficiency projects
delivered during 2017 include:
• Further deployment of single
engine taxiing, saving over 5000
tonnes of fuel across the Group.
• Exploiting sophisticated on board
data sensors to optimise in-flight
performance, for example upgrades
to software on British Airways
Boeing 787 aircraft enabled more
fuel efficient descents.
• Working with airport authorities
and ground handling teams across
our network to improve facilities
and access to electrical and air
conditioning ground equipment
which reduces fuel burn from our
aircraft auxiliary power units.
• Working with our air navigation
providers and reviewing geopolitical
developments to ensure we select
the most fuel efficient flight paths.
• Cumulatively fuel efficiency savings
across the Group in 2017 amount
to over 30,000 tonnes of fuel and
95,000 tonnes of CO2 emissions.
54
other airlines with theirs through an
IATA “buddy” system.
We continue to comply with the EU
Emissions Trading Scheme but our
expectation is that CORSIA will replace
the EU ETS as agreed in the 2016 ICAO
General Assembly resolution, to ensure
that we only pay for our CO2 emissions
once.
Carbon fund
British Airways’ carbon fund uses
customer donations from flight
bookings on ba.com to invest in
renewable energy and energy
efficiency projects to provide
community benefits and mitigate
climate change. The Carbon Fund
supported three additional energy
projects in 2017, including the
largest project supported so far,
providing energy efficient heating
and lighting for a new community
gymnastics center near London
Heathrow airport. These projects
bring the total completed to
24, exceeding €2 million in
community benefits.
Modern slavery
Our Group Modern Slavery
Standing Instruction sets out
IAG’s zero tolerance approach to
Modern Slavery. This Instruction
applies to all persons working for
us or on our behalf in any capacity.
Our Modern Slavery Working
Group met regularly during 2017
to monitor the Group’s progress
in tackling slavery and discuss
any issues. The Group boards
are kept informed of any major
developments. Other relevant
IAG Group policies include our
Supplier Code of Conduct and
Equal Opportunities Policy. Where
IAG Group companies have
their own local policies, we are
reviewing these to ensure they
include the appropriate clauses on
Modern Slavery.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Noise
Continuous descent operations
(CDO) help reduce noise by keeping
aircraft higher over the ground
for longer, and save fuel. British
Airways and Aer Lingus are already
among the top performing airlines,
regularly achieving over 90 per cent
compliance. During 2017 Iberia and
Vueling continued their focus on
improving CDOs, bringing all our
carriers to over 80 per cent CDO
compliance at London Heathrow.
All our airlines monitor operational
noise performance to ensure
flights are operated sensitively
and to identify improvements
where possible. Departing flights
at Heathrow are expected to fly
within Noise Preferential Routes
(NPRs), and British Airways
performance on NPRs in 2017 was
98.5%. To further improve track-
keeping, in August 2017 a new
procedure to reduce the turn radius
on Boeing 747 operations using the
Midhurst route was presented to
community groups, who welcomed
the initiative. Results from
operational monitoring show that
Boeing 747 track adherence has
significantly improved, providing
noise improvements for the
local community.
Air quality
British Airways has completed the
rollout of its new Mototok electric
aircraft pushback tug, across
Heathrow Terminal 5 shorthaul
operations. The equipment replaces
traditional diesel tugs, allowing
a single ramp agent to push an
aircraft backwards from the gate
remotely. Emissions-free at the
point of use and charged from
the airport’s renewable electricity
supply, the device can move planes
smoothly and with precision.
The Iberia Ground Handling
Equipment Renewal Plan has
replaced 1,411 ground equipment
vehicles during 2016 and 2017,
representing 52 per cent of the
ground vehicle fleet now complying
with latest emissions standards.
In addition, 29 per cent of Iberia’s
motorised ground vehicles are
now electric, meeting Iberia’s goals
to reduce climate impacts and
improve air quality.
Waste
During 2017, Iberia continued to lead the EU project ‘LIFE+ Zero Cabin Waste’
which is developing best practice guidance for sustainable cabin waste
management which will be shared and applied across other airports and
airlines around the world. Key progress in 2017 included:
• Analysing the cabin waste in 165 Iberia flights.
• Testing different trolley designs and gathering cabin crew feedback.
• Preparing a new procedure for future cabin waste management.
• Training cabin crew and highlighting potential environmental benefits of
sustainable cabin waste management.
In 2018 the project objectives are to select a new trolley design that allows
segregation of recyclable and non-recyclable waste, further cabin crew
training and implementing selective collection of waste on Iberia flights
initially on domestic and intra-EU flights before extending to international
during 2019.
IAG hosted IATA aircraft end of life workshop revealing opportunities for
shorter aircraft life cycles and accelerated noise and emissions improvements
due to potential for more value to be extracted from end of life aircraft. The
workshop brought together industry experts to share best practice and feed
into an IATA best practice guide for treatment of end of life aircraft.
IAG and British Airways began work to review the use of single-use plastics
across their headquarters and Heathrow estate. During 2018 we are working
to reduce the volume of plastic used, source non-plastic alternatives and
improve the segregation and recovery of the plastics we use.
Charity
British Airways Community Investment programme raised £7.2 million
through direct and in-kind donations in 2017. This includes donations to
Flying Start, British Airways corporate charity partnership with Comic Relief,
and a £50,000 donation to victims of the Grenfell fire in London. In 2017
Iberia transported 25 tons of humanitarian aid to Africa, Europe and Latin
America. Iberia also continued their collaboration with UNICEF and Amadeus
on the Global Immunisation Initiative, raising €140,000 in 2017 to support
the children’s vaccinations. Iberia has also raised €180,000 in support of
charitable projects, including raising awareness of domestic violence and
childhood cancer. Vueling customers and staff raised more than €300,000
in 2017. Internationally, Vueling continues to support the Make a Wish
Foundation and Save the Children. Domestically, Vueling has teamed up with
Femarec to employ people with disabilities to support recycling activities.
Aer Lingus staff raised €41,400 through participation in the Dublin and Berlin
Marathons and an on board collection in aid of Breast Cancer Awareness.
They also donated €25,000 to the Gaelic Players Association to fund a
Mental Health Initiative and supported a further 33 local charities with Aer
Lingus flights worth €25,000 in the form of prizes for fundraising purposes.
Supply Chain
Since 2014 IAG has undertaken targeted Corporate Social Responsibility
(CSR)/ Social audits at factory and final assembly locations used to produce
IAG related products and services around the world. IAG continuously
identifies supply categories where goods or services are potentially sourced
in high-risk areas and requires suppliers to provide visibility of their supply
chains. IAG is committed to procuring goods and services from suppliers who
demonstrate ethical principles in the way they conduct their business and we
are continuing to enhance our supply chain CSR strategy and engage with
suppliers on standards of quality, safety, environmental responsibility and
human rights.
55
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Ethics and Integrity
IAG and its operating companies have policies and procedures in place setting out the
general guidelines that govern the conduct of directors, executives and employees of
the Group when carrying out their duties in their business and professional relationships.
All directors, executives and employees are expected to act with integrity and in
accordance with company policies and the laws of the countries they operate in.
Various training and communications activities are carried out for employees, suppliers
and intermediaries to support awareness of the principles that govern the conduct of
the Group and its employees.
All IAG employees are bound by the Securities Code of Conduct and the anti-bribery
policies of IAG and their respective operating companies.
The IAG Supplier Code of Conduct applies to the supply of goods or services to the
Group and requires suppliers to:
• Act with honesty and integrity at all times in all our business dealings
• Provide a safe working environment where employees are treated with dignity and
respect
• Seek to minimise and reduce our impact on the environment
• Provide supply chain transparency and improve supply chain standards
Grievance Reporting
Several resources are available across the Group for employees to get advice or to
report grievances or any alleged or actual wrongdoing. There are whistle-blowing
channels provided by Safecall and Ethicspoint available throughout the Group,
where concerns can be raised on a confidential basis. The IAG Audit and Compliance
Committee reviews the effectiveness of whistle-blowing channels on an annual basis.
This annual review considers 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.
Anti-Bribery Policy and Programme
IAG and its operating companies all have an anti-bribery policy and these are made
available to all employees. Training courses on anti-bribery policies and procedures are
delivered throughout the year. Training requirements vary by operating company and
are determined by factors such as the level and responsibilities of an employee.
The Group’s anti-bribery programme (the programme) is designed to prevent, detect
and respond to possible breaches of the Group’s anti-bribery policies or anti-bribery
laws, including offences covered by the Spanish Criminal Code. The compliance teams
across the Group meet regularly to discuss the status of the programme, updates
to policies and procedures, emerging trends, third-party risk-based anti-bribery due
diligence activity and review the status of ongoing projects.
The compliance teams in IAG and the operating companies conduct an annual review of
bribery risks across the Group. The main risks reviewed in 2017 included risks relating to:
• the use of third parties
• operational and commercial decisions involving government agencies
• gifts and hospitality
The Audit and Compliance Committee of the IAG Board receives an annual update on
the programme.
Sustainability continued
Occupational
health and
safety
We have robust
governance to manage
Health and Safety
(H&S) within each of
our businesses and at
the IAG Safety Board
we review aspects of
H&S including accidents
at work (staff and
customers), statistics
on days lost as a result
of H&S issues and also
actions placed upon us
by H&S agencies.
56
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Strategic report
Corporate governance
In this section
58 Chairman’s introduction to corporate governance
60 Board of Directors
62 Corporate governance
73 Report of the Audit and Compliance Committee
76 Report of the Nominations Committee
79 Report of the Safety Committee
80 Report of the Remuneration Committee
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In compliance with the Financial
Reporting Council’s UK Corporate
Governance Code, the company has
prepared the Corporate Governance
Report that follows.
www.iairgroup.com
57
Chairman’s introduction to corporate governance
Building an expert and effective
governance structure
“We have continued to
refresh and strengthen
the Board to make
sure, as our business
grows, we have the
right structure and
skills to both support
and challenge the
management team.”
Antonio Vázquez
Chairman
On behalf of the Board, I am delighted to present the Corporate
Governance report for 2017, a year of high achievement and
growth across all parts of International Airlines Group despite
some significant external challenges, particularly on the
political front.
Firstly, I want to say that I am very happy with the way our
corporate governance is evolving. There’s always more we can
do to improve our structures and procedures, of course. But I
can assure you our ambition as a Board, and as a business, is to
aim for best practice at all times.
The fact that we are a relatively young company – it is just
seven years since British Airways and Iberia merged to form IAG
– has helped. Because we are fresh and new, we have been able
to establish our particular approach to governance, ensuring
that we adopt, as appropriate, the latest recommendations.
In addition, being a company listed in both the Spanish
and London stock exchanges also means that we have two
demanding codes to comply with and that has added further
rigour to our approach. My fellow Board directors and I are
also very conscious of the need to achieve best practice in
compliance and we strive constantly to show leadership in
that regard.
We work in a complex industry, which is undoubtedly more
prone to volatility and change than most. IAG’s aim has always
been to find a way to manage that volatility and continue to
grow in a dependable and value-creating way, for the long-term.
In that context the role the Board plays in supporting, guiding
and challenging the management team is incredibly important.
This is vital too in a year when the business is performing well,
as was the case in 2017 – a year which saw all of our operating
airlines achieve record results and IAG expand its portfolio of
airline brands with the launch of LEVEL, our new low-cost,
longhaul offering.
I believe we have a very effective approach in place that allows
the Board to play a proper supervisory role and add real value
to the business.
Key areas of focus
Each year we identify key relevant issues for the Board to
focus on, beyond its normal supervisory duties, and these
are matched closely to developments within the Group and
challenges that the business is facing.
In 2017 the key areas of focus included a review of customers
and brand positioning, digital strategy (including the
development of the Hangar 51 tech accelerator initiative), Brexit,
climate change and our main environmental impact measures,
the EU’s 261 regulations on compensation for air travellers, and
a review of IT and cybersecurity, as well as a number of specific
strategy briefings.
In addition, our annual two-day strategy session was both
thorough and fruitful, offering directors time to discuss
performance, challenges and opportunities in depth and to
spend valuable time with senior management.
We improved planning for Board activities during the year,
giving Board members and the management team the chance
to request and suggest topics for discussion. These are now
included in a rolling planner and debated by the Board twice
a year.
In 2017 we also staged a number of events and visits to
help directors gain a richer understanding of the industry
and immerse themselves in key parts of the business. These
included a visit to IAG Cargo in February and to Vueling in
Barcelona, where we held our May meeting. There was also a
special session in July to review and debate macro-economic
and industry trends.
58
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 We had some very fruitful discussions during this process,
which provided an opportunity to review our progress. We
have also agreed that two issues should be at the forefront of
our work in 2018 – how, as a Board, we can make a meaningful
contribution to IAG strategy and executive succession planning.
Remuneration review
In 2017 the Remuneration Committee carried out a thorough
review of our remuneration policy to make sure it was in line
with best practice and will present a report to our shareholders
meeting this year.
We have developed proposals for executive remuneration
over the next three years, and after taking soundings with our
principal shareholders and the financial community, this will
also be presented at the shareholders meeting and put to a
binding vote.
Outlook
These are exciting times for IAG but some significant challenges
lie ahead.
I am sure that we have an extremely capable and effective
Board who can help direct the Company through these
challenges and help steer it on its path of sustainable growth.
I thank all of my fellow directors for the superb contribution
they make.
Antonio Vázquez
Chairman
Refreshing and regenerating the Board
Over the course of our seven-year history we have adjusted
the size of the Board – from 14 to 12 members – and regularly
refreshed our, always excellent, cadre of directors.
We do this not only to comply with the rules on tenure set out
in the codes with which we abide, but because we do believe
that to regenerate the Board regularly, bringing in people with
new skills and experience, is a very good thing in itself.
Our succession planning and recruitment approach is thorough,
transparent and inclusive, allowing all members of the Board
to assess and, if they choose, meet short-listed candidates. We
aim always to attract people with a broad and relevant balance
of experience, sector knowledge and skills.
This is important because it ensures that we have the right
knowledge to engage in meaningful conversations with the
management team. If we do not understand the issues, we
cannot scrutinise their work or offer proper guidance.
We also look to have a balance of geographic representation,
reflecting the main markets that IAG works in. Today our
Board includes directors from France, Latin America, the US,
Spain and the UK. We are also committed to achieving greater
gender diversity by appointing highly skilled women to the
Board. There are three female directors currently, but we remain
committed to raising that number to four by 2020.
During the year Baroness Kingsmill stepped down from the
Board after many years of fantastic service to both British
Airways and IAG. I would like to offer her my sincere thanks for
all she has contributed to these companies.
We were delighted to appoint Nicola Shaw as her replacement,
not least because of her long experience in the transport sector
and the fact that she has served on the Board of Aer Lingus,
but because she brings other great insights from the worlds
of public policy, regulation and the utilities. She joined us in
January and on behalf of the Board I would like to offer her a
very warm welcome.
Board effectiveness
Our four Board committees – Audit and Compliance,
Remuneration, Nominations and Safety - are all functioning very
well and I am happy that we have the right balance of skills on
these too.
We continue to review the effectiveness of the Board internally
every year and commission external reviews at regular intervals
to get an outside perspective. I lead the internal evaluation
process supported by the Board Secretariat, talking to my
colleagues individually and collectively to gather their views on
the Board’s effectiveness.
59
www.iairgroup.comStrategic reportCorporate governanceFinancial statementsAdditional information Board of Directors
Antonio Vázquez
Chairman
Key areas of experience:
consumer, sales/marketing,
finance, governance
Current external appointments:
Member, Advisory Board of the Franklin
Institute. Member, Cooperation Board
of Loyola University. Trustee, Nantik
Lum Foundation.
Previous relevant experience:
Chairman, Iberia 2012-2013. Chairman and
CEO, Iberia 2009-2011. Chairman and CEO,
Altadis Group 2005-2008. Chairman, Logista
2005-2008. 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. Began his professional
career in consultancy at Arthur Andersen & Co.
N
S
Willie Walsh
Chief Executive Officer
Key areas of experience:
airline industry
Current external appointments:
Chairman of the National Treasury
Management Agency of Ireland. Member of
the IATA Board of Governors.
Previous relevant experience:
Chairman, IATA Board of Governors 2016-2017.
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.
Patrick Cescau
Senior Independent Director
S
A N
Key areas of experience:
consumer, finance, sales/
marketing, governance
Current external appointments:
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 Director, Tesco 2009-
2015. Director, INSEAD 2009-2013. Senior
Independent Director, Pearson 2002-2012.
Group Chief Executive, Unilever 2005-2008.
Chairman, Unilever UK. Deputy Chairman,
Unilever The Netherlands, Food Director. Prior
to being appointed to the Board of Unilever
in 1999 as Group Finance Director, he was
Chairman of a number of the company’s major
operating companies and divisions including
the USA.
R S
Enrique Dupuy de Lôme
Chief Financial Officer
Key areas of experience:
finance, airline industry
James Lawrence
Non-Executive Director
Key areas of experience:
finance, consumer, airline sector
Current external appointments:
Chairman, Iberia Cards.
Previous relevant experience:
CFO, 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, 2003-2005.
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. Non-Executive Director
of AerCap Holdings N.V.
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 CFO,
Unilever 2007-2010. Vice Chairman, CFO and
Head of International, General Mills 1998-2007.
Executive Vice President and CFO, 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.
Marc Bolland
Non-Executive Director
Key areas of experience:
general management, commercial
management/marketing, retail,
hospitality industry
Current external appointments:
Head of European Porftolio Operations,
The Blackstone Group. Director, Coca-Cola
Company. Non-Executive Director, Exor S.p.A.
Vice President, UNICEF UK.
Previous relevant experience:
Chief Executive, Marks & Spencer 2010-2016.
Chief Executive, WM Morrison Supermarkets
PLC 2006-2010. Director, Manpower USA
2005-2015. Chief Operating Officer 2005-
2006, Director 2001-2005 and other executive
and non-executive positions, Heineken
1986-2001.
Committee Membership Key
Committee Chair
Audit and Compliance Committee
Nominations Committee
Remuneration Committee
Safety Committee
A
N
R
S
60
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 María Fernanda Mejía
Non-Executive Director
Key areas of experience:
general management, marketing and
sales, supply chain, strategic planning,
corporate transactions
Current external appointments:
Senior Vice President, The Kellogg Company.
President, Kellogg Latin America. Corporate
Officer and member of The Kellogg Company
Executive 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 2010-2011,
Vice-President Marketing and Innovation
Europe/South Pacific Division, Colgate-
Palmolive 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.
Kieran Poynter
Non-Executive Director
A
R
Emilio Saracho
Non-Executive Director
A
S
N
Key areas of experience:
professional services, finance services,
corporate governance, corporate transactions
Key areas of experience:
corporate finance, investment banking,
corporate transactions
Current external appointments:
Chairman, F&C Asset Management, Senior
Independent Director and Chairman of the
Audit Committee, British American Tobacco.
Previous relevant experience:
Chairman, Nomura International 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. UK Chairman and Senior
Partner, PricewaterhouseCoopers 2000-2008.
UK Managing Partner and other executive
positions, PricewaterhouseCoopers 1982-2000.
Current external appointments:
Advisor, Cinven Spain. Director, Altamar Capital
Partners. Director, Inditex.
Previous relevant experience:
Chairman, Banco Popular Español, 2017. Vice
Chairman and Member Investment Banking
Management Committee, JPMorgan 2015-
2016. Deputy CEO 2012-2015, CEO Investment
Banking for EMEA 2012-2014 and member
Executive Committee 2009-2013, JP Morgan.
CEO, JP Morgan Private Banking for EMEA
2006-2012. Director, Cintra 2008. Director,
ONO 2008. Chairman, JP Morgan Spain
& Portugal 1998-2006. Global Investment
Banking Head, Santander Investment (UK)
1995-1998. Spanish Market Manager, Goldman
Sachs International 1990-1995.
Dame Marjorie Scardino
Non-Executive Director
Nicola Shaw
Non-Executive Director
Alberto Terol
Non-Executive Director
N R
Key areas of experience:
commercial management, government
affairs, communications, digital and media,
legal services
Current external appointments:
Senior Independent Director, Twitter, Senior
Independent Director, 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 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 experience:
transport sector, public policy and regulatory
affairs, consumer, general management
Current external appointments:
Executive Director, National Grid plc.
Member of the Audit and Risk Committee,
English Heritage. Director for Major
Projects Association.
Previous relevant experience:
Non-Executive Director and Chairwoman
of the Audit Committee, Ellevio AB 2015-
2017. CEO, HS1 Ltd 2011-2016. Member of the
Department for Transport’s Rail Franchising
Advisory Panel 2013-2016. Non-Executive
Director, Aer Lingus Plc 2010-2015. Charity
Trustee, Transaid 2011-2013. Director and
previously Managing Director, Bus Division
at FirstGroup plc 2005-2010. Director of
Operations and other management positions
at the Strategic Rail Authority 2002-2005.
Deputy Director and Deputy Chief Economist,
Office of the Rail Regulator (ORR) 1999-2002.
Associate, Halcrow Fox 1997-1999. Transport
specialist, The World Bank 1995-1997. Corporate
planner, London Transport 1990-1993.
Key areas of experience:
finance, professional services, information
technology, hospitality industry
A
R
Current external appointments:
Leading Director and Chairman of the
Nominations, Remuneration and Corporate
Governance Committee, Indra Sistemas, Chairman
of the Supervisory Board, Senvion. Director,
Broseta Abogados. International Senior Advisor,
Centerbridge. Independent Director, Varma.
Independent Director, Schindler España. Patron
of Fundación Telefonica. Executive Chairman of
various family owned companies.
Previous relevant experience:
Director, OHL 2010-2016. Director, Aktua 2013-2016.
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, Integration Andersen Deloitte 2002–
2003, Europe Arthur Andersen 2001-2002, Global
Tax & Legal Arthur Andersen 1997-2001,
Garrigues-Andersen 1997-2000.
61
www.iairgroup.comStrategic reportCorporate governanceFinancial statementsAdditional information Corporate governance
IAG as a Group
IAG is responsible for the Group’s strategy and business plan. It centralises the Group’s corporate functions, including the
development of its global platform.
Board*
Comprises ten non-executive directors and two executive directors (IAG CEO and CFO) and is responsible for:
• the supervision of the management of the Company
• the approval of the strategy and general policies of the
• approval of any significant contractual commitment, asset
acquisition or disposal or equity investment or divestment
Company and the Group
• the definition of the Group structure
• the determination of the policy on shareholders’ remuneration
• the approval of major alliances
• ensuring the effectiveness of the Company’s corporate
• the definition of the shareholders disclosure policy
governance system
• approval of the risk management and control policy, including
the Group’s risk appetite
Chairman
Antonio Vázquez
• chairs the shareholders’ meetings
• leads the Board’s work
• sets the Board’s agenda and directs its
discussions and deliberations
• ensures that directors receive accurate, timely
and clear information, including
the Company’s performance, its strategy,
challenges and opportunities
• ensures that there is an effective
communication with shareholders and that
directors and executives understand and
address the concerns of investors
• offers support and advice to the
Chief Executive
• promotes the highest standards of
corporate governance
CEO
Willie Walsh
• is responsible and accountable to the Board for
the management and profitable operation of
the Company
• leads the Company’s management team
• oversees the preparation of operational
and commercial plans
• develops an effective management strategy
• puts in place effective controls
• co-ordinates the activities of the Group
Senior Independent Director
Patrick Cescau
• provides a sounding board for the Chairman
• serves as intermediary for the other directors
when necessary
• is available to shareholders, should they
have any concerns they cannot resolve through
the normal channels
Audit and Compliance Committee
• reviews the activity and performance of the external auditor,
preserving their independence
• supervises the effectiveness of the internal control of the Company,
the internal audit and the risk management systems
• supervises the process for the preparation of the Group’s financial results,
reviewing the Company’s accounts and the correct application of the
accounting principles
• assess and oversees the Company’s compliance system
• reviews the Company’s CSR and sustainability policy
Nominations Committee
• evaluates and makes recommendations regarding the
Board and committee composition
• submits to the Board the proposed appointment of independent directors
• puts in place plans for the succession of directors, for the Chairman
and the Chief Executive
• oversees and establishes guidelines relating to the appointment, recruitment,
career, promotion and dismissal of senior executives
• reports on the proposed appointment of senior executives
• monitors compliance with the company’s director selection and
diversity policy
Remuneration Committee
• reviews and recommends to the Board the directors and senior executive
remuneration policy
• reports to the Board on incentive plans and pension arrangements
• monitors compliance with the Company’s remuneration policy
• ensures compliance with disclosure requirements regarding directors’
remuneration matters
Safety Committee
• receives material safety information about any subsidiary or franchise,
codeshare or wet lease provider
• exercises a high level overview of the safety activities and resources
• leads the evaluation of the Chairman’s
• follows up on any safety related measures as determined by the Board
performance annually
* List of Board’s reserved matters can be found in Article 3 of the Board Regulations, available on the Company’s website.
62
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 The Group operating companies
Each operating company is responsible for the management of their
respective businesses and accountable for the implementation of the
joint business and synergy plan.
Each company has its own board of directors and its own executive
committee, led by the top executive of each company.
IAG Management
Committee
Headed by the Group CEO:
• Day-to-day management of
the Group
• Capturing cost and
revenue synergies
• Development of Group long-
term strategy
Enrique Dupuy de Lôme
Group Chief
Financial Officer
Stephen Kavanagh
Chief Executive Officer
Robert Boyle
Director of Strategy
Alex Cruz
Chairman and CEO
Luis Gallego
Chairman and CEO
Javier Sanchez Prieto
Chairman and CEO
Julia Simpson
Chief of Staff
Chris Haynes
General Counsel
Ignacio de Torres
Director of Global Services
IAG GBS
Lynne Embleton
Chief Executive Officer
Andrew Crawley
Chief Executive Officer
Aer
Lingus
British
Airways
Iberia
Vueling
IAG
Cargo
Avios
63
www.iairgroup.comStrategic reportCorporate governanceFinancial statementsAdditional information Corporate Governance continued
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 (“FRC”) as amended from time to
time. A copy of the current version of the UK Corporate
Governance Code (updated and published in April 2016) is
available at the website of the FRC (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 can be found in the Corporate
Governance section of the Company’s website.
The Company considers that during the year it has complied with
all the provisions of the UK 2016 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 believes that, notwithstanding the above
exception, it has a robust governance structure.
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’s Governance Reports are available on the
Company’s website.
The Spanish Annual Corporate Governance Report is part of the
Management Report. It is available on the Spanish Comisión
Nacional del Mercado de Valores website (wwww.cnmv.es),
where it was published together with the Company’s annual
financial statements.
Board composition and diversity
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, 2017 the Board composition was:
Name of Board Member
Antonio Vázquez
Willie Walsh
Patrick Cescau
Marc Bolland
Enrique Dupuy de Lôme
James Lawrence
María Fernanda Mejía
Kieran Poynter
Emilio Saracho
Dame Marjorie Scardino
Alberto Terol
Position/Category
Chairman
Chief Executive Officer
Senior Independent Director
Director (independent)
Chief Financial Officer
Director (other external)
Director (independent)
Director (independent)
Director (independent)
Director (independent)
Director (independent)
First appointed
May 25, 2010
May 25, 2010
September 27, 2010
June 16, 2016
September 26, 2013
September 27, 2010
February 27, 2014
September 27, 2010
June 16, 2016
December 19, 2013
June 20, 2013
64
64
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
In addition, the appointment of Nicola Shaw as a non-executive
director, which was approved at the Shareholders’ Meeting in
June 2017, became effective on January 1, 2018.
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.
The IAG Board currently comprises ten non-executive directors
and two executive directors, IAG’s Chief Executive Officer and
Chief Financial Officer.
The Company is attentive to the need for progressive refreshing
of the Board and committee membership. Any changes to the
Board and the committees are carefully considered and planned
so as to minimise disruption to and maintain the continuity of
the Board’s and committees’ work and to ensure that the
appropriate balance of skills, experience and stability is preserved
in accordance with the Company’s circumstances and strategy.
The Board’s composition is regularly refreshed, with half of the
non-executive directors appointed within the last four years. The
non-executive directors bring a strong, independent element to
the Board, and contribute a broad range of expertise and
experience, as well as a strong blend of skills. Non-executive
directors are drawn from a wide range of industries and
backgrounds, including the airline, retail, and travel and leisure
sectors and have appropriate experience of complex
organisations with global reach, having executive business
experience. For further details see the Nominations Committee
report on pages 76 – 78.
In terms of gender diversity, the Company currently has
a 25 per cent female representation on the Board, and in terms
of nationality, the IAG Board includes directors from a variety
of origins and cultures as set out in the chart below.
Board diversity*
Gender
Nationality
25%
Female
75%
Male
USA
Colombia
Ireland
UK
France
Netherlands
Spain
Tenure
Experience
42%
33%
25%
0-3 years: 4
4-6 years: 3
7-9 years: 5
* Board composition as of January 1, 2018.
42%
Industry
50%
Retail
100%
100%
Financial (general)
75%
Corporate transactions
92%
Executive
International
www.iairgroup.com
65
65
www.iairgroup.comStrategic reportCorporate governanceFinancial statementsAdditional information
Corporate Governance continued
In accordance with the Spanish Corporate Governance Code the Company has a Directors Selection and Diversity Policy. The
objective of this 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, detailing the process for appointing directors and the Company’s diversity principles.
Information on compliance with this policy is included as part of the Nominations Committee Report.
The Directors Selection and Diversity Policy establishes a female representation objective of 33 per cent by the end of 2020 following
the recommendation included in the final Davies Report published in 2015 in the UK. 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 53.
Board and committee meetings
The Board met 11 times during the reporting period. The Board also held its annual two-day strategy meeting in September 2017.
During the reporting period, the Chairman and the non–executive directors met on two occasions without the executives present.
The Senior Independent Director discussed the Chairman’s performance with all directors without the Chairman being present.
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
Willie Walsh
Marc Bolland2
Patrick Cescau
Enrique Dupuy de Lôme2
Baroness Kingsmill3
James Lawrence4
María Fernanda Mejía2
Kieran Poynter
Emilio Saracho2
Dame Marjorie Scardino2
Alberto Terol
Board1
Audit and Compliance
Committee
Nominations
Committee
Remuneration
Committee
Safety
Committee
11
11
11
9
10
10
5/5
11
9
11
10
9
11
8
–
–
–
8
–
–
3/4
7
8
–
–
8
6
6
–
–
5
–
2/4
–
–
–
6
6
–
5
–
–
5
–
–
2/3
–
4
–
–
5
5
2
2
2
1
–
–
–
–
–
2
–
–
–
1
In addition to the nine scheduled meetings, there were two additional telephone meetings (extraordinary) that were called at short notice.
2 Marc Bolland, María Fernanda Mejía, Enrique Dupuy, Emilio Saracho and Dame Marjorie Scardino could not attend one of the two extraordinary Board
meetings called during the year.
3 Baroness Kingsmill retired from the Board with effect from June 15, 2017.
4 James Lawrence resigned from the Audit and Compliance Committee on June 15, 2017.
The Board maintains a rolling plan including regular and specific
upcoming issues. This plan of activities is updated before each
meeting and is open to directors’ suggestions as a regular item
on the Board agenda twice a year. In 2017, in addition to the
regular consideration of financial and operating performance,
the Board received presentations on a variety of topics including
strategy, shareholder and investor updates (including the
presence of the Company’s brokers), as well as customer and
brand matters. In its October meeting the Board considered the
Group risk map and reviewed the effectiveness of its risk
management and internal control systems. In its December
agenda the Board also included a meeting with the external
auditor covering the work undertaken and the evolution of the
Company’s risks and accounting position.
Board information and training
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.
In 2017 the Board received specific briefings on key
developments, such as the ongoing negotiations regarding the
UK’s exit from the EU, climate change and environmental matters
and general Corporate Social Responsibility matters, including
the impact of EU Regulation 261. Furthermore, a specific industry
trends briefing session was held in July with the participation of
an external speaker.
In addition, two on-site sessions were organised to help non-
executive directors deepen their knowledge of the Group’s
operations, as well as providing them with an opportunity to
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meet with various management teams. This year one of the on-
site sessions was devoted to IAG Cargo and was held at its
offices at Heathrow and another was held in Barcelona with the
Vueling team.
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. Training sessions have been
included in the Board annual planner for 2018.
Induction programme
New directors receive a comprehensive induction programme
that is tailored to individual requirements. The programme
includes one-to-one meetings with management, both at IAG
level and throughout the Group, offering directors a complete
overview of the 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. In
addition to this, specific induction sessions are arranged when a
Board member joins one of the committees.
Induction programme prepared for Nicola Shaw
Phase 1
November 2017
Induction pack
Key corporate documents including:
• General corporate information
• IAG Corporate Governance
• 2017 Shareholders’ meeting material
• Board of Directors historical information
• Business information
(access granted in January 2018)
• Administrative information
Phase 2
First quarter 2018
Introduction to IAG MC and other key executives
A series of meetings with key executives:
Director of Strategy
General Counsel
• Introduction to the sector
• Business basics and strategy
Chief Financial Officer
• IAG finance particulars and
financial targets
• Fleet acquisition model
• Hedging policy and risk map
CEOs of Operating Companies
• Presentation of each OpCo
• Business model
• Competitive landscape
• Strategy and current position
Phase 3
Sites and
OpCos visits
• Company’s history / IAG dual listing
• Aviation regulation
• Litigation
• Group corporate governance
• Anti-bribery and compliance matters
Chief of Staff
• Communication particulars
• Regulatory and Government Affairs
• Sustainability policy
CEO of Avios
• Presentation and business model
• Strategy and current situation
Head of Investor Relations
• Capital structure
• Main shareholders
• Main analysts’ coverage
Board Secretary
• General Board matters
• Spanish corporate governance
Director of Global Services
• Evolution from cost synergies to the
framework
• Directors’ duties
GBS platform
2018 Q2
IAG Cargo
2018 Q3
MRO
2019 Q1
Aer Lingus
2018 Q2
British Airways
2018 Q3
Iberia
2019 Q1
Vueling
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Corporate Governance continued
Board and committee evaluation
Following the external evaluation carried out in 2016, an internal evaluation was facilitated in 2017. The review took the format of a
self-assessment survey, including directors’ opinions on a number of topics. The Board Secretary prepared a report that was shared
with the Nominations Committee, and then submitted to the Board for a more detailed discussion in January 2018, including the
outcome of the different committees’ specific evaluations.
The review concluded that the Board and the committees continue to operate effectively and progress made against the 2017
action plan was unanimously acknowledged.
Areas identified for action
Progress/achievements
An industry session was organised followed by a
discussion with the Group airline’s CEOs. More contextual
industry and market information has been regularly
provided to directors
Operative information and oversight has been reinforced
through regular presentations from the operating
companies and through regular reporting to the Board
Improvements were implemented in the 2017 two-day
strategy session
Review of the Group risk map and a direct report to the
Board from the external auditor were included in the Board
agenda. The Audit and Compliance Committee’s forward
planner identifies future risk based presentations and
coordinates reporting to the Board. Particular focus was
given in 2017 to cyber and general IT risks as well as to risks
related to Brexit
Rolling calendar with upcoming topics is regularly
circulated to directors and reviewed at the May and
December Board meetings
Two site visits were arranged in 2017 to the IAG Cargo
and Vueling teams, including some informal time spent
with executives
The Nominations Committee predominantly reviewed
succession planning in its May and September meetings
Improvements to the succession planning process were
agreed and implemented
A Board succession plan and an updated skills matrix was
reviewed and discussed by the Nominations Committee
and shared with the Board in September 2017. Board
composition was also discussed and priorities set as part of
the Board evaluation exercise
Succession plans and talent development approach
for the top 50 positions was reviewed by the
Nominations Committee
The Senior Independent Director discussed the performance
of the Chairman with all the directors. Additionally, the Chairman
met with each director individually to discuss their contribution
to the Board, the functioning of the Board as a whole, as well as
an assessment of performance against the objectives agreed
for 2017.
Strategy and
business
oversight
Provide further context for Board strategy
discussions, enhancing visibility of changing
environment
Enrich non-financial information reporting to the
Board
Risk agenda
Implement suggestions to further improve the
effectiveness of the annual strategy session
Increase coverage and visibility of risk priorities
across the Board’s forward agenda
Board
performance
More dynamic management of the Board planning
agenda, ensuring focus on agreed priorities,
including training and development
Continue to encourage site visits and other
opportunities to engage with management
Succession
planning
Succession planning at both Board and executive
level should remain a priority
Further formalise the process and reinforce the
report to the whole Board
Continue analysis of the Board skills matrix and
discussions on future domain knowledge priorities
At executive level, strengthen focus on talent
development
The Board remains committed to consolidating the
improvements achieved last year and making further progress
during 2018. The key actions agreed by the Board following
this year’s evaluation include:
• Identified areas of focus for Board consideration
during 2018.
• Create more opportunities for deeper strategic discussions.
• Strengthen contact with senior executives within the Group.
• Maintain focus on executive succession planning, including
talent development programmes.
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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 effective communication with shareholders takes
place and that directors and executives understand and address
investors’ concerns. The Board is briefed on a regular basis by the
Group Head of Investor Relations and analysts’ reports are
circulated to all directors. During 2017, the Board discussed
shareholder matters on three different occasions, one of which
included the Company’s corporate brokers.
The Board has a Shareholder Communication 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 businesses.
(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).
Regular shareholder meetings were held with executive directors,
and the investor relations team during 2017. The Chairman, the
Chair of the Remuneration Committee, the Senior Independent
Director accompanied by the Group Head of Investor Relations,
met with many of IAG’s largest shareholders to discuss, amongst
other matters, strategy, governance and remuneration.
(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:
The Group's medium to long-term plans and targets were
discussed in detail in a full day of presentations given by the
senior management teams of the Group at the annual Capital
Markets day that took place in London on November 3, 2017.
Non-executive directors are invited to 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.
Other statutory information
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 which are available 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 15, 2017 authorised the
Board, with the express power of substitution, for a term ending
at the 2018 Annual General Meeting (or, if earlier, 15 months from
June 15, 2017), to:
(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 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 15, 2017.
(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 15, 2017, the date of passing the resolution;
(b) the minimum price which may be paid for an ordinary
share is zero;
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Corporate Governance continued
(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.
(v) reduce the share capital by means of cancelling up to
190,000,000 shares (8.9 per cent of the share capital).
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. For further details see note 28 to
the Group financial statements.
The IAG Securities Code of Conduct regulates the Company’s
dealings in its treasury shares. This can be accessed on the
Company’s website.
Under the above mentioned authority the Company purchased
74,999,449 shares which were cancelled on December 18, 2017
reducing the share capital in the amount of 37,499,724.50 euros.
Capital structure and shareholder rights
As of December 31, 2017, the share capital of the Company
amounted to 1,028,994,647 euros (2016: 1,066,494,371.50 euros),
divided into 2,057,989,294 shares (2016: 2,132,988,743 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, 2017 the Company owned 9,940,991 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 two 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, 2017 the equivalent
of 8.0 million shares was held in ADR form (2016: 5.6 million
IAG shares).
Company’s share capital
During the year the following change to the share capital occurred.
December 18, 2017
Share capital (euros)
Number of shares/voting rights
1,028,994,647
2,057,989,294
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Corporate Governance continued
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.
(v) reduce the share capital by means of cancelling up to
190,000,000 shares (8.9 per cent of the share capital).
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. For further details see note 28 to
the Group financial statements.
74,999,449 shares which were cancelled on December 18, 2017
reducing the share capital in the amount of 37,499,724.50 euros.
Capital structure and shareholder rights
As of December 31, 2017, the share capital of the Company
amounted to 1,028,994,647 euros (2016: 1,066,494,371.50 euros),
divided into 2,057,989,294 shares (2016: 2,132,988,743 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, 2017 the Company owned 9,940,991 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 two 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, 2017 the equivalent
of 8.0 million shares was held in ADR form (2016: 5.6 million
The IAG Securities Code of Conduct regulates the Company’s
dealings in its treasury shares. This can be accessed on the
IAG shares).
Company’s website.
Company’s share capital
During the year the following change to the share capital occurred.
December 18, 2017
Share capital (euros)
Number of shares/voting rights
1,028,994,647
2,057,989,294
(c) the maximum price which may be paid for an ordinary
Under the above mentioned authority the Company purchased
The significant shareholders of the Company at December 31, 2017, calculated according to the Company’s share capital as at the date
of this report and excluding positions in financial instruments, were:
Qatar Airways (Q.C.S.C)
Capital Research and Management Company
Europacific Growth Fund
BlackRock Inc
Lansdowne Partners International Limited
Invesco Limited
Other shareholders
Name of
shareholder
Number of
direct shares
Number of
indirect shares
Name of
direct holder
Qatar Airways (Q.C.S.C)
Capital Research and Management
Company
Europacific Growth Fund
BlackRock Inc
– 426,811,047 Qatar Airways Luxembourg. S.à.r.l.
Collective investment institutions
– 213,580,659
managed by Capital Research and
Management Company
107,329,400
– –
– 66,570,416
Lansdowne Partners International
– 41,828,809
Limited
Invesco Limited
– 42,364,545
Funds and accounts managed by
investors controlled by BlackRock Inc.
Funds and accounts managed by
Lansdowne Partners (UK) LLP
Mutual benefit societies and pension
funds managed by Invesco Limited
and its subsidiaries
Total shares
426,811,047
213,580,659
Percentage
of capital
20.739%
10.378%
107,329,400
66,570,416
5.215%
3.235%
41,828,809
2.032%
42,364,545
2.059%
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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 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
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
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.
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.
Post balance sheet events
No material adjusting post balance sheet events occurred after
December 31, 2017.
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.
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Corporate Governance continued
Report of the Audit and Compliance Committee
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
non-EU person.
Impact of change of control
as derived from the London Stock Exchange’s Daily Official List
for the business day on which they were acquired by the relevant
restrictions provided for in applicable legislation and bilateral air
The following significant agreements contain provisions entitling
transport treaties signed by Spain and the UK.
the counterparties to exercise termination in the event of a
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
change of control of the Company:
• the brand alliance agreement in respect of British Airways
and Iberia’s membership of oneworld, the globally-branded
indirectly entails the acquisition or disposal of a stake of over 0.25
airline alliance, could be terminated by a majority vote of the
per cent of the Company’s share capital, or of the voting rights
parties in the event of a change of control of the Company;
corresponding thereto, expressly indicating the nationality of the
• the joint business agreement between British Airways,
transferor and/or the transferee obliged to notify, as well as the
Iberia, American Airlines and Finnair and the joint business
creation of any charges on shares (or interests in shares) or other
agreement between British Airways, Japan Airlines and
encumbrances whatsoever, for the purposes of the exercise of
Finnair can be terminated by the other parties to those
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
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.
of such shareholder or other person, including any information
In addition, the Company’s share plans contain provisions as
that the Company deems necessary or desirable in order to
a result of which options and awards may vest and become
determine the nationality of the holders of said shares or other
exercisable on a change of control of the Company in
person with an interest in the Company’s shares or whether it is
accordance with the rules of the plans.
necessary to take steps in order to protect the operating rights of
the Company or its subsidiaries.
Post balance sheet events
No material adjusting post balance sheet events occurred after
In the event of a breach of these obligations by a shareholder or
any other person with a confirmed or apparent interest in the
December 31, 2017.
Company’s shares, the Board may suspend the voting or other
Internal control
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 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
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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.
Attendance
Committee members
Date of appointment
Kieran Poynter (Chair)
September 27, 2010
Patrick Cescau
September 27, 2010
María Fernanda Mejía
June 16, 2016
Alberto Terol
August 2, 2013
Absent
Dear Shareholder
The Audit and Compliance Committee recognises its role is more
important than ever in reviewing the effectiveness of internal
controls and promoting strong risk management and compliance
practices. The Spanish regulators released new guidance on audit
committees of public interest entities in 2017 to clarify the scope
of the functions and responsibilities, communicate good
practices and emphasise the necessary independence of the
committees. During the year the Audit and Compliance
Committee concluded its performance substantially complies
with the guidance and has refined its approach to management
attendance at Committee meetings.
I would like to thank James Lawrence, who stood down from the
Audit and Compliance Committee in June 2017. Jim was
reclassified as other external director of IAG as he could no
longer continue as an independent director due to his holding of
office of non-executive director of Aercap Holdings N.V., a listed
company that is a global operator in the aircraft lease market and
a supplier of IAG.
The Committee is working well and I am satisfied that we
continue to have the right mix of capabilities to constructively
challenge the management team of IAG.
Kieran Poynter
Audit and Compliance Committee Chairman
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.
The Committee’s activities during the year
The Committee met eight times during 2017. This included closed
sessions as well as private meetings with both the external and
internal auditors as appropriate.
The Committee’s responsibilities
The Committee’s principal responsibilities:
• reviewing the financial statements and announcements
relating to the financial performance and governance
of the Group;
• reviewing the effectiveness of the internal control
system, provision of assurance on the risk
management process and review of the principal
risks facing the Group;
• reviewing 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.
In addition to the Secretary and Deputy Secretary, regular
attendees at Committee meetings included the Chairman, the
Head of Group Audit and representatives from the external
auditors. Members of the management team including the
Chief Executive Officer, the Chief Financial Officer and the
Group Financial Controller were invited to attend specific
agenda items as required.
During the year, the Committee performed an evaluation of its
performance and concluded it is operating effectively. An
external evaluation process was carried out in 2016. In addition,
the Committee reviewed its compliance with the CNMV
Technical Guide 3/2017 on audit committees at public-interest
entities. The Committee was found to be substantially in line with
the CNMV guidelines and has updated its terms of reference to
reflect refinements made to the functioning of the Committee,
including review of the agenda in advance of the meeting to
ensure the attendees of each item are appropriate and the
inclusion of a private session of the Committee members.
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Report of the Audit and Compliance Committee continued
Other items reviewed
Business, operational and financial risks
Treasury risk management
The Committee continued to review the Group’s fuel and foreign
exchange hedging positions on a quarterly basis, including that
the approved hedging profile was being adhered to and
continued to be appropriate to manage these risks in line with
the Group risk appetite.
UK referendum vote to leave the European Union
The Committee monitored management’s evaluation and risk
assessment of the arrangements around the UK’s exit from the
European Union as part of the review of the principal risks and
uncertainties of the Group, as well as its regular review of fuel
price sensitivity and foreign exchange rate fluctuations. While
there will continue to be uncertainty until agreements are
reached, the Committee agrees with management’s current
assessment that agreements are likely to be reached which will
enable the Group to continue to operate effectively during and
after the transition.
UK pensions risk
The Committee received a report on pension risks within British
Airways' main UK defined benefit pension schemes, including key
sensitivities to asset prices, interest rates, inflation and life
expectancy and how these are managed within the schemes.
The Committee also reviewed the outcome of a review of British
Airways' future pension provision, prior to the launch of a
consultation with trade unions and employees.
British Airways power event
In May, British Airways suffered a power failure to its primary data
centre, which led to severe disruption to its customers and flights.
Management have identified the root causes of the incident and
reviewed their business operations and continuity plans to
increase resilience. The Committee received regular updates
during the year following the event from the Chairman and
Chief Financial Officer of British Airways as well as the IT and
facilities directors. The updates focused on the status of the
investigation, the root cause identification, and the immediate
and longer term recovery plan.
Cyber security
The Committee was updated on the fast-developing cyber risk
landscape, the level and benchmarking of the Group’s cyber
security investment and the Group’s cyber security priorities for
the next five years. The Committee also focused on the cyber risk
insurance options available to the Group.
Compliance and regulatory
Anti-bribery, sanctions and competition law compliance
The Committee reviewed the Group’s anti-bribery compliance
programme including organisational and policy updates and
continued enhancements to the Group-wide Know Your
Counterparty due diligence programme. Also reviewed were
updated Competition, Anti-Bribery and Sanctions compliance
risk maps, the key focus areas of 2017 and programme priorities
for 2018.
General Data Protection Regulation (GDPR)
The Committee received regular updates on the Group’s
implementation of the new EU Data Privacy Regulation. The
updates focused on key decisions made prior to implementation
and the progress against the implementation plan. GDPR
becomes enforcable in May 2018 and further Committee
updates are planned in the lead up to the end of the two year
transition period.
Sustainability
The Committee reviewed the progress made in the
implementation of the sustainability strategy and the
performance against targets in key areas such as carbon
footprint and noise performance. This also included a review of
progress relating to sustainable alternative fuels, fuel efficiency
and improvements in carbon disclosure including work with the
Carbon Disclosure Project and the Task Force on Climate Related
Financial Disclosure.
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.
Financial reporting
Internal Control over Financial Reporting (ICFR)
As part of the Group’s internal control framework it complies with
the Spanish corporate governance requirement (ICFR), which is
an analysis of risks in financial reporting, the documentation of
accounting processes, and audit of internal controls. In 2017 the
Committee reviewed the results and no material weaknesses
were identified. A full description of the Group’s ICFR is set out in
Section F of the Spanish Corporate Governance Report.
Enterprise risk management
The Committee was updated on the principal risks of the Group.
The Committee reviewed the process by which risk strategy and
appetite had been determined to confirm that the statements
were still relevant and appropriate. They also reviewed the
performance of the Group against each of its risk appetite
statements and the Committee agreed with management’s
assessment that the Group has operated within all 19 of the risk
appetite statements.
Viability statement
In February 2018, the Committee reviewed the Group’s viability
assessment which covered a five year time horizon in line with
the Group’s Business Plan period. The analysis focused on the
risks that should be combined to generate severe but plausible
downturn scenarios. The Committee considered how solvency
and headroom were determined and confirmed the period over
which viability is considered. The Committee have a reasonable
expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the period to 2022.
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Litigation
The Committee received regular litigation status reports from the
General Counsel including regarding 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 charges.
British Airways lost its appeal against the General Court decision
that the original decision should be only be partially annulled as
against British Airways (having been annulled in full against the
other appealing airlines) (GC Judgment). British Airways
appealed the partial annulment to the Court of Justice. The court
has rejected British Airways’ Appeal.
In parallel, the European Commission (EC) chose not to appeal
the GC Judgment and instead announced the adoption of a new
decision in March 2017. The new decision reissues fines against all
the participating carriers, which match those contained in the
original decision. British Airways has therefore again been fined
€104 million. British Airways has appealed the new decision to
the General Court again as have other carriers.
With respect to the civil claims, the Committee agreed with
management’s view that, given the status of proceedings, 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.
Accounting matters
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 2017,
these included the exceptional items for restructuring costs at
British Airways and Iberia, pension transactions, changes to
the presentation of the income statement and segmental
reporting note.
The exceptional item for restructuring costs is a result of both
British Airways and Iberia undertaking structural transformation
proposals. British Airways announced their plans during 2016
continuing throughout 2017 into 2018. Iberia concluded
negotiations with labour unions during 2017 and as a result the
plan covering 2017 to 2019 was approved. The Committee has
reviewed and agreed with management’s rationale for
recognising these costs and disclosing them as exceptional
items by virtue of their size and incidence.
The Committee has also reviewed changes made to the income
statement presentation and segmental reporting note during
the year.
The Committee considers whether the Annual Report and
Accounts are fair, balanced and understandable. The Committee
also reviews disclosure throughout the year through receiving a
half-yearly report from the IAG Disclosure Committee outlining
all the matters they discuss. The Committee is satisfied that
the Annual Report and Accounts are fair, balanced and
understandable and has recommended their adoption
by the Board.
External audit
The Committee continues to work closely with EY, with their
partners attending 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. Audit results were reviewed during the
meetings; for the half year, for the findings from interim audits,
early warning report for year end matters, and for the final report
for 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. Having reviewed EY’s
performance during 2017, the Committee concluded that EY
were independent and that it was in the Group’s and
shareholders’ interests not to tender the audit in 2018 and
recommends their re-appointment.
The Group audit was last tendered on the incorporation of IAG in
2010. The Company intends to comply with the Spanish Act
22/2015, on the Auditing 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. The current EY partner is Hildur Eir Jónsdóttir who has held
her role since 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 all
projects are either pre-approved or approved by the Committee
Chairman for projects over €100,000 or of an unusual nature.
The overall volume of work is addressed by a target annual
maximum of €1.5 million with an additional allowance of up to
€1.1 million for large projects where EY are uniquely placed to
carry out the work.
Spend in 2017 was below the target maximum at €619,000 with
an additional €296,000 relating to a corporate finance
transaction. 78 per cent of the €619,000 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 6 to the Group
financial statements.
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Report of the Nominations Committee
Attendance
Committee members
Date of appointment
Antonio Vázquez (Chair)
December 19, 2013
Patrick Cescau
June 16, 2016
Emilio Saracho
June 16, 2016
Dame Marjorie Scardino
June 16, 2016
Absent
Dear Shareholder
In my role as Committee Chairman, I am pleased to present the
Nominations Committee’s Report for 2017.
This has again been a busy year with the Committee meeting six
times during 2017.
Board composition
We continue working to ensure that the Board’s composition
meets the challenges of a changing business environment and
the specific needs of our business.
At the 2017 Shareholders’ Meeting Baroness Kingsmill stepped
down from the Board. The Board and I would like to thank her
for her dedication and the great contribution she has made as a
Board member of IAG and British Airways.
On January 1, 2018 we welcomed Nicola Shaw as a non-
executive director. Her personal and professional characteristics
will make her an excellent addition, bringing knowledge and
experience in the transport sector.
Succession planning continued to be a key area of focus for the
Committee during the year. We revisited our Board succession
plans to ensure appropriate actions are considered well ahead of
the dates on which directors would be retiring in order to
adequately plan for any necessary replacements.
Executive succession planning
In addition to Board membership, the Nominations Committee
has continued to consider succession plans and development of
the senior executive team. A number of site visits and informal
events were arranged during the year to facilitate greater
contact between Board members and the IAG senior
executive team.
In 2017, we saw the appointment of Lynne Embleton as CEO of
our cargo business, following the appointment of Andrew
Crawley as CEO of Avios. These internal promotions are good
examples of the talent and the possibilities for career
development that exists within the Group.
Effectiveness review
The performance of the Committee was internally assessed this
year as part of the annual Board effectiveness review and I am
pleased to report that directors acknowledge the progress
made on the actions agreed for our Committee. Our focus for
2018 will be much a continuation exercise, reinforcing the work
on succession planning, talent development and corporate
culture.
Antonio Vázquez
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 excluding the
Chairman of the Board, are considered independent.
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The Committee’s responsibilities
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 and reviewing the
criteria for the Board composition 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 adhere to the Company’s Directors
Selection and Diversity Policy; and
• submitting to the Board a report on the annual
evaluation of the Board’s performance.
The Committee’s activities during the year
During 2017 the Nominations Committee met six times.
Directors’ attendance at these meetings is shown on the
previous page and further detailed on page 66.
The Committee dealt with the following significant issues
during 2017:
• performance evaluation of the Chairman and of the
Chief Executive;
• annual review of the category of each director;
• assessment of directors’ re-election;
• appointment of a non-executive director;
• changes to the composition of the Board committees;
• review of investor feedback from the 2017
Shareholders’ Meeting;
• Board succession planning;
• succession planning for the Group Chief Executive, the IAG
Management Committee and leadership teams of the Group
operating companies;
• update on diversity trends and Group diversity reporting;
• review of appointments to the Group subsidiary boards;
• induction programme for new non-executive directors; and
• annual check of compliance with the Directors Selection
and Diversity Policy.
Board appointments
One new non-executive director, Nicola Shaw, was appointed at
the 2017 Shareholders Meeting to fill the vacancy left by
Baroness Kingsmill who stood down as a director at that
meeting. The effective date of her appointment was deferred to
January 1, 2018, as she did not have the required availability
before that date.
The flow chart on the next page describes the process
followed for the appointment of Nicola Shaw. Spencer Stuart,
which has no other connections with IAG, was engaged to carry
out the search.
As recommended by the Spanish Good Governance Code, the
Nominations Committee ran an annual check on compliance
with its policy on directors’ selection.
After this review, the Committee concluded that:
• the procedure followed was formal, rigorous and
transparent;
• the proposal was based on a prior analysis of the needs of
the Board. This evaluation was made alongside succession
plans for directors and taking into consideration the
conclusions from the annual review of Board performance;
• the Company engaged a professional and well-known
search firm, Spencer Stuart, which is a signatory to the UK
Voluntary Code of Conduct for Executive Search Firms;
• the proposal referred to an applicant who satisfies the legal
and statutory conditions required to hold office as a
director, is of suitable repute and has the appropriate
knowledge, experience, skills and availability for the exercise
of the functions and duties of such office; and
• gender diversity principles were followed throughout the
process, while preserving the general diversity and merit
based appointment principles established in the policy.
The Committees’ configuration was reviewed following the 2017
Shareholders Meeting and the only change recommended to
the Board and approved by it was the resignation of James
Lawrence from the Audit and Compliance Committee.
Board composition and committee changes
The independence, effectiveness and time commitment of each
non-executive director is regularly reviewed. A particularly
rigorous review, including their independence, was conducted in
respect of those non-executive directors who were appointed in
2010. The review concluded that such directors remain
independent and continue to make a valuable contribution to
the Company.
In addition, the Committee considered the position of James
Lawrence whose appointment as non-executive director of
AerCap Holdings N.V., a global operator in the aircraft lease
market, was considered to be an obstacle to his independence
as a non-executive director of the Company. Both the
Committee and the Board expressed satisfaction with the
commitment and contribution of Mr. Lawrence as a Board
member and accordingly he stood for re-election at the 2017
Shareholders’ Meeting as other external director.
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Report of the Nominations Committee continued
The appointment of Nicola Shaw
1
Search initiated in
accordance with Board
succession plans and
specifications discussed
and agreed
2 Executive Search
Firm engaged to
assist with the search
3
Long-list of potential
candidates considered
4 Short-list agreed
and shared with
the Board
5
Interviews
completed
6 Nominations Committee
7 Appointment
8 Appointment approved
considered
final candidate
and made
recommendation
to the Board
announced by the
Board, and published
report for submission to
the Shareholders’
Meeting
by the Shareholders’
Meeting
Induction of directors
The induction programme for Nicola Shaw has been arranged
according to her needs, taking into account her experience in
the industry sector. This is described in more detail on page 67.
Succession planning
To ensure the Board has an appropriate mix of skills, experience,
knowledge and diversity, the Committee keeps under review
the tenure and qualifications of the non-executive directors,
while considering the Group’s circumstances and changing
needs. The conclusions of this analysis forms the basis for any
new non-executive director search and for any succession
planning arrangements.
The Committee continues to take a keen interest in succession
planning for all executive positions across the business. Short to
medium-term plans have been reviewed to ensure that key roles
can be filled on an interim basis as well as longer term for the
Group’s top 50 positions.
Board diversity
Diversity remains a basis for any discussion on Board and
committee’s composition, executive appointments, and
succession planning for both Board and management. The
Group is strongly supportive of the principle of diversity, of
which gender is an important aspect.
Under the Directors Selection and Diversity Policy, the female
representation target for the Board has been increased to 33 per
cent by the end of 2020 in line with the recommendations of the
final report of the Women on Boards Davies review published in
the United Kingdom in 2015.
From January 1, 2018 there were again three female directors on
the Board, representing 25 per cent of the Board positions with,
one of them chairing one of the Board committees.
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 65 of this
Corporate Governance section and on page 53 of the
Sustainability section.
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Report of the Safety Committee
Committee members
Date of appointment
Willie Walsh (Chair)
October 19, 2010
Attendance
Antonio Vázquez
October, 19 2010
Marc Bolland
June 16, 2016
Kieran Poynter
October 19, 2010
Absent
Dear Shareholder
I am pleased to present the Safety Committee’s Report for 2017.
As a Committee, we have continued with our regular activities,
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.
Beyond the oversight of safety matters, the work of this
Committee is particularly relevant as a tool for the exchange of
best practices, knowledge and experience between the airline
companies within the Group. A good example of this co-
operation is the yearly dangerous goods report that was
presented to the Committee in July. Primarily, this report aims to
promote and develop a ‘best practice’ approach to dangerous
goods management across the Group, highlighting areas of
strong performance, areas of risk and identifying where
improvement is required.
The Committee has continued to support the work of the safety
teams to develop common reporting metrics and
methodologies, which is the basis to make further progress in
the exchange of knowledge and best practices within the Group.
Willie Walsh
Safety Committee Chairman
The Safety Committee
The Committee composition, competencies and operating rules
are regulated by article 32 of the Board Regulations. The
Committee is made up of no fewer than three and no more than
five directors appointed by the 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 report
at Committee meetings as and when required. During 2017, the
British Airways Director of Safety and Security, representatives
of the Iberia and Vueling safety teams and the Aer Lingus
Corporate Safety and Risk Manager attended meetings.
The Committee’s responsibilities
Responsibility for safety matters belongs to the Group’s
airlines. IAG, through its Safety Committee, has an overall
view of each airline’s safety performance and of any
important issues that may affect the industry. The
Committee also has visibility on the Group’s airlines’
resources and procedures. Responsibility for performing
detailed and technical assessments remains with each
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 safety activities and
resources;
• to inform the Board and 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 Committee’s activities during the year
During 2017, the Committee held two meetings. Directors’
attendance at these meetings is shown above and further
detailed on page 66.
Key topics discussed included the relevant safety events that
occurred during the relevant period, regulatory developments
and initiatives from industry associations and their
implementation by the Group airlines, along with the regular
safety review reports of Aer Lingus, British Airways, Iberia
and Vueling.
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Report of the Remuneration Committee
Committee members
Date of appointment
Dame Marjorie Scardino (Chair)
December 19, 2013
Attendance
Marc Bolland
June 16, 2016
María Fernanda Mejía
October 30, 2014
Alberto Terol
December 19, 2013
Absent
Dear Shareholder,
As Chairman of the Remuneration Committee, and on behalf
of the Board, I am pleased to present the Remuneration Report
for 2017.
Overall strategy and link to remuneration
IAG’s aim is to become the world’s leading international
airline group. Its strategy to achieve that in an increasingly
consolidated industry is to create value and sustainable returns
through leadership in core markets and the realisation of cost
and revenue synergies across our airlines and aviation
related businesses.
That strategy is executed and sustained by consistent and
strong financial performance and return on investment in each
part of the Group. We have transformed programmes through
the use of the IAG Platform at each of our airlines, while
leveraging opportunities across the Group.
The central focus of the Committee for the past year has been
the triennial review of the Company’s Remuneration Policy. In
reviewing the policy, the Committee’s main objective has been
ensuring remuneration retains a strong link to the strategy,
because we see that as the way to best performance. The
outcomes from the review are detailed on the next page.
IAG’s executive remuneration framework aims to support the
business objectives and the financial targets attached to them
through the following two schemes:
The Company’s long-term incentive plan, known as
the performance share plan (PSP), measures our performance by:
• earnings per share (EPS), adjusted for exceptional items,
which 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 our shareholders;
• total shareholder return (TSR) to ensure alignment with our
shareholders; and
• Return on Invested Capital (RoIC) to assess efficient return
on the Group’s asset base.
The annual incentive plan has its major focus on strong financial
performance, and therefore the primary measure in the plan is
the Group’s operating profit before exceptional items. A
customer measure, Net Promoter Score, was introduced for
the first time at the Group level in 2017, and this will shed the
necessary light on what progress we are making to please
our customers.
The new policy in general is designed to deliver total
remuneration that is competitive and with a strong emphasis on
“pay for performance”. The Committee will continue to ensure
that executive remuneration is aligned with our business
strategy and that the overall reward framework for 2018 and
beyond is in the best interests of our shareholders.
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Report of the Remuneration Committee
Committee members
Date of appointment
Dame Marjorie Scardino (Chair)
December 19, 2013
Attendance
Marc Bolland
June 16, 2016
María Fernanda Mejía
October 30, 2014
Alberto Terol
December 19, 2013
Absent
Dear Shareholder,
As Chairman of the Remuneration Committee, and on behalf
of the Board, I am pleased to present the Remuneration Report
for 2017.
Overall strategy and link to remuneration
IAG’s aim is to become the world’s leading international
airline group. Its strategy to achieve that in an increasingly
The Company’s long-term incentive plan, known as
the performance share plan (PSP), measures our performance by:
• earnings per share (EPS), adjusted for exceptional items,
which 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 our shareholders;
• total shareholder return (TSR) to ensure alignment with our
consolidated industry is to create value and sustainable returns
shareholders; and
through leadership in core markets and the realisation of cost
• Return on Invested Capital (RoIC) to assess efficient return
and revenue synergies across our airlines and aviation
on the Group’s asset base.
related businesses.
The annual incentive plan has its major focus on strong financial
That strategy is executed and sustained by consistent and
performance, and therefore the primary measure in the plan is
strong financial performance and return on investment in each
the Group’s operating profit before exceptional items. A
part of the Group. We have transformed programmes through
customer measure, Net Promoter Score, was introduced for
the use of the IAG Platform at each of our airlines, while
the first time at the Group level in 2017, and this will shed the
leveraging opportunities across the Group.
necessary light on what progress we are making to please
The central focus of the Committee for the past year has been
our customers.
the triennial review of the Company’s Remuneration Policy. In
The new policy in general is designed to deliver total
reviewing the policy, the Committee’s main objective has been
remuneration that is competitive and with a strong emphasis on
ensuring remuneration retains a strong link to the strategy,
“pay for performance”. The Committee will continue to ensure
because we see that as the way to best performance. The
that executive remuneration is aligned with our business
outcomes from the review are detailed on the next page.
strategy and that the overall reward framework for 2018 and
beyond is in the best interests of our shareholders.
IAG’s executive remuneration framework aims to support the
business objectives and the financial targets attached to them
through the following two schemes:
Summary of 2017 (and the performance
period 2015 to 2017)
The PSP that was awarded in 2015 had a three-year
performance period (2015 to 2017). This was the first of the
Company’s PSP awards to have three performance
measures: Return on Invested Capital (RoIC) was added to
the two existing measures of adjusted EPS and TSR.
Performance targets for all three measures were set at the
beginning of 2015.
At that time, the Company reported an adjusted EPS of 40.2
euro cents for 2014, and the stretch target (i.e. the level at
which maximum pay-out would be achieved) under the 2015
PSP for the adjusted EPS was set at 100 euro cents. RoIC
achieved a figure of 7.9 per cent in 2014, with the Company
setting a long- term goal (for 2016 to 2020) of RoIC
achieving 12+ per cent. The Company set 12 per cent RoIC as
the threshold level at which payments would begin for this
element for the 2015 PSP, with the maximum only paying out
if RoIC achieved 15 per cent. For the final measure – TSR – the
stretch target was set at outperforming an industry index by
8 per cent per annum.
The Company has produced strong financial performance
over the last three years, leading to 2017 adjusted EPS
reaching 102.8 euro cents. As a result, the 2015 PSP has an
outcome of 100 per cent of its maximum for the EPS
element. RoIC in 2017 reached 16.0 per cent, resulting in an
outcome of 100 per cent of its maximum level for the RoIC
element. The share price suffered a significant fall in 2016
following the outcome of the UK Referendum on EU
membership, but has recovered substantially since then. TSR
for the company has grown by 62 per cent over the three
years, but has underperformed against the index that the
Company measures itself against, resulting in a zero payout
for the TSR element. Overall, this has resulted in the 2015 PSP
award having an outcome at 67 per cent of the maximum.
This is the first PSP award where there is also an additional
two year holding period. This applies until the end of 2019.
The financial target for the 2017 annual incentive plan set at
the beginning of the year was for an IAG operating profit
before exceptional items of €2.67bn. Strong financial
performance during this year has led to IAG operating profit
exceeding the stretch target and therefore paying out at the
maximum level for the two-thirds portion linked to financial
performance. The result for Net Promoter Score was slightly
above the on-target level – most airlines had customer
performance above their target.
Decisions during 2017
The current Remuneration Policy has been in place for the
last three years, having been approved at the 2015 annual
Shareholders’ Meeting. The Committee has undertaken a
thorough review of the policy and its implementation for 2018
onwards, to ensure it is appropriate in the light of the
feedback already received from shareholders and proxy
advisers, as well as considering best practices and market
trends. After this review, we have concluded that the core
elements of our current remuneration policy remain fit for
purpose, and we are not proposing substantial changes to
the policy. However, we did find that there were some
changes and clarifications that we believe are appropriate.
The main changes we are proposing are:
• Performance measures. In the annual bonus, we are
proposing that the weighting of financial measures
(currently IAG operating profit) will be at least 60 per
cent and no more than 80 per cent to provide more
flexibility than previously when a fixed 66.7 per cent was
subject to financial measures. The weighting on role-
specific objectives will not exceed 25 per cent (currently
33.3 per cent) and any remaining portion of the bonus
will be linked to measurable non-financial measures (e.g.
Net Promoter Score).
• Pension. Pension contributions for new externally
recruited executive directors will be reduced from 25 per
cent to 15 per cent of basic salary. This aligns with what is
offered to new, externally recruited senior managers.
• Long-term incentive opportunity. In line with shareholder
feedback previously received, we plan to remove from
the policy the additional headroom incorporated into the
PSP for exceptional circumstances, which was set at a
300 per cent limit. The maximum PSP opportunity will be
capped at 200 per cent of salary, in line with the current
opportunity for the CEO of IAG.
• Shareholding requirements. Shareholding requirement
will be increased to 350 per cent of salary (from 250 per
cent of salary) for the CEO of IAG to ensure substantial
alignment with shareholders. Shareholding requirement
will remain at 200 per cent for other executive directors.
Working with shareholders
We have met with many of the largest shareholders over the
past year, and we appreciate their constructive comments
about remuneration in general and our consideration about
changes in our current policy. They were in our minds as we
were reviewing what was considered best practice, and we
were very pleased with the support for our final
Remuneration Policy changes. Our overall intention has been
to ensure that we would have a strong alignment to our
strategy because we think that is the way to creation of long-
term, sustainable shareholder value.
In line with legal requirements, our remuneration policy will be
put forward to a binding shareholder vote at the 2018 annual
Shareholders’ Meeting. As a Committee, we welcome your
suggestions and are happy to continue to engage
constructively with our major shareholders and other
representative bodies during 2018.
Approved by the Board and signed on its behalf by
Dame Marjorie Scardino
Chairman of the Remuneration Committee
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Report of the Remuneration Committee continued
AT A GLANCE
Implementation of remuneration policy in 2017
The following two charts show Company performance for the two corporate measures in the 2017 annual incentive plan.
The strong financial performance and good customer performance has resulted in 100 per cent and 60 per cent vesting:
IAG Operating Profit (before exceptional items)
Net Promoter Score
Target Range for
the 2017 Annual
Incentive Plan
Actual 2017
Performance
2.4
€bn
Vesting (%)
0%
THRESHOLD
TARGET
MAXIMUM
2.5
2.67
2.84
Target Range for
the 2017 Annual
Incentive Award
0
3.015
Actual 2017
Performance
THRESHOLD
TARGET
MAXIMUM
15
16.5
18
16.8
2.5
2.6
2.7
2.8
2.9
3.0
10
12
14
16
18
20
100%
Vesting (%)
60%
TBD
0
20
40
60
80
100
0
20
40
60
80
100
The following four charts show Company performance for the three performance measures in the 2015 PSP award, and share
price performance.
Total Shareholder Return
Share Price
Target Range for
the 2015 PSP
Award
Actual 2015-2017
Performance
-4%
THRESHOLD
MAXIMUM
0
8
-10
0
Outperformance of the Index (% p.a.)
-5
5
10
Vesting (%)
0%
15
20
January 2015
PSP Award
Date
(May 2015)
December 2017
486
550
651
0
20
40
60
80
100
0
100
200
300
400
500
600
700
Pence
Strong EPS and return performance in 2017 has resulted in very good vesting levels for the following two measures in the 2015 PSP
award:
Adjusted Earnings per Share
Return on Invested Capital
Target Range for
the 2015 PSP
Award
0
Actual 2017
Performance
0
20
Euro Cents
Vesting (%)
THRESHOLD
MAXIMUM
THRESHOLD
MAXIMUM
70
100
102.8
40
60
80
100
120
Target Range for
the 2015 PSP
Award
0
Actual 2017
Performance
10
%
12
15
11
12
13
14
15
16
16.0
100%
Vesting (%)
100%
0
20
40
60
80
100
0
20
40
60
80
100
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Report of the Remuneration Committee continued
AT A GLANCE
Implementation of remuneration policy in 2017
The following two charts show Company performance for the two corporate measures in the 2017 annual incentive plan.
The strong financial performance and good customer performance has resulted in 100 per cent and 60 per cent vesting:
The following four charts show Company performance for the three performance measures in the 2015 PSP award, and share
price performance.
Strong EPS and return performance in 2017 has resulted in very good vesting levels for the following two measures in the 2015 PSP
award:
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, are competitive, and take into account each individual’s
performance of their role in the Company’s work.
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 the proposed
future remuneration policy.
Introduction
The Remuneration Committee takes responsibility for the
preparation of the report, which is approved by the Board.
The Company’s current policy on directors’ remuneration
was approved by shareholders at the annual Shareholders’
Meeting on June 18, 2015. During 2017, the Committee has
undertaken a thorough review of all aspects of the policy
and the following pages show the proposed future
remuneration policy.
As a Spanish incorporated company, IAG is subject to
Spanish corporate law. The Spanish legal regime regarding
directors’ remuneration is substantially parallel to that of the
UK as far as directors´ remuneration disclosure and approval
requirements are concerned.
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 UK DRR and the Spanish DRR are totally
consistent. The Spanish DRR, prepared in accordance with
Spanish legislation, is available on the Company’s website,
and the Spanish National Securities Market Commission’s
website.
In addition to the Remuneration Committee Chairman’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.
• The second section, the Annual Report on Remuneration,
covers the information on directors’ remuneration paid in
the reported year.
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Report of the Remuneration Committee continued
The table below summarises the main elements of remuneration packages for the executive directors:
Maximum opportunity
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. Each performance metric in
the incentive plan is independent.
For each performance metric in
the incentive plan, there will be no
payment at all until performance
for that particular metric has
reached the threshold level of the
target range, 50 per cent of the
maximum will be awarded for on-
target performance, and the
maximum for each element will only
be awarded once a stretch target
has been reached.
Performance metrics
Individual and business
performance are
considered in reviewing
and setting base salary.
At least 60 per cent and
no more than 80 per cent
of the annual incentive is
subject to financial
measures (e.g. IAG
operating profit). The
weighting on role-specific
objectives will not exceed
25 per cent, and any
remaining portion will be
subject to measurable
non-financial metrics (e.g.
Net Promoter Score).
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
Base salary
To attract
and retain
talent to help
achieve our
strategic
objectives
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
Operation of element of policy
Takes account of role, skills and contribution.
The positioning of base salaries is set with
reference to the external market, as well as
the individual’s skills and contribution.
Basic salaries are reviewed annually, to take
effect on January 1 each year.
The Board, on a recommendation from the
Committee, sets the financial and non-
financial targets that apply to the annual
incentive award 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 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
performance of other executive directors
against their role-specific objectives. All
performance evaluations for executive
directors 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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Purpose and
link to strategy 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 at least two years.
Malus and clawback provisions apply –
see below.
Life insurance, personal travel and, where
applicable, a company car, fuel, and private
health insurance.
Where appropriate, benefits may include
relocation and international assignment costs.
The Company operates a defined contribution
scheme as a percentage of salary, and all
executive directors are eligible for membership.
Executives can opt instead to receive a salary
supplement in lieu of a pension.
Performance
Share Plan
(PSP)
Incentivises
long-term
shareholder
value creation.
Drives and
rewards
delivery of
sustained
TSR and
financial
performance
Taxable
benefits
Ensures total
package is
competitive
Pension
Provides
post-
retirement
remuneration
and ensures
total package
is competitive
Maximum opportunity
The face value of awards will not
exceed 200 per cent of salary in
respect of any financial year of
the Company.
At the threshold level of the
performance target range, no more
than 25 per cent will vest.
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
the Company’s share price
performance compared
with an index of other
companies who are
subject to external
influences impacting
share price similar to
those of IAG.
One or more measures
will provide a strong
indicator of the underlying
financial performance of
the business.
There is no formal maximum. The
Company determines benefits
policy by taking into account
company affordability, and with
reference to the external market.
The maximum level of employer
contribution for new externally
recruited executive directors will be
15 per cent of basic salary. For
current executive directors and also
for internal promotions who are
already on a 25 per cent
contribution rate, the employer
contribution will remain at their
contractual level.
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 350 per cent of basic
salary, and other executive directors are required to build up and
maintain a shareholding of 200 per cent of basic salary. These
requirements will not be reduced during the lifetime of this
policy; however the Remuneration Committee may consider
increasing the percentages if it is deemed appropriate.
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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Report of the Remuneration Committee continued
Malus and clawback provisions
The Board, following the advice of the Committee, has authority under the malus provisions of the PSP and the Incentive Award
Deferral Plan to reduce or cancel awards before they vest, and authority under the clawback provisions of the PSP 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.
Underlying financial performance
This is defined as the overall performance of the Company, which may be considered with reference to a range of measures as the
Remuneration Committee considers most appropriate at the time.
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.
Taxable
benefits
Operation of element of policy
Fees are set with reference to market positioning.
To acknowledge the key role of Non-Executive Chairman, fees are set
separately for this role. There is also an additional fee paid to the non-
executive director for undertaking the role of Senior Independent
Director, and also 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.
Non-executive directors (including the Chairman) are entitled to use
air tickets of the airlines of the Company or related to the Company in
accordance with the terms and conditions established in the Company
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 terms and conditions
established in the Company travel scheme.
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.
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 of the Group’s companies support the delivery of the
Group’s long-term goals.
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 participate 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 annual 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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Notes on the above forward-looking policy tables
The Committee may make any remuneration payments and payments for loss of office (and exercise any discretions available to it
in connection with such payments) which are not in line with the remuneration policy set out above, where the terms of the
payment were agreed (i) before the policy came into effect (provided that they were in line with any applicable directors’
remuneration policy in force at the time they were agreed) 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 of the individual becoming a director of the
Company. For these purposes ‘payments’ include the Committee satisfying awards of variable remuneration. In relation to a share
award, the terms of the payment are agreed at the time the award is granted.
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 2018 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 (2018 level of €974,000), plus
taxable benefits (2017 actual of €29,000) plus pension related
benefits (2017 actual of €244,000).
Chief Financial Officer of IAG
Fixed remuneration is basic salary (2018 level of €638,000), plus
taxable benefits (2017 actual of €23,000) plus pension related
benefits (2017 actual of €157,000).
The annual incentive amount is zero at the minimum
remuneration level, €974,000 at the on-target level (100
per cent of salary), and €1,948,000 at maximum (200 per
cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €974,000 at the on-target level (half of the
face value award of 200 per cent of salary) and €1,948,000 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 1.1461
The annual incentive amount is zero at the minimum
remuneration level, €479,000 at the on-target level (75 per cent
of salary), and €957,000 at maximum (150 per cent of salary).
The long-term incentive amount is zero at the minimum
remuneration level, €479,000 at the on-target level (half of the
face value award of 150 per cent of salary) and €957,000 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 1.1461
€000
€000
Maximum
1,247
(24%)
1,948
(38%)
1,948
(38%)
5,143
Maximum
818
(30%)
957
(35%)
957
(35%)
2,732
On-target
1,247
(40%)
974
(30%)
974
(30%)
3,195
On-target
818 479 479
(46%) (27%)(27%)
1,776
Minimum
1,247
1,247
Minimum
818 818
0
1000
2000
3000
4000
5000
6000
0
1000
2000
3000
4000
5000
6000
Fixed remuneration
Annual Incentive
Long Term Incentive
Fixed remuneration
Annual Incentive
Long Term Incentive
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Report of the Remuneration Committee continued
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
Willie Walsh
January 21, 2011
Enrique Dupuy de Lôme January 21, 2011
Notice period
12 months
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 its 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) 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
year. The dates of the Chairman’s and current non-executive
directors’ appointments are as follows:
Non-executive director
Antonio Vázquez
Patrick Cescau
James Lawrence
Kieran Poynter
Alberto Terol
Dame Marjorie Scardino
María Fernanda Mejía
Marc Bolland
Emilio Saracho
Nicola Shaw
Date of the first appointment
May 25, 2010
September 27, 2010
September 27, 2010
September 27, 2010
June 20, 2013
December 19, 2013
February 27, 2014
June 16, 2016
June 16, 2016
January 1, 20181
Date of last re-election
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
June 15, 2017
–
1 Appointment approved by the annual Shareholders’ Meeting 2017 on June 15, 2017 but effective January 1, 2018.
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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 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. The Company allows
the executive to retain any fee from such appointments.
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 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.
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Report of the Remuneration Committee continued
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 occasionally considering remuneration matters of 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. Dame Marjorie Scardino is
Chairman of the 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 2017, the Committee met five times and discussed, amongst others, the following matters:
Meeting
January
February
May
July
October
Agenda items discussed
Review of IAG Management Committee members’ basic salaries
Approval of the 2017 annual incentive plan, including approval of the inclusion of a customer measure
Approval of the 2017 Performance Share Plan
2016 annual incentive plan payments to IAG Management Committee members
Vesting outcome of the Performance Share Plan 2014 award
Final review of 2016 Directors’ Remuneration Report
Approval of remuneration for a new Management Committee member
Preparation for the AGM
Initial review of the new remuneration policy
Executive remuneration market update
Remuneration strategy for 2018, and review of the new remuneration policy
Advisers to the Committee
The Committee appointed Deloitte as its external adviser in
September 2016. Deloitte report directly to the Committee. The
fees paid to Deloitte for advice provided to the Remuneration
Committee during 2017 were €49,280, charged on a time and
materials basis. Deloitte is a member of the Remuneration
Consultants Group and a signatory to the voluntary UK Code of
Conduct. As well as advising the Remuneration Committee,
other Deloitte teams provided advice in relation to remuneration,
pensions, global employment programmes, data governance,
internal audit and tax to the Group in 2017. The Committee has
reviewed the remuneration advice provided by Deloitte during
the year and is comfortable that it has been objective and
independent.
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.
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Report of the Remuneration Committee continued
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 occasionally considering remuneration matters of 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. Dame Marjorie Scardino is
Chairman of the 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 2017, the Committee met five times and discussed, amongst others, the following matters:
Meeting
January
Agenda items discussed
Review of IAG Management Committee members’ basic salaries
Approval of the 2017 annual incentive plan, including approval of the inclusion of a customer measure
Approval of the 2017 Performance Share Plan
February
2016 annual incentive plan payments to IAG Management Committee members
May
July
Vesting outcome of the Performance Share Plan 2014 award
Final review of 2016 Directors’ Remuneration Report
Approval of remuneration for a new Management Committee member
Preparation for the AGM
Initial review of the new remuneration policy
October
Executive remuneration market update
Remuneration strategy for 2018, and review of the new remuneration policy
Advisers to the Committee
The Committee appointed Deloitte as its external adviser in
pensions, global employment programmes, data governance,
September 2016. Deloitte report directly to the Committee. The
internal audit and tax to the Group in 2017. The Committee has
fees paid to Deloitte for advice provided to the Remuneration
reviewed the remuneration advice provided by Deloitte during
Committee during 2017 were €49,280, charged on a time and
the year and is comfortable that it has been objective and
materials basis. Deloitte is a member of the Remuneration
independent.
Consultants Group and a signatory to the voluntary UK Code of
Conduct. As well as advising the Remuneration Committee,
other Deloitte teams provided advice in relation to remuneration,
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.
Single total figure of remuneration for each director
Subject to full audit
Non-executive directors
Director
(€’000)
Antonio Vázquez1
Sir Martin Broughton2
Patrick Cescau3
César Alierta2
Marc Bolland4
Baroness Kingsmill5
James Lawrence6
María Fernanda Mejía
Kieran Poynter
Emilio Saracho4
Dame Marjorie Scardino
Alberto Terol
Total (€’000)
2017 fees
645
–
150
–
120
55
120
120
140
120
140
120
1,730
Taxable
benefits
35
–
47
–
6
12
13
17
21
26
89
36
302
Total for year to
December 31,
2017
680
–
197
–
126
67
133
137
161
146
229
156
2,032
2016 fees
511
162
136
55
65
120
129
120
131
65
140
120
1,754
Taxable
benefits
35
33
22
–
–
27
9
3
35
4
55
33
256
Total for year to
December 31,
2016
546
195
158
55
65
147
138
123
166
69
195
153
2,010
1 Antonio Vázquez took a voluntary 25 per cent reduction in his fee from December 1, 2012 until October 31, 2016.
2 Retired from the Board on June 16, 2016.
3 Patrick Cescau was appointed as Senior Independent Director on June 16, 2016.
4 Joined the Board on June 16, 2016.
5 Baroness Kingsmill retired from the Board on June 15, 2017.
6 James Lawrence chaired the Audit and Compliance Committee until June 16, 2016 when he was replaced in this position by Kieran Poynter.
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, 2017, €:£ exchange rate applied is 1.1461 (2016: 1.2347).
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.
2017
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,
2017
850
974
547
627
1,601
25
29
20
23
52
213
244
137
157
401
1,580
1,810
732
839
1,286
1,474
467
535
2,649
2,009
3,954
4,531
1,903
2,181
6,712
1 Willie Walsh and Enrique Dupuy de Lôme remuneration is paid in sterling and expressed in euro for information purposes only.
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Report of the Remuneration Committee continued
Additional explanations in respect of the single total figure table for 2017
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, 2017 (accrued at December 31, 2017, but cash payments (50 per cent of the award) not paid
until March 2018). 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 2017 annual incentive plan, these will vest in March 2021.
Long-term incentive vesting
This relates to the IAG PSP 2015 award based on performance measured to December 31, 2017, although the shares vested will not be delivered until March
2018. For the purposes of this table, the award has been valued using the average share price in the three months to December 31, 2017 of 624.0 pence.
The outcomes of the performance conditions which determined vesting are described below.
For the year to December 31, 2017, €:£ exchange rate applied is 1.1461 (2016: 1.2347).
2016
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,
2016
850
1,049
536
662
1,711
24
30
19
23
53
213
263
134
165
428
567
700
241
298
998
808
998
294
363
1,361
2,462
3,040
1,224
1,511
4,551
1 Willie Walsh and Enrique Dupuy de Lôme remuneration is paid in sterling and expressed in euro for information purposes only.
Life Insurance
The Company provides life insurance for all executive directors. For the year to December 31, 2017 the Company paid contributions
of €16,839 (2016: €18,555).
Variable pay outcomes
Subject to audit
2017 Annual Incentive Plan
At the beginning of 2017, the Board, upon a recommendation by the Committee, set IAG operating profit before exceptional items
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, outcomes were calculated based on a customer measure which had been
introduced to the annual incentive plan for the first time (Net Promoter Score, with a weighting of 8.33 per cent), and personal
performance against objectives (weighting of 25 per cent). NPS is used to gauge the loyalty of the Group’s customer relationships. It
is calculated based on survey responses, by subtracting the percentage of customers who are ‘Detractors’ from the percentage of
customers who are ‘Promoters’. 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 22, 2018.
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 150 per cent of salary (75 per cent of salary for on-target performance).
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The outcomes of the performance conditions were as follows:
Measure
IAG operating profit
(before exceptional items)
(66.67 per cent)
Role-specific objectives
(33.33 per cent), of which:
Group Net Promoter Score
(8.33 per cent)
Personal performance
against objectives
(25 per cent)
Details of any discretion
exercised
Overall outcome
Payout
per cent of
maximum awarded
Outcomes versus targets
per cent of
maximum awarded
Outcomes versus targets
per cent of
maximum awarded
Chief Executive Officer of IAG
€1,298,913
£1,133,333
100 per cent
Please see below for details of
the performance target ranges
€97,419
£85,000
Please see below for details of
the performance target ranges
Chief Financial Officer of IAG
€626,917
£547,000
100 per cent
Please see below for details of
the performance target ranges
€47,019
£41,025
Please see below for details of
the performance target ranges
60 per cent
60 per cent
€419,029
£361,250
Please see below for details of
the extent of the achievement
of objectives.
85 per cent
€164,566
£143,588
Please see below for details of
the extent of the achievement
of objectives.
70 per cent
€1,810,361
£1,579,583
€838,502
£731,613
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 2017 (two-thirds
of the annual incentive) exceeded the stretch target level, and
therefore this has resulted in the maximum paying out for this
element of the incentive (2016: 0 per cent). The target range for
2017 was as follows: the threshold level at which payments
would begin was €2,500 million, the on-target level at which
50 per cent of the maximum would pay out was €2,670 million,
and the stretch target level at which the maximum would pay
out was €2,840 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. Net
Promoter Score for 2017 achieved 16.8, and this is between the
on-target level and the stretch target level, resulting in a pay-out
of 60 per cent of the maximum for this element. The target
range for 2017 was as follows: the threshold level at which
payments would begin was 15.0, the on-target level at which
50 per cent of the maximum would pay out was 16.5, and the
stretch target level at which the maximum would pay out was
18.0. 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.
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Report of the Remuneration Committee continued
Personal Performance
In assessing personal performance, the Committee considers a range of factors to ensure there is a holistic and detailed
assessment of the executive directors’ contribution to the overall strategic priorities of the Group. This is summarised below
for executive directors:
Unrivalled
customer
propositions
1
Strengthening
a portfolio
of world-class
brands and
operations
2
Growing global
leadership
positions
3
Enhancing
IAG’s common
integrated
platform
Efficiency
and
innovation
Value
accretive
and sustainable
growth
Chief Executive Officer of IAG
Unrivalled customer proposition
Chief Financial Officer of IAG
Unrivalled customer proposition
Leading the successful launch of LEVEL in record time
•
• Sustained focus and actions across all airlines to improve
customer experience, and strengthen our brand portfolio
• Drive Net Promoter Score (NPS) performance
• Personally ensuring the Group learns from the power
outage challenge and formulating and executing a
comprehensive plan to improve business continuity
planning and Group IT resilience
• Bringing digital initiatives to winning outcomes that
better address customer needs e.g. New Distribution
Capability (NDC), Hangar 51, Commercial in-flight
Value accretive and sustainable growth
• Under Willie Walsh’s leadership the Group delivered a
strong performance in 2017 with operating profit up 18.9%
vs last year and all airlines delivering their best financial
performance ever
• Overseeing the turnaround in Vueling, which has restored
operational and financial performance
Efficiency and innovation
• Continued to reap efficiencies, driving organisational
•
health and culture
Leveraging the IAG Platform with both Aer Lingus and
Vueling now fully integrated under his leadership
• Continued progress in fleet harmonisation and capturing
maintenance opportunities
• Focussed investment to support enhancing the value of
•
our brands and customer proposition and investing in the
resilience of our business models
Leveraging the strong positions in our main strategic
markets and developing our new corporate units such
as LEVEL
Value accretive and sustainable growth
• Supporting the CEO as the Group delivered a strong
performance in 2017 with operating profit up 18.9% vs last
year and all airlines delivering their best financial
performance ever
• Under his leadership, the Company significantly
increased shareholder cash potential, delivering
sustainable returns to shareholders in excess of
€1 billion in 2017
• Ensuring the Company maintains a strong balance
sheet leading to a high level of financial strength and
liquidity to enable improved shareholder returns and
M&A opportunities
Efficiency and innovation
• Driving improved asset utilisation and capex efficiencies,
leading to a better return on investment
• Continuing the development of the IAG platform to
create future value and delivering operating company
cost cutting and efficiency plans
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IAG PSP award 2015
The IAG PSP award granted on May 28, 2015 was tested at the end of the performance period which began on January 1, 2015 and
ended on December 31, 2017. 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.
One-third of the award was subject to a TSR performance condition measured against an index, one-third subject to achievement of
the Company’s adjusted EPS targets (diluted EPS, adjusted for exceptional items), and one-third subject to a RoIC performance
condition. 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
TSR performance compared to the TSR
performance of the MSCI European
Transportation (large and mid-cap)
index (one-third)
Threshold
IAG’s TSR
performance equal
to the index (25 per
cent of award vests)
Adjusted earnings per share (EPS)
(one-third)
Return on Invested Capital (RoIC)
(one-third)
Details of any discretion exercised
Overall outcome
2017 EPS of 70
€cents (10 per cent
of award vests)
2017 RoIC of 12 per
cent (10 per cent of
award vests)
Maximum
IAG’s TSR
performance
exceeds index by 8
per cent p.a. (100
per cent of award
vests)
2017 EPS of 100
€cents (100 per
cent of award vests)
2017 RoIC of 15 per
cent (100 per cent
of award vests)
Vesting (as per cent
award granted in 2015)
0 per cent
Outcome
IAG
underperformed the
index by 4 per cent
p.a.
102.8 €cents
100 per cent
16.0 per cent
100 per cent
66.67 per cent
IAG PSP award 2014
The IAG PSP award granted on March 6, 2014 was tested at the end of the performance period which began on January 1, 2014 and
ended on December 31, 2016. 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 (as defined above in the 2015 award)
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
TSR performance compared to the TSR
performance of the MSCI European
Transportation (large and mid-cap)
index (50 per cent)
Threshold
IAG’s TSR
performance equal
to the index (25 per
cent of award vests)
Adjusted earnings per share (EPS)
(50 per cent)
Details of any discretion exercised
Overall outcome
2016 EPS of 34
€cents (10 per cent
of award vests)
Maximum
IAG’s TSR
performance
exceeds index by
8 per cent p.a.
(100 per cent of
award vests)
2016 EPS of 56
€cents (100 per
cent of award vests)
Vesting (as per cent
award granted in 2014)
0 per cent
Outcome
IAG
underperformed
the index by 3 per
cent p.a.
90.2 €cents
100 per cent
50 per cent
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Report of the Remuneration Committee continued
Scheme interests awarded during the financial year
Subject to audit
The IAG 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 March 6, 2017. 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.
Earnings per share reflect 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 our shareholders.
The Company uses rolling Return on Invested Capital (RoIC) as a profitability indicator to assess efficient return on the Group’s asset
base. It quantifies how well the Group generates cash flow in relation to the capital invested in the business together with its ability
to fund growth and to pay dividends.
PSP 2017 – eligibility, metrics and targets
Type of award
Basis of determination of the
size of award
Face value awarded (per cent
of salary)
Grant price
Performance period
Performance conditions
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 – 150 per cent
£5.46
January 1, 2017 to December 31, 2019
Adjusted EPS performance
targets
RoIC performance targets
Weighting
Threshold
Target
Maximum
One-third
2019 EPS of 100 €cents
10 per cent vests
One-third
2019 RoIC of 12 per cent
10 per cent vests
2019 EPS between 100 €cents
and 130 €cents
(straight line vesting between
threshold and maximum)
2019 RoIC between 12 per
cent and 15 per cent
(straight line vesting between
threshold and maximum)
2019 EPS of 130 €cents
100 per cent vests
2019 RoIC of 15 per cent
100 per cent vests
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
Holding period
Additional period of two years after the performance period
Adjusted EPS measure is as defined for the 2015 PSP award earlier in the report. 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
Willie Walsh was a member of the Company’s pension scheme until March 31, 2016. The Company did not pay any contributions
during the reporting period (2016: £9,987). He received cash in lieu of contributions of £212,500 (2016: £202,513).
Enrique Dupuy de Lôme is not a member of the Company’s pension scheme, and the Company therefore did not pay any
contributions during the reporting period (2016: zero). He received cash in lieu of contributions of £136,750 (2016: £133,950).
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Report of the Remuneration Committee continued
Scheme interests awarded during the financial year
Subject to audit
The IAG 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 March 6, 2017. 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.
Earnings per share reflect 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 our shareholders.
The Company uses rolling Return on Invested Capital (RoIC) as a profitability indicator to assess efficient return on the Group’s asset
base. It quantifies how well the Group generates cash flow in relation to the capital invested in the business together with its ability
to fund growth and to pay dividends.
PSP 2017 – eligibility, metrics and targets
Type of award
Shares
Basis of determination of the
Awards only made to those executives who are consistently high-performing, and/or are in key
size of award
roles, and/or whom the Company wishes to retain in the long term.
Face value awarded (per cent
CEO of IAG – 200 per cent
Other executive directors – 150 per cent
Performance period
January 1, 2017 to December 31, 2019
Performance conditions
Adjusted EPS performance
RoIC performance targets
TSR performance compared to
£5.46
targets
the TSR performance of the
MSCI European Transportation
(large and mid-cap) index
One-third
One-third
One-third
2019 EPS of 100 €cents
2019 RoIC of 12 per cent
IAG’s TSR performance equal
10 per cent vests
10 per cent vests
to the index
25 per cent vests
2019 EPS between 100 €cents
2019 RoIC between 12 per
IAG’s TSR performance
and 130 €cents
(straight line vesting between
threshold and maximum)
cent and 15 per cent
between index return and 8
(straight line vesting between
per cent p.a. outperformance
threshold and maximum)
(straight line vesting between
of salary)
Grant price
Weighting
Threshold
Target
Maximum
2019 EPS of 130 €cents
2019 RoIC of 15 per cent
IAG’s TSR performance
100 per cent vests
100 per cent vests
threshold and maximum)
exceeds index
by 8 per cent p.a.
100 per cent vests
Holding period
Additional period of two years after the performance period
Adjusted EPS measure is as defined for the 2015 PSP award earlier in the report. 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
Willie Walsh was a member of the Company’s pension scheme until March 31, 2016. The Company did not pay any contributions
during the reporting period (2016: £9,987). He received cash in lieu of contributions of £212,500 (2016: £202,513).
Enrique Dupuy de Lôme is not a member of the Company’s pension scheme, and the Company therefore did not pay any
contributions during the reporting period (2016: zero). He received cash in lieu of contributions of £136,750 (2016: £133,950).
Payments for loss of office
No executive directors have left office during 2017. There were no payments made to non-executive directors after they left office
during 2017.
Payments to past directors
José Pedro Pérez-Llorca received travel benefits worth €4,940 during 2017 after he had left the Company.
Baroness Kingsmill received travel benefits worth €10,788 during 2017 after she had left the Company.
Statement of voting
The table below shows the consultative vote on the 2016 annual Directors’ Remuneration Report at the 2017 annual Shareholders’
Meeting, and the binding vote on the Directors’ Remuneration Policy at the 2015 annual Shareholders’ Meeting:
2016 Annual Directors’
Remuneration Report
Directors’ Remuneration Policy
Number of votes cast
1,419,239,541
1,313,200,803
For
1,246,756,022
(87.847 per cent)
973,503,807
(74.132 per cent)
Against
120,810,395
(8.512 per cent)
49,560,764
(3.774 per cent)
Abstentions/Blank
51,673,124
(3.641 per cent)
290,136,232
(22.094 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. This will increase to 350 per cent of salary from 2018, subject to shareholder approval of the new Directors’ Remuneration
Policy at the 2018 annual Shareholders’ Meeting. 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 four 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, 2017:
Executive director
Willie Walsh
Enrique Dupuy
de Lôme
Shareholding
requirement
250 per cent of
salary (350 per
cent of salary
from 2018)
200 per cent of
salary
Shares
owned
72,000
Shares already
vested from
performance
share plans
1,562,759
Shares already
vested from
deferred annual
incentive plans
209,781
Unvested shares
from deferred
annual
incentive plans
174,209
Total qualifying
shareholding
2,018,749
(1,116 per cent of salary)
100
452,305
81,013
62,008
595,426
(569 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. He is also a member of the IATA Board of Governors. Enrique Dupuy de Lôme is Chairman of Iberia Cards.
Non-executive directors
Non-executive directors are paid a flat fee each year. The Non-Executive Chairman’s fee is €645,000, and this was voluntarily
reduced by 25 per cent to €483,750 from December 1, 2012 until October 31, 2016. Other non-executive directors have a fee of
€120,000. The additional fee for holding a Committee chairmanship is €20,000, and the additional fee for discharging the functions
of Senior Independent Director is €30,000.
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In relation to the Chairman, as set out in the British Airways and 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
Willie Walsh
Marc Bolland
Patrick Cescau
Enrique Dupuy de Lôme
James Lawrence1
María Fernanda Mejía
Kieran Poynter
Emilio Saracho
Dame Marjorie Scardino
Alberto Terol
Total
Total shares and
voting rights
512,291
1,844,540
0
0
533,418
752,300
100
15,000
0
100
26,537
3,684,286
Percentage
of capital
0.025
0.090
0.000
0.000
0.026
0.037
0.000
0.001
0.000
0.000
0.001
0.179
1 Held as IAG ADSs (one IAG ADS equals two IAG shares).
There have been no changes to the shareholdings set out above between December 31, 2017 and the date of this report, other than
Nicola Shaw (joined the Board on January 1, 2018) who purchased 1,495 shares on January 2, 2018.
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, 2017, 2.33 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, 2017 were:
At December 31 2017
Highest in the period
Lowest in the period
651p
670p
441p
Company performance graph and Chief Executive Officer of IAG ‘single figure’ table
The chart shows the value by December 31, 2017 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.
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upon exit from the Company for any reason.
Directors’ interests in shares
Subject to audit
Antonio Vázquez
Willie Walsh
Marc Bolland
Patrick Cescau
Enrique Dupuy de Lôme
James Lawrence1
María Fernanda Mejía
Kieran Poynter
Emilio Saracho
Alberto Terol
Total
Dame Marjorie Scardino
Total shares and
voting rights
Percentage
of capital
512,291
1,844,540
0
0
533,418
752,300
100
15,000
0
100
26,537
3,684,286
0.025
0.090
0.000
0.000
0.026
0.037
0.000
0.001
0.000
0.000
0.001
0.179
651p
670p
441p
1 Held as IAG ADSs (one IAG ADS equals two IAG shares).
There have been no changes to the shareholdings set out above between December 31, 2017 and the date of this report, other than
Nicola Shaw (joined the Board on January 1, 2018) who purchased 1,495 shares on January 2, 2018.
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, 2017, 2.33 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, 2017 were:
At December 31 2017
Highest in the period
Lowest in the period
Company performance graph and Chief Executive Officer of IAG ‘single figure’ table
The chart shows the value by December 31, 2017 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.
In relation to the Chairman, as set out in the British Airways and 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
IAG’s total shareholder return (TSR) performance compared to the FTSE 100
The table below shows the CEO ‘single total figure’ of remuneration for each year since the creation of IAG in January 2011:
300
250
200
150
100
50
0
Jan 2011
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Dec 2016
Dec 2017
IAG
FTSE 100
2011
2012
2013
CEO of IAG – ‘total single figure’
of remuneration
£1,550,000
£1,083,000
£4,971,000
2014
£6,390,000
2015
£6,455,000
2016
£2,462,000
2017
£3,954,000
Annual incentive
Includes annual incentive payment of
£302,000 (18 per cent of maximum).
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 per cent of maximum).
Includes annual incentive payment
of £566,667 (33.33 per cent
of maximum).
Includes annual incentive payment
of £1,579,583 (92.92 per cent
of maximum).
Long-term incentive
Includes £251,594 value of long-term
incentives vesting (35 per cent of maximum).
Zero vesting of long-term incentives.
Includes £2,593,569 value of long-term
incentives vesting (100 per cent of
maximum).
Includes £3,640,135 value of long-term
incentives vesting (85 per cent of maximum).
Includes £4,405,185 value of long-term
incentives vesting (100 per cent
of maximum).
Includes £807,741 value of long-term
incentives vesting (50 per cent of maximum).
Includes £1,285,819 value of long-term
incentives vesting (66.67 per cent
of maximum).
Single total figure of remuneration includes basic salary, taxable benefits, pension related benefits, annual incentive award and
long-term incentive vesting.
2011 figure includes 20 days of remuneration in January 2011 paid by British Airways.
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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 2017 compared to 2016.
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 British Airways, 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
Annual
incentive
Chief Executive Officer of IAG
No basic salary increase for 2017.
UK employees
Basic salary awards in 2017 at UK companies in the Group
averaged around 2 per cent.
Increase from £566,667 in March 2017 (covering the
2016 performance period) to £1,579,583
in March 2018 (covering the 2017 performance
period). This represents a 179 per cent increase.
Changes in overall annual incentive payments for 2017 versus 2016
varied considerably around the Group, depending on the incentive
design, financial performance, and non-financial performance at
each individual company.
Taxable
benefits
No change in benefits policy.
Actual payments increased to £25,000 in 2017
from £24,000 in 2016.
No change in benefits policy.
Overall costs 2017 versus 2016 increased very slightly
in line with inflation.
Relative importance of spend on pay
The table below shows, for 2017 and 2016, 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
Total employee costs are before exceptional items.
Implementation of remuneration policy for 2018
2017
€4,740,000,000
€8,744,000
2016
€4,731,000,000
€6,561,000
€3,015,000,000 €2,535,000,000
€495,000,000
–
€256,000,000
€298,000,000
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 2018 (which varied across the
Group from 2 per cent to 4.1 per cent), the Board, following the recommendation of the Remuneration Committee, approved the
following:
Executive director
Chief Executive Officer of IAG
Chief Financial Officer of IAG
Basic salary review
£850,000 (€974,000) (no increase from 2017).
£557,000 (€638,000) (in UK sterling terms, an increase of 1.8% from 2017).
The Remuneration Committee recommended the Board to offer the Chief Executive Officer a salary increase in line with that
applied to other executives, however it was respectfully declined by him.
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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 2017 compared to 2016.
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 British Airways, 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
No basic salary increase for 2017.
Basic
salary
UK employees
Basic salary awards in 2017 at UK companies in the Group
averaged around 2 per cent.
Annual
Increase from £566,667 in March 2017 (covering the
Changes in overall annual incentive payments for 2017 versus 2016
incentive
2016 performance period) to £1,579,583
varied considerably around the Group, depending on the incentive
in March 2018 (covering the 2017 performance
design, financial performance, and non-financial performance at
period). This represents a 179 per cent increase.
each individual company.
Taxable
benefits
No change in benefits policy.
No change in benefits policy.
Actual payments increased to £25,000 in 2017
Overall costs 2017 versus 2016 increased very slightly
from £24,000 in 2016.
in line with inflation.
Relative importance of spend on pay
The table below shows, for 2017 and 2016, 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
Total employee costs are before exceptional items.
Implementation of remuneration policy for 2018
2017
2016
€4,740,000,000
€4,731,000,000
€8,744,000
€6,561,000
€3,015,000,000 €2,535,000,000
€256,000,000
€495,000,000
€298,000,000
–
Basic salary
following:
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 2018 (which varied across the
Group from 2 per cent to 4.1 per cent), the Board, following the recommendation of the Remuneration Committee, approved the
Executive director
Basic salary review
Chief Executive Officer of IAG
£850,000 (€974,000) (no increase from 2017).
Chief Financial Officer of IAG
£557,000 (€638,000) (in UK sterling terms, an increase of 1.8% from 2017).
The Remuneration Committee recommended the Board to offer the Chief Executive Officer a salary increase in line with that
applied to other executives, however it was respectfully declined by him.
2018 annual incentive plan
The design of the 2018 annual incentive plan is part of the new Remuneration Policy, and is subject to approval at the 2018 annual
Shareholders’ Meeting. For 2018, 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. The weighting for the IAG operating profit (before exceptional items) measure
will be 60 per cent, and for role-specific objectives will be 25 per cent. The remaining 15 per cent weighting will be for the Net
Promoter Score (NPS) measure. The Board, after considering the recommendation of the Committee, has approved a stretching
target range for IAG operating profit and NPS for 2018 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 pay out at the
stretch target level. 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 for IAG operating profit will not be disclosed until after the end of the performance year. It
will be disclosed in next year’s Remuneration Report.
2018 Performance Share Plan award
The Board, on the Committee’s recommendation, has approved a PSP award for 2018, with a performance period of January 1, 2018
to December 31, 2020.
For 2018, 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 and weightings that were used in 2015, 2016 and 2017. The reasons for the Board considering these
measures to be appropriate are the same reasons as those mentioned for the 2017 PSP award earlier in the report.
The first is based on IAG TSR performance relative to the MSCI European Transportation Index. The target range is identical to 2017,
and is outlined earlier in this report.
The second performance condition is based on adjusted EPS (as defined in the 2015 award). The Board and the Committee have
agreed that the adjusted earnings per share (EPS) target range for the 2018 PSP award will be increased compared to the 2017 PSP
award. The adjusted EPS measure will be as follows:
Weighting
Threshold
Target (straight line vesting between threshold and maximum)
Maximum
One-third
2020 adjusted EPS of 130 €cents
10 per cent vests
2020 adjusted EPS between 130 €cents and 170 €cents
2020 adjusted EPS of 170 €cents
100 per cent vests
The third performance condition is RoIC. The measure will be as follows:
Weighting
Threshold
Target
(straight line vesting between threshold and maximum)
Maximum
One-third
2020 RoIC of 13 per cent
10 per cent vests
2020 RoIC between 13 per cent and 16 per cent
2020 RoIC of 16 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.
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Taxable benefits and pension related benefits
Taxable benefits remain unchanged for 2018. Pension related benefits as a percentage of basic salary will decrease for new
externally recruited executive directors as stated in the remuneration policy.
Non-executive director fees
Non-executive director fees were reviewed in 2017 but remain unchanged for 2018. The fees have remained unchanged since 2011.
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, 2017
Awards
vested during
the year
Awards
lapsed during
the year
Awards
made during
the year
Number of
awards at
December 31, 2017
Executive directors
Willie Walsh
Enrique Dupuy
de Lôme
IAG PSP March 6, 2014
379,310
189,655
189,655
IAG PSP March 6, 2014
137,931
68,965
68,966
–
–
–
–
The award granted on March 6, 2014 was tested at the end of the performance period, and as a result 50 per cent of the award
vested, as detailed earlier in this report in the section on Variable pay outcomes.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2014 PSP award was 435
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,
2017
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
March 7,
2016
March 6,
2017
309,091
314,233
–
623,324
May 28,
2015
March 7,
2016
March 6,
2017
112,364
145,647
–
258,011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
311,355
311,355
–
–
147,198
147,198
Exercisable
from
Expiry date
January 1,
2020
January 1,
2021
January 1,
2022
December 31,
2024
December 31,
2025
December 31,
2026
January 1,
2020
January 1,
2021
January 1,
2022
December 31,
2024
December 31,
2025
December 31,
2026
Number of
options at
December 31,
2017
309,091
314,233
311,355
934,679
112,364
145,647
147,198
405,209
102
102
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Report of the Remuneration Committee continued
Taxable benefits and pension related benefits
Taxable benefits remain unchanged for 2018. Pension related benefits as a percentage of basic salary will decrease for new
externally recruited executive directors as stated in the remuneration policy.
Non-executive director fees were reviewed in 2017 but remain unchanged for 2018. The fees have remained unchanged since 2011.
Non-executive director fees
Supplementary information
Directors’ conditional awards
Executive directors
Willie Walsh
Enrique Dupuy
de Lôme
pence.
Directors’ share options
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, 2017
vested during
lapsed during
made during
Awards
Awards
Number of
awards at
the year
the year
December 31, 2017
Awards
the year
IAG PSP March 6, 2014
379,310
189,655
189,655
IAG PSP March 6, 2014
137,931
68,965
68,966
–
–
–
–
The award granted on March 6, 2014 was tested at the end of the performance period, and as a result 50 per cent of the award
vested, as detailed earlier in this report in the section on Variable pay outcomes.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2014 PSP award was 435
The following directors held nil-cost options over ordinary shares of the Company granted under the IAG PSP.
Director
Date of grant
2017
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,
2017
Executive directors
Willie Walsh
May 28,
309,091
2015
March 7,
314,233
623,324
311,355
934,679
2016
March 6,
2017
2015
2016
March 6,
2017
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
January 1,
December 31,
309,091
January 1,
December 31,
314,233
311,355
January 1,
December 31,
311,355
–
–
–
–
2020
2021
2022
2020
2021
2022
2024
2025
2026
2024
2025
2026
147,198
January 1,
December 31,
147,198
Enrique Dupuy de
May 28,
112,364
January 1,
December 31,
112,364
March 7,
145,647
January 1,
December 31,
145,647
Total
258,011
147,198
405,209
Total
Lôme
The performance conditions for each of these PSP awards above will be tested to determine the level of vesting. For each of
these awards, one-third of the award is subject to TSR performance measured against an index, one-third is subject to adjusted
EPS performance, and one-third is subject to RoIC performance. The performance conditions will be measured over a single
three year performance period. For each of these awards, 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 dates of the PSP awards were as
follows: 2017: 546 pence; 2016: 541 pence; and 2015: 550 pence.
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, 2014, December 31, 2015 and December 31, 2016).
Relates to
incentive award
earned in respect
of performance
Number of
awards at
January 1,
2017
Awards
released
during the
year
Date of
award
Awards
lapsing
during the
year
Awards
made
during the
year
Number of
awards at
December 31,
2017
Date of
vesting
Director
Executive
directors
Willie Walsh
Total
Enrique Dupuy
de Lôme
2013 March 6, 2014
2014 May 28, 2015
2015 March 7, 2016
2016 March 6, 2017
149,353
151,111
125,693
–
149,353 March 6, 2017
– March 8, 2018
– March 7, 2019
– March 6, 2020
426,157
149,353
2013 March 6, 2014
2014 May 28, 2015
2015 March 7, 2016
2016 March 6, 2017
50,862
50,252
44,665
–
50,862 March 6, 2017
– March 8, 2018
– March 7, 2019
– March 6, 2020
–
–
–
–
–
–
–
–
–
–
–
–
–
51,893
51,893
–
–
–
22,080
22,080
–
151,111
125,693
51,893
328,697
–
50,252
44,665
22,080
116,997
Total
145,779
50,862
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, or have left as a Good Leaver.
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2017 IADP award was
546 pence (2016: 541 pence; 2015: 550 pence; and 2014: 435 pence).
The value attributed to the Company’s ordinary shares in accordance with the plan rules on the date of the 2014 IADP award was
435 pence. The share price on the date of the vesting of this award (March 6, 2017) was 548.5 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.
102
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
103
103
www.iairgroup.comStrategic reportCorporate governanceFinancial statementsAdditional information
Financial Statements
In this section
105 Consolidated income statement
106 Consolidated statement of other comprehensive income
107 Consolidated balance sheet
108 Consolidated cash flow statement
109 Consolidated statement of changes in equity
111 Notes to the consolidated financial statements
165 Group investments
The Group’s consolidated statements
which follow have been prepared in
accordance with the International
Financial Reporting Standards as
endorsed by the European Union.
Consolidated income statement
Before
exceptional
items
2017
Note
Exceptional
items
Total
2017
Before
exceptional
items
2016
Exceptional
items
Year to December 31
€ 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
(Loss)/profit on sale of property, plant and
equipment and investments
Net gain related to available-for-sale
financial assets
Share of profits in investments accounted
for using the equity method
Realised losses on derivatives not qualifying
for hedge accounting
Unrealised (losses)/gains on derivatives not
qualifying for hedge accounting
Net financing (charge)/credit relating to
pensions
Net currency retranslation credits/(charges)
Total net non-operating costs
Profit before tax
Tax
Profit after tax for the year
Attributable to:
Equity holders of the parent
Non-controlling interest
3
4, 7
4
5
5
3
8
8
17
16
31
9
20,245
1,084
1,643
22,972
4,740
4,610
2,700
2,151
1,773
915
982
1,184
888
14
19,957
3,015
(225)
45
(30)
7
3
(19)
(14)
(28)
27
(234)
2,781
(538)
2,243
2,223
20
2,243
Basic earnings per share (€ cents)
Diluted earnings per share (€ cents)
10
10
106.4
102.8
93
(42)
51
(51)
(51)
13
(38)
248
14
19
7
288
(288)
(288)
66
(222)
20,245
1,084
1,643
22,972
4,988
4,610
2,714
2,151
1,792
922
982
1,184
888
14
20,245
2,727
19,924
1,022
1,621
22,567
4,731
4,873
2,664
2,151
1,701
870
896
1,287
759
100
20,032
2,535
(225)
45
(279)
33
(30)
67
7
3
(19)
(14)
(28)
27
(234)
2,493
(472)
2,021
2,001
20
2,021
95.8
92.6
4
6
(7)
67
12
(25)
(122)
2,413
(423)
1,990
1,969
21
1,990
94.9
90.2
Total
2016
19,924
1,022
1,621
22,567
4,824
4,831
2,664
2,151
1,701
870
896
1,287
759
100
20,083
2,484
(279)
33
67
4
6
(7)
67
12
(25)
(122)
2,362
(410)
1,952
1,931
21
1,952
93.0
88.5
105
www.iairgroup.com 105
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
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
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
Year to December 31
Note
2017
2016
30
30
30
30
30
30
101
27
9
(146)
(182)
793
4
(506)
739
730
2,021
(1,807)
(1,698)
1,952
2,751
254
2,731
20
2,751
233
21
254
Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.
106
106
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Consolidated statement of other comprehensive income
Consolidated balance sheet
Year to December 31
Note
2017
2016
€ million
Note
December 31,
2017
December 31,
2016
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
12
15
16
17
31
26
9
18
14
18
18
9
26
19
19
27
27
28
30
30
22
31
9
24
26
21
22
20
26
9
24
11,846
3,018
30
79
1,023
145
521
376
17,038
–
432
1,494
958
258
405
3,384
3,292
10,223
27,261
1,029
6,022
(77)
115
7,089
307
7,396
6,401
792
531
2,113
114
222
10,173
930
3,766
4,159
111
179
547
9,692
19,865
27,261
12,227
3,037
29
73
1,028
169
526
499
17,588
38
458
1,405
899
228
329
3,091
3,337
9,785
27,373
1,066
6,105
(96)
(1,719)
5,356
308
5,664
7,589
2,363
176
1,987
20
238
12,373
926
3,305
4,145
88
101
771
9,336
21,709
27,373
www.iairgroup.com
107
107
€ 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
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
30
30
30
30
30
30
101
27
9
(146)
(182)
793
4
(506)
739
730
2,021
(1,807)
(1,698)
1,952
2,751
254
2,731
20
2,751
233
21
254
Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.
106
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Consolidated cash flow statement
€ million
Cash flows from operating activities
Operating profit after exceptional items
Depreciation, amortisation and impairment
Movement in working capital
Increase in trade and other receivables, prepayments, inventories and current assets
Increase in trade and other payables, deferred revenue on ticket sales and current
liabilities
Payments related to restructuring
Employer contributions to pension schemes
Pension scheme service costs
Provision and other non-cash movements
Interest paid
Interest received
Tax paid
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
Proceeds from sale of investments
Increase in other current interest-bearing deposits
Other investing movements
Net cash flows from investing activities
Cash flows from financing activities
Proceeds from long-term borrowings
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 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
2017
2016
2,727
1,184
582
(282)
864
(248)
(899)
233
264
(122)
29
(237)
3,513
(1,490)
306
17
(432)
55
(1,544)
178
(148)
(825)
(500)
(21)
(512)
(1,828)
141
(186)
3,337
3,292
2,484
1,287
83
(592)
675
(206)
(936)
196
203
(185)
37
(318)
2,645
(3,038)
1,737
–
(450)
2
(1,749)
1,317
(515)
(615)
(25)
(20)
(442)
(300)
596
(168)
2,909
3,337
3,384
3,091
6,676
6,428
5
24
31
31
28
19
19
19
108
108
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Increase in trade and other receivables, prepayments, inventories and current assets
Increase in trade and other payables, deferred revenue on ticket sales and current
Consolidated cash flow statement
€ million
Cash flows from operating activities
Operating profit after exceptional items
Depreciation, amortisation and impairment
Movement in working capital
liabilities
Payments related to restructuring
Employer contributions to pension schemes
Pension scheme service costs
Provision and other non-cash movements
Interest paid
Interest received
Tax paid
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
Proceeds from sale of investments
Increase in other current interest-bearing deposits
Other investing movements
Net cash flows from investing activities
Distributions made to holders of perpetual securities and other
Cash flows from financing activities
Proceeds from long-term borrowings
Repayment of borrowings
Repayment of finance leases
Acquisition of treasury shares
Dividend paid
Net cash flows from financing activities
Net increase 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
2017
2016
2,727
1,184
582
(282)
864
(248)
(899)
233
264
(122)
29
(237)
3,513
2,484
1,287
83
(592)
675
(206)
(936)
196
203
(185)
37
(318)
2,645
(1,490)
306
17
(432)
55
(3,038)
1,737
(450)
–
2
(1,544)
(1,749)
178
(148)
(825)
(500)
(21)
(512)
(1,828)
141
(186)
3,337
3,292
1,317
(515)
(615)
(25)
(20)
(442)
(300)
596
(168)
2,909
3,337
3,384
3,091
6,676
6,428
5
24
31
31
28
19
19
19
Consolidated statement of changes in equity
For the year to December 31, 2017
€ million
January 1, 2017
Issued
share
capital
(note 27)
Share
premium
(note 27)
Treasury
shares
(note 28)
Other
reserves
(note 30)
Retained
earnings
Total
shareholders’
equity
Non-
controlling
interest
(note 30)
1,066
6,105
(96)
(2,671)
952
5,356
308
Total
equity
5,664
Profit for the year
–
–
–
–
2,001
2,001
20
2,021
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash
flow hedges
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income
for the year
Cost of share-based payments
Vesting of share-based payment
schemes
Acquisition of treasury shares
Dividend
Cancellation of share capital
Dividend of a subsidiary
Transfer in Company reserves
Distributions made to holders of
perpetual securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(37)
–
–
–
–
–
–
–
(83)
19
(500)
–
500
–
–
–
–
–
84
(38)
(19)
101
9
(146)
–
–
–
–
–
–
84
(38)
(19)
101
9
(146)
–
739
739
–
–
–
–
–
–
–
84
(38)
(19)
101
9
(146)
739
(9)
2,740
2,731
20
2,751
34
34
–
–
–
–
37
–
–
–
(33)
–
(518)
(500)
–
83
–
–
–
–
–
–
(1)
–
34
(14)
(500)
(518)
–
(1)
–
(14)
(500)
(518)
–
–
–
–
7,089
(20)
307
(20)
7,396
December 31, 2017
1,029
6,022
(77)
(2,643)
2,758
108
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
109
www.iairgroup.com 109
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Consolidated statement of changes in equity
For the year to December 31, 2016
€ million
January 1, 2016
Issued
share
capital
(note 27)
Share
premium
(note 27)
Treasury
shares
(note 28)
Other
reserves
(note 30)
Retained
earnings
Total
shareholders’
equity
Non-
controlling
interest
(note 30)
Total
equity
1,020
5,867
(113)
(2,708)
1,160
5,226
308
5,534
Profit for the year
–
–
–
–
1,931
1,931
21
1,952
–
–
–
–
–
–
–
–
–
–
–
–
46
–
–
–
–
–
–
–
–
–
–
–
–
(106)
344
–
–
–
–
–
–
–
–
–
–
42
(25)
–
–
–
(57)
918
(68)
(182)
4
(506)
–
–
–
–
–
–
(57)
918
(68)
(182)
4
(506)
–
(1,807)
(1,807)
–
–
–
–
–
–
–
(57)
918
(68)
(182)
4
(506)
(1,807)
109
124
233
21
254
–
–
–
–
(72)
–
35
35
(73)
–
(339)
45
–
–
952
(31)
(25)
(445)
363
–
–
5,356
–
–
–
–
–
(1)
35
(31)
(25)
(445)
363
(1)
(20)
308
(20)
5,664
–
1,066
–
6,105
–
(96)
–
(2,671)
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash
flow hedges
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income
for the year
Cost of share-based payments
Vesting of share-based payment
schemes
Acquisition of treasury shares
Dividend
Issue of ordinary shares related to
conversion of convertible bond
Dividend of a subsidiary
Distributions made to holders of
perpetual securities
December 31, 2016
110
110
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Consolidated statement of changes in equity
For the year to December 31, 2016
Notes to the consolidated financial statements
For the year to December 31, 2017
€ million
January 1, 2016
Issued
share
capital
(note 27)
Share
premium
(note 27)
Treasury
shares
(note 28)
Other
reserves
(note 30)
Retained
earnings
shareholders’
interest
(note 30)
Total
equity
Total
controlling
Non-
equity
5,226
1,020
5,867
(113)
(2,708)
1,160
308
5,534
Profit for the year
–
–
–
–
1,931
1,931
21
1,952
Other comprehensive income for
the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash
flow hedges
Net change in fair value of
available-for-sale financial assets
Currency translation differences
Remeasurements of post-
employment benefit obligations
Total comprehensive income
for the year
Cost of share-based payments
Vesting of share-based payment
schemes
Dividend
Acquisition of treasury shares
Issue of ordinary shares related to
conversion of convertible bond
Dividend of a subsidiary
Distributions made to holders of
perpetual securities
December 31, 2016
(57)
918
(68)
(182)
4
(506)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(57)
918
(68)
(182)
4
(506)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42
(25)
(106)
35
35
(73)
–
(339)
(31)
(25)
(445)
46
344
(72)
45
363
1,066
6,105
(96)
(2,671)
952
5,356
–
–
(20)
308
(20)
5,664
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(57)
918
(68)
(182)
4
(506)
(1,807)
35
(31)
(25)
(445)
363
(1)
–
(1,807)
(1,807)
109
124
233
21
254
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. A list of the
subsidiaries of the Group is included in the Group investments section.
IAG shares are traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of Madrid,
Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock Exchanges Interconnection System
(Mercado Continuo Español).
2
Significant accounting policies
Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting
Standards as endorsed by the European Union (IFRSs as endorsed by the EU). The consolidated financial statements are rounded
to the nearest million unless otherwise stated. These financial statements have been prepared on a historical cost convention except
for certain financial assets and liabilities, including derivative financial instruments and available-for-sale financial assets that are
measured at fair value. The carrying value of recognised assets and liabilities that are subject to fair value hedges are adjusted to
record changes in the fair values attributable to the risks that are being hedged. In order to provide additional information on the
nature of non-operating items included in the Income statement, the Group has included an additional line to separate the
unrealised movements on open derivatives from realised gains and losses.
The Group’s financial statements for the year to December 31, 2017 were authorised for issue, and approved by the Board of
Directors on February 22, 2018.
The Directors have considered the business activities, the Group’s principal risks and uncertainties, and the Group’s financial position,
including cash flows, liquidity position and available committed facilities. The Directors consider that the Group has adequate
resources to remain in operation for the foreseeable future and have therefore continued to adopt the going concern basis in
preparing the financial statements.
Consolidation
The Group financial statements include the financial statements of the Company and its subsidiaries, each made up to December 31,
together with the attributable share of results and reserves of associates and joint ventures, adjusted where appropriate to conform
to the Group’s accounting policies.
Subsidiaries are consolidated from the date of their acquisition, which is the date on which the Group obtains control and continue
to be consolidated until the date that such control ceases. Control exists when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Group applies the acquisition method to account for business combinations. The consideration paid is the fair value of the
assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired and liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests
represent the portion of profit or loss and net assets in subsidiaries that are not held by the Group and are presented separately
within equity in the consolidated Balance sheet. Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the
acquiree is remeasured to fair value at the acquisition date through the Income statement.
Goodwill is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling
interest over the net identifiable assets acquired and liabilities assumed.
All intra-group account balances, including intra-group profits, are eliminated in preparing the consolidated financial statements.
Segmental reporting
Operating segments are reported in a manner consistent with how resource allocation decisions are made by the chief operating
decision-maker. The chief operating decision-maker, who is responsible for resource allocation and assessing performance of the
operating segments, has been identified as the IAG Management Committee.
Foreign currency translation
a Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the functional currency, being the
currency of the primary economic environment in which the entity operates. In particular, British Airways and Avios have a functional
currency of pound sterling. The Group’s consolidated financial statements are presented in euros, which is the Group’s presentation
currency.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Significant accounting policies continued
2
b Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing on the date
of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates ruling at the balance
sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income
statement, except where hedge accounting is applied. Foreign exchange gains and losses arising on the retranslation of monetary
assets and liabilities classified as non-current on the Balance sheet are recognised within ‘Net currency retranslation
credits/(charges)’ in the Income statement. All other gains and losses arising on the retranslation of monetary assets and liabilities
are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros at the rate of exchange ruling at the balance sheet date. Profits and
losses of such operations are translated into euros at average rates of exchange during the year. The resulting exchange differences
are taken directly to a separate component of equity until all or part of the interest is sold, when the relevant portion of the
cumulative exchange difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a policy of not revaluing property, plant and equipment. Depreciation
is calculated to write off the cost less the estimated residual value on a straight-line basis, over the economic life of the asset.
Residual values, where applicable, are reviewed annually against prevailing market values for equivalently aged assets and
depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account of
aircraft and other qualifying assets under construction are capitalised and added to the cost of the asset concerned. All other
borrowing costs are recognised in the Income statement in the year in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets owned
or held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual value at the end of
their planned operational lives (which is the shorter of their useful life or lease term) on a straight-line basis. Depreciation rates are
specific to aircraft type, based on the Group’s fleet plans, within overall parameters of 23 years and 5 per cent residual value for
shorthaul aircraft and 25 years and 5 per cent residual value for longhaul aircraft.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five years
and the remaining economic life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are
carried as property, plant and equipment and generally depreciated in line with the fleet to which they relate.
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets
(including maintenance provided under ‘pay-as-you-go’ contracts) are charged to the Income statement on consumption or
as incurred respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land, is
depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the
duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 4 to 20 years.
d Leased assets
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred
to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and
equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced
by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income statement.
Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged
to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease
arrangements allow the Group to terminate the leases after a limited initial period, without further material financial obligations.
In certain cases the Group is entitled to extend the initial lease period on predetermined terms; such leases are described as
extendable operating leases.
In determining the appropriate lease 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.
112
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
2
Significant accounting policies continued
b Transactions and balances
Transactions in foreign currencies are initially recorded in the functional currency using the rate of exchange prevailing on the date
of the transaction. Monetary foreign currency balances are translated into the functional currency at the rates ruling at the balance
sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
balance sheet exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income
statement, except where hedge accounting is applied. Foreign exchange gains and losses arising on the retranslation of monetary
assets and liabilities classified as non-current on the Balance sheet are recognised within ‘Net currency retranslation
credits/(charges)’ in the Income statement. All other gains and losses arising on the retranslation of monetary assets and liabilities
are recognised in operating profit.
c Group companies
The net assets of foreign operations are translated into euros at the rate of exchange ruling at the balance sheet date. Profits and
losses of such operations are translated into euros at average rates of exchange during the year. The resulting exchange differences
are taken directly to a separate component of equity until all or part of the interest is sold, when the relevant portion of the
cumulative exchange difference is recognised in the Income statement.
Property, plant and equipment
Property, plant and equipment is held at cost. The Group has a policy of not revaluing property, plant and equipment. Depreciation
is calculated to write off the cost less the estimated residual value on a straight-line basis, over the economic life of the asset.
Residual values, where applicable, are reviewed annually against prevailing market values for equivalently aged assets and
depreciation rates adjusted accordingly on a prospective basis.
a Capitalisation of interest on progress payments
Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account of
aircraft and other qualifying assets under construction are capitalised and added to the cost of the asset concerned. All other
borrowing costs are recognised in the Income statement in the year in which they are incurred.
b Fleet
All aircraft are stated at the fair value of the consideration given after taking account of manufacturers’ credits. Fleet assets owned
or held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual value at the end of
their planned operational lives (which is the shorter of their useful life or lease term) on a straight-line basis. Depreciation rates are
specific to aircraft type, based on the Group’s fleet plans, within overall parameters of 23 years and 5 per cent residual value for
shorthaul aircraft and 25 years and 5 per cent residual value for longhaul aircraft.
Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five years
and the remaining economic life of the aircraft.
Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are
carried as property, plant and equipment and generally depreciated in line with the fleet to which they relate.
Major overhaul expenditure, including replacement spares and labour costs, is capitalised and amortised over the average
expected life between major overhauls. All other replacement spares and other costs relating to maintenance of fleet assets
(including maintenance provided under ‘pay-as-you-go’ contracts) are charged to the Income statement on consumption or
as incurred respectively.
c Other property, plant and equipment
Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land, is
depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the
duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 4 to 20 years.
d Leased assets
Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred
to the Group, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and
equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced
by the appropriate proportion of lease payments made, is included in borrowings.
The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding
paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income statement.
Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged
to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease
arrangements allow the Group to terminate the leases after a limited initial period, without further material financial obligations.
In certain cases the Group is entitled to extend the initial lease period on predetermined terms; such leases are described as
extendable operating leases.
In determining the appropriate lease 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.
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 purpose of assessing impairment, goodwill is grouped at the lowest levels for which there are separately identifiable cash
flows (cash generating units). Goodwill is tested for impairment annually and whenever indicators exist that the carrying value may
not be recoverable.
b Brands
Brands arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. Long established brands
that are expected to be used indefinitely are not amortised but assessed annually for impairment.
c Customer loyalty programmes
Customer loyalty programmes arising on the acquisition of subsidiaries are initially recognised at fair value at the acquisition date. A
customer loyalty programme with an expected useful life is amortised over the expected remaining useful life. Established customer
loyalty programmes that are expected to be used indefinitely are not amortised but assessed annually for impairment.
d Landing rights
Landing rights acquired in a business combination are recognised at fair value at the acquisition date. Landing rights acquired from
other airlines are capitalised at cost.
Capitalised landing rights based outside the EU are amortised on a straight-line basis over a period not exceeding 20 years.
Capitalised landing rights based within the EU are not amortised, as regulations provide that these landing rights are perpetual.
e Contract based intangibles
Contract based intangibles acquired in a business combination are recognised initially at fair value at the acquisition date and
amortised over the remaining life of the contract.
f Software
The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised separately and
amortised on a straight-line basis generally over a period not exceeding five years, with certain specific software developments
amortised over a period of up to 10 years.
g Emissions allowances
Purchased emissions allowances are recognised at cost. Emissions allowances are not revalued or amortised but are tested for
impairment whenever indicators exist that the carrying value may not be recoverable.
Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised for the value by which the asset’s carrying value exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. Non-financial
assets other than goodwill that were subject to an impairment are reviewed for possible reversal of the impairment at each
reporting date.
a Property, plant and equipment
The carrying value is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be
recoverable and the cumulative impairment losses are shown as a reduction in the carrying value of property, plant and equipment.
b Intangible assets
Intangible assets are held at cost and are either amortised on a straight-line basis over their economic life, or they are deemed to
have an indefinite economic life and are not amortised. Indefinite life intangible assets are tested annually for impairment or more
frequently if events or changes in circumstances indicate the carrying value may not be recoverable.
Investments in associates and joint ventures
An associate is an undertaking in which the Group has a long-term equity interest and over which it has the power to exercise
significant influence. Where the Group cannot exercise control over an entity in which it has a shareholding greater than 51 per cent,
the equity interest is treated as an associated undertaking.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net
assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities require unanimous consent of the parties sharing control. The considerations made in
determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.
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.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
2
Significant accounting policies continued
Financial instruments
a Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets including listed and unlisted investments, excluding interests in
associates and joint ventures. 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 Other interest-bearing deposits
Other interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried at amortised
cost using the effective interest method.
c 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
remeasurement 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.
d Cash flow hedges
Changes in the fair value of derivative financial instruments are reported in the Income statement, 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, are recorded in equity. Gains and losses recorded in equity
are reflected in the Income statement when either the hedged cash flow impacts the Income statement or the hedged item is no
longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euros, Japanese yen and Chinese yuan 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.
e 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
f
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.
114
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INTERNATIONAL AIRLINES GROUP
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
2
Significant accounting policies continued
Financial instruments
a Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets including listed and unlisted investments, excluding interests in
associates and joint ventures. 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 Other interest-bearing deposits
cost using the effective interest method.
c Derivative financial instruments and hedging activities
Other interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried at amortised
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
remeasurement 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.
d Cash flow hedges
Changes in the fair value of derivative financial instruments are reported in the Income statement, 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, are recorded in equity. Gains and losses recorded in equity
are reflected in the Income statement when either the hedged cash flow impacts the Income statement or the hedged item is no
longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euros, Japanese yen and Chinese yuan 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.
e 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.
f
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.
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. 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.
Current service costs are recognised within employee costs in the year in which they arise. Past service costs are recognised in the
event of a plan amendment or curtailment, or when the Group recognises related restructuring costs or severance obligations. 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.
b Severance obligations
Severance obligations are recognised 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 a provision for
severance payments 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 severance payments 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 income 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.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
2
Significant accounting policies continued
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 include 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.
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 a valuation model provided by external specialists. 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, and accordingly 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.
Provisions
Provisions are made when an 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 such as severance payments
(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 deferred revenue on ticket sales in current liabilities 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, Vueling Club and Aer Club. The 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
difference between the consideration received and the amount deferred is recognised on the issuance of the points. 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 awards for which points can be redeemed.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
2
Significant accounting policies continued
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 include 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.
Cash and cash equivalents
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 a valuation model provided by external specialists. 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, and accordingly 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.
Provisions
obligation can be reliably estimated.
Provisions are made when an obligation exists for a present liability in respect of a past event and where the amount of the
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 such as severance payments
(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
of historical trends.
Passenger and cargo revenue is recognised when the transportation service has been provided. Passenger tickets net of discounts
are recorded as deferred revenue on ticket sales in current liabilities 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
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, Vueling Club and Aer Club. The 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
difference between the consideration received and the amount deferred is recognised on the issuance of the points. 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 awards for which points can be redeemed.
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.
Critical accounting judgements, 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 judgements, 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 judgements and 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.
Estimates
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 as follows.
a Employee benefit obligations, employee leaving indemnities, other employee related restructuring provisions
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
salary increases, mortality rates and future pension increases. Due to the long-term nature of these schemes, such assumptions are
subject to significant uncertainty. The assumptions relating to these schemes are disclosed in notes 24 and 31. The Group
determines the assumptions to be adopted in discussion with qualified actuaries. In respect of future pension increases in the
Airways Pension Scheme, following legal proceedings the Group has appealed the initial judgement that the Trustee has the power
to award discretionary increases to pensions in payment in the 2013/14 scheme year. Further information on these proceedings is
disclosed in note 32. The sensitivity to changes in pension increase assumptions is disclosed in note 31.
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
At December 31, 2017 the Group recognised €4,159 million in respect of deferred revenue on ticket sales (2016: €4,145 million) of
which €1,217 million (2016: €1,287 million) related to customer loyalty programmes.
Passenger revenue is recognised when the transportation is provided. Ticket sales that are not expected to be used (‘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 determines 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 the mix and fair value of the award credits. A one point change in the assumption on the
percentage of points not expected to be redeemed will increase or reduce the amount recognised as revenue in the year by less
than €10 million.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Significant accounting policies continued
Income taxes
2
c
The Group is subject to income taxes in numerous jurisdictions. Estimates are required when 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 assessments. 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. The deferred income tax asset recognised at December 31, 2017 was €521 million
(2016: €526 million). Further information on current and deferred tax liabilities is disclosed in note 9.
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 and assumptions as disclosed in note 15.
Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
e Residual values and useful lives of assets
The Group estimates useful lives and residual values of property, plant and equipment, including fleet assets based on network plans
and recoverable values. Useful lives and residual values are reassessed annually, taking into consideration the latest fleet plans and
other business plan information. Information on the net book values of property, plant and equipment and related depreciation
charges is disclosed in note 12.
Judgement
Engineering and other aircraft costs
The Group has a number of contracts with service providers to replace or repair engine parts and other maintenance checks. 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. Aircraft
maintenance obligations are based on aircraft utilisation, expected maintenance intervals, future maintenance costs and the aircraft’s
condition. At December 31, 2017, the Group recognised €1,125 million in respect of maintenance, restoration and handback provisions
(2016: €1,201 million). Information on movements on the provision is disclosed in note 24.
Changes in accounting policy and disclosures
a New and amended standards adopted by the Group
The Group has adopted IAS 7 (Amendment) ‘Statement of cash flows’ for the first time in the year to December 31, 2017. The
amendment requires disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities, including changes arising from cash flows and non-cash changes. The Group has addressed this requirement by providing
a reconciliation between the opening and closing balances of assets and liabilities included in the Group’s definition of net debt
(note 19). This includes a reconciliation of liabilities arising from financing activities.
Other amendments adopted for the first time in the year to December 31, 2017 have not resulted in a significant change to the
financial position or performance of the Group, or to presentation and disclosures in the Group financial statements.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Significant accounting policies continued
2
c
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Estimates are required when 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 assessments. 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. The deferred income tax asset recognised at December 31, 2017 was €521 million
(2016: €526 million). Further information on current and deferred tax liabilities is disclosed in note 9.
d
Impairment of non-financial assets
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 and assumptions as disclosed in note 15.
Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable.
e Residual values and useful lives of assets
The Group estimates useful lives and residual values of property, plant and equipment, including fleet assets based on network plans
and recoverable values. Useful lives and residual values are reassessed annually, taking into consideration the latest fleet plans and
other business plan information. Information on the net book values of property, plant and equipment and related depreciation
charges is disclosed in note 12.
Judgement
Engineering and other aircraft costs
The Group has a number of contracts with service providers to replace or repair engine parts and other maintenance checks. 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. Aircraft
maintenance obligations are based on aircraft utilisation, expected maintenance intervals, future maintenance costs and the aircraft’s
condition. At December 31, 2017, the Group recognised €1,125 million in respect of maintenance, restoration and handback provisions
(2016: €1,201 million). Information on movements on the provision is disclosed in note 24.
Changes in accounting policy and disclosures
a New and amended standards adopted by the Group
The Group has adopted IAS 7 (Amendment) ‘Statement of cash flows’ for the first time in the year to December 31, 2017. The
amendment requires disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing
activities, including changes arising from cash flows and non-cash changes. The Group has addressed this requirement by providing
a reconciliation between the opening and closing balances of assets and liabilities included in the Group’s definition of net debt
(note 19). This includes a reconciliation of liabilities arising from financing activities.
Other amendments adopted for the first time in the year to December 31, 2017 have not resulted in a significant change to the
financial position or performance of the Group, or to presentation and disclosures in the Group financial statements.
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 on the date they become mandatory:
IFRS 15 ‘Revenue from contracts with customers’; effective for periods beginning on or after January 1, 2018. The standard
establishes a 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 goods and services and at a point when the
performance obligations associated with these goods and services have been satisfied.
The Group has identified the following changes to revenue recognition on adoption of the standard:
• Passenger revenue – revenue associated with ancillary services that is currently recognised when paid, such as administration
fees, will be deferred to align with the recognition of revenue associated with the related travel.
• Cargo revenue – interline cargo revenue will be presented gross rather than net of related costs as IAG is considered to be
principal rather than agent in these transactions.
• Other revenue – loyalty revenue associated with the redemption of Avios points with third parties will be presented net of the
related costs as IAG is considered to be agent rather than principal in these transactions. In addition, revenue associated with
maintenance activities and holiday revenue with performance obligations that are fulfilled over time, will be deferred (with the
related costs) and recognised over the performance obligation period.
The Group expects to apply the standard on a fully retrospective basis. On adoption of the standard, the adjustment to retained
earnings at January 1, 2017 is expected to be a charge of €27 million. For the year to December 31, 2017, adjustments to reflect the
new standard are expected to be: reduction to revenue €31 million, and reduction to operating costs €27 million, resulting in a
reduction in operating profit of €4 million. As at December 31, 2017, assets will reduce by €29 million and liabilities increase by €1
million.
IFRS 9 ‘Financial Instruments’; effective for periods beginning on or after January 1, 2018. The standard amends the classification
and measurement models for financial assets and adds new requirements to address the impairment of financial assets. It also
introduces a new hedge accounting model to more closely align hedge accounting with risk management strategy and objectives.
The standard will allow the Group to hedge account for specific risk components of its fuel purchases, such as crude oil price risk. It
also requires movements in the time value of options (currently recognised in the Income statement) to be recognised in Other
comprehensive income as they are considered to be a cost of hedging. The standard requires companies to make an election on
whether gains and losses on equity instruments measured at fair value should be recognised in the Income statement or Other
comprehensive income, with no recycling. On adoption of the standard, the Group expects the following changes:
Financial assets will be classified as at ‘amortised cost’, ‘fair value through profit and loss’, or ‘fair value through other comprehensive
income’. The Group has reviewed its existing classifications and confirmed that most financial assets will continue to be recognised
at amortised cost. Equity investments, previously classified as available-for-sale will be classified as financial assets at fair value
through Other comprehensive income, with no recycling of gains and losses.
The new impairment model will be applied to trade receivables and other financial assets. Any adjustment to existing provisions on
transition will not be material.
The Group will continue to undertake hedging activity in line with its financial risk management objectives and policies. The following
changes to hedge accounting will be adopted:
• Non-financial components of price risk may be designated in a hedge relationship;
• Movements in the time value of options will be classified as cost of hedging; and
• Hedge effectiveness assessments will be aligned to the requirements of IFRS 9.
The amounts recognised in the Income statement in respect of derivatives not qualifying for hedge accounting will reduce.
On adoption of the standard, to reflect the change in accounting for the time value of options, there will be a reclassification of
accumulated post-tax gains of €38 million from retained earnings to unrealised gains and losses in Other reserves at January 1, 2017.
Comparative information in the Income statement in respect of the year to December 31, 2017 will be adjusted to reflect a reduction
in unrealised losses on derivatives not qualifying for hedge accounting of €42 million, a reduction in net currency retranslation
charges of €11 million and an increase in the tax charge of €12 million, with an offsetting movement in Other comprehensive income.
Other changes to hedge accounting will be applied prospectively.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Significant accounting policies continued
2
IFRS 16 ‘Leases’; effective from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or
finance leases and instead introduces a single lessee accounting model. The Group has a number of operating leases for assets
including aircraft, property and other equipment. Details of the Group’s operating lease commitments are disclosed in note 23.
The Group is currently assessing the impact of the new standard and expects its implementation to have a significant impact on the
financial statements from the date of adoption. The main changes will be as follows:
1. The amounts recognised as assets and liabilities on adoption of IFRS 16 will be subject to a number of judgements,
estimates and assumptions. This includes:
a. Judgements when reviewing current agreements (such as agreements for terminal capacity) to determine whether they
contain leases as defined under the new standard.
b. Assumptions used to calculate the discount rate to apply to lease obligations, which is likely to be based on the
incremental borrowing rate for the estimated lease term.
c. Estimation of the lease term, including options to extend the lease where the Group is reasonably certain to extend.
2.
Interest-bearing borrowings and non-current assets will increase on implementation of the standard as obligations to make
future payments under leases currently classified as operating leases will be recognised on the Balance sheet, along with the
related ‘right-of-use’ asset. It is expected that lease obligations, which are predominantly US dollar denominated, will be
recognised at the exchange rate ruling on the date of adoption and the appropriate incremental borrowing rate at that date,
with the related ‘right-of-use’ asset recognised at the exchange rate ruling at the commencement of the lease.
3. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are replaced
with depreciation and lease interest expense.
4. The Group’s Alternative Performance Measures will also be impacted. These comprise Operating profit and lease adjusted
operating margin; Adjusted earnings per share; EBITDAR; Return on Invested Capital; Adjusted net debt to EBITDAR;
Adjusted gearing; and Equity free cash flow. The definitions of these metrics will be reviewed on adoption of IFRS 16 to
ensure that they continue to measure the outcome of the Group’s strategy and monitor performance against long-term
planning targets.
For future reporting periods after adoption, foreign exchange movements on lease obligations, which are predominantly
denominated in US dollars, will be remeasured at each balance sheet date, however the right-of-use asset will be recognised at the
historic exchange rate. This will create volatility in the Income statement.
IFRIC Interpretation 23 ‘Uncertainty over tax treatments’ (not yet endorsed by the EU); effective for periods beginning on or
after January 1, 2019. The interpretation clarifies application of recognition and measurement requirements in IAS 12 ‘Income Taxes’
when there is uncertainty over income tax treatments. The Group is currently assessing the impact of the interpretation.
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 or net assets of the Group.
The Group has not early adopted any standard, amendment or interpretation that has been issued but is not yet effective.
3 Segment information
a Business segments
The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments,
and has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as individual operating companies including airline and platform functions.
Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures
including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by
reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to
optimise consolidated financial results.
The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource
allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as
reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be
reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.
The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable
operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made
based on the passenger business, or are not reviewed by the IAG MC and are included within Other Group companies.
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2
Significant accounting policies continued
For the year to December 31, 2017
€ million
Revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
13,850
479
14,329
2017
Iberia
Vueling
Aer
Lingus
Other Group
companies
4,451
400
4,851
2,125
–
2,125
1,857
2
1,859
689
459
1,148
Total
22,972
1,340
24,312
Depreciation, amortisation and impairment
(860)
(182)
(20)
(77)
(45)
(1,184)
Operating profit before exceptional items
Exceptional items (note 4)
Operating profit after exceptional items
Net non-operating costs
Profit before tax
1,996
(108)
1,888
376
(180)
196
188
–
188
269
–
269
186
–
186
3,015
(288)
2,727
(234)
2,493
Total assets
Total liabilities
18,872
(12,100)
6,108
(4,382)
1,515
(1,253)
1,976
(1,046)
(1,210)
(1,084)
27,261
(19,865)
Includes eliminations on total assets of €13,031 million and total liabilities of €2,744 million.
For the year to December 31, 2016
€ million
Revenue
External revenue
Inter-segment revenue
Segment revenue
British
Airways
13,889
469
14,358
2016
Iberia
Vueling
Aer Lingus
Other Group
companies
Total
4,233
353
4,586
2,065
–
2,065
1,766
–
1,766
614
452
1,066
22,567
1,274
23,841
Depreciation, amortisation and impairment
(950)
(215)
(19)
(75)
(28)
(1,287)
Operating profit before exceptional items
Exceptional items (note 4)
Operating profit after exceptional items
Net non-operating costs
Profit before tax
1,786
(93)
1,693
271
–
271
60
–
60
233
–
233
185
42
227
2,535
(51)
2,484
(122)
2,362
Total assets
Total liabilities
19,530
(14,503)
5,752
(4,197)
1,562
(1,240)
1,771
(865)
(1,242)
(904)
27,373
(21,709)
Includes eliminations on total assets of €13,327 million and total liabilities of €3,725 million.
Notes to the consolidated financial statements continued
For the year to December 31, 2017
IFRS 16 ‘Leases’; effective from January 1, 2019. The new standard eliminates the classification of leases as either operating leases or
finance leases and instead introduces a single lessee accounting model. The Group has a number of operating leases for assets
including aircraft, property and other equipment. Details of the Group’s operating lease commitments are disclosed in note 23.
The Group is currently assessing the impact of the new standard and expects its implementation to have a significant impact on the
financial statements from the date of adoption. The main changes will be as follows:
1. The amounts recognised as assets and liabilities on adoption of IFRS 16 will be subject to a number of judgements,
estimates and assumptions. This includes:
a. Judgements when reviewing current agreements (such as agreements for terminal capacity) to determine whether they
contain leases as defined under the new standard.
b. Assumptions used to calculate the discount rate to apply to lease obligations, which is likely to be based on the
incremental borrowing rate for the estimated lease term.
c. Estimation of the lease term, including options to extend the lease where the Group is reasonably certain to extend.
2.
Interest-bearing borrowings and non-current assets will increase on implementation of the standard as obligations to make
future payments under leases currently classified as operating leases will be recognised on the Balance sheet, along with the
related ‘right-of-use’ asset. It is expected that lease obligations, which are predominantly US dollar denominated, will be
recognised at the exchange rate ruling on the date of adoption and the appropriate incremental borrowing rate at that date,
with the related ‘right-of-use’ asset recognised at the exchange rate ruling at the commencement of the lease.
3. There will be a reduction in expenditure on operations and an increase in finance costs as operating lease costs are replaced
with depreciation and lease interest expense.
4. The Group’s Alternative Performance Measures will also be impacted. These comprise Operating profit and lease adjusted
operating margin; Adjusted earnings per share; EBITDAR; Return on Invested Capital; Adjusted net debt to EBITDAR;
Adjusted gearing; and Equity free cash flow. The definitions of these metrics will be reviewed on adoption of IFRS 16 to
ensure that they continue to measure the outcome of the Group’s strategy and monitor performance against long-term
planning targets.
For future reporting periods after adoption, foreign exchange movements on lease obligations, which are predominantly
denominated in US dollars, will be remeasured at each balance sheet date, however the right-of-use asset will be recognised at the
historic exchange rate. This will create volatility in the Income statement.
IFRIC Interpretation 23 ‘Uncertainty over tax treatments’ (not yet endorsed by the EU); effective for periods beginning on or
after January 1, 2019. The interpretation clarifies application of recognition and measurement requirements in IAS 12 ‘Income Taxes’
when there is uncertainty over income tax treatments. The Group is currently assessing the impact of the interpretation.
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 or net assets of the Group.
The Group has not early adopted any standard, amendment or interpretation that has been issued but is not yet effective.
3 Segment information
a Business segments
The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments,
and has been identified as the IAG Management Committee (IAG MC).
The Group has a number of entities which are managed as individual operating companies including airline and platform functions.
Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures
including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by
reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to
optimise consolidated financial results.
The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource
allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as
reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be
reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.
The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable
operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made
based on the passenger business, or are not reviewed by the IAG MC and are included within Other Group companies.
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Year to December 31
2017
7,655
3,561
3,694
8,062
22,972
2016
7,877
3,632
3,534
7,524
22,567
Property,
plant and
equipment
Intangible
assets
9,013
2,050
1
782
11,846
1,171
1,241
6
600
3,018
Property,
plant and
equipment
Intangible
assets
9,608
1,877
20
722
12,227
1,196
1,236
18
587
3,037
Notes to the consolidated financial statements continued
For the year to December 31, 2017
3 Segment information continued
b Geographical analysis
Revenue by area of original sale
€ million
UK
Spain
USA
Rest of world
Assets by area
December 31, 2017
€ million
UK
Spain
USA
Rest of world
December 31, 2016
€ million
UK
Spain
USA
Rest of world
122
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
3 Segment information continued
b Geographical analysis
Revenue by area of original sale
€ million
UK
Spain
USA
Rest of world
Assets by area
December 31, 2017
€ million
UK
Spain
USA
Rest of world
December 31, 2016
€ million
UK
Spain
USA
Rest of world
Year to December 31
2017
7,655
3,561
3,694
8,062
2016
7,877
3,632
3,534
7,524
22,972
22,567
Property,
plant and
equipment
9,013
2,050
1
782
11,846
Intangible
assets
1,171
1,241
6
600
3,018
Property,
plant and
equipment
Intangible
assets
9,608
1,877
20
722
1,196
1,236
18
587
12,227
3,037
4 Exceptional items
€ million
Restructuring costs1
Employee costs2
Pre-acquisition cash flow hedge impact3
Recognised in expenditure on operations
Total exceptional charge before tax
Tax on exceptional items
Total exceptional charge after tax
Year to December 31
2017
288
–
–
288
288
(66)
222
2016
144
(51)
(42)
51
51
(13)
38
1 Restructuring costs
British Airways has embarked on a series of transformation proposals to develop a more efficient and cost effective structure. The
overall costs of the programme principally comprise employee severance costs and includes other directly associated costs such as
onerous lease provisions and asset write down costs. Costs incurred in the year to December 31, 2017 in respect of this programme
amount to €108 million (2016: €144 million), with a related tax credit of €21 million (2016: €27 million).
In the year to December 31, 2017, €180 million of restructuring costs were recognised at Iberia, related to the announcement of a new
Transformation Plan. A related tax credit of €45 million was also recognised.
In the year to December 31, 2016:
2 Employee costs
During the year to December 31, 2016 the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to further bring
the level of benefits in line with national trends seen in the US. This scheme is accounted for in a similar way to a defined benefit plan,
so any reduction in benefit results in the recognition of a past service gain when the plan amendment occurs. This change has
resulted in a one-off gain in employee costs of €51 million in the year to December 31, 2016, and a related tax charge of €9 million.
3 Pre-acquisition cash flow hedge impact
Under IFRS 3 Business combinations, gains or losses on cash flow hedges acquired should not be recycled to the income statement
but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in
reported fuel expense. For the year to December 31, 2016, a credit of €42 million was recognised as an exceptional item, reversing
the impact of unwinding the cash flow hedges to arrive at the total Fuel, oil costs and emissions charges. A related tax charge of €5
million was also recognised.
5 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
Amortisation of intangible assets
Impairment on intangible assets
Operating leases costs:
€ million
Minimum lease rentals
Sub-lease rentals received
Cost of inventories:
– aircraft
– Property and equipment
2017
641
382
41
120
–
1,184
2017
888
224
(1)
1,111
2016
739
391
39
104
14
1,287
2016
759
226
(2)
983
€ million
Cost of inventories recognised as an expense, mainly fuel
2017
3,176
2016
3,966
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
6 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, 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 transactions
All other services
2017
3,648
569
465
–
467
–
296
3
5,448
2016
3,313
541
440
1
604
5
90
22
5,016
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 and includes an explanation of how objectivity and independence is safeguarded when
non-audit services are provided.
7 Employee costs and numbers
€ million
Wages and salaries
Social security costs
Costs related to pension scheme benefits
Cost of share-based payments
Other employee costs1
Total employee costs
1 Other employee costs include allowances and accommodation for crew.
The number of employees during the year and at December 31 was as follows:
2017
3,155
486
370
34
943
4,988
2016
3,136
491
276
36
885
4,824
Senior executives
Ground employees:
Managerial
Non-managerial
Technical crew:
Managerial
Non-managerial
2017
December 31, 2017
2016
December 31, 2016
Average
number of
employees
Number of
employees
Percentage
of women
166
190
24%
Average
number of
employees
215
Number of
employees
188
Percentage
of women
23%
2,334
32,572
2,296
32,877
6,644
21,706
63,422
6,595
22,036
63,994
43%
35%
11%
68%
2,532
33,313
6,257
21,070
63,387
2,452
33,519
6,404
21,074
63,637
42%
35%
11%
68%
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
6 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, 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 transactions
All other services
non-audit services are provided.
7 Employee costs and numbers
€ million
Wages and salaries
Social security costs
Costs related to pension scheme benefits
Cost of share-based payments
Other employee costs1
Total employee costs
1 Other employee costs include allowances and accommodation for crew.
The number of employees during the year and at December 31 was as follows:
2017
3,648
569
465
467
296
–
–
3
2016
3,313
541
440
1
604
5
90
22
5,448
5,016
2017
3,155
486
370
34
943
2016
3,136
491
276
36
885
4,988
4,824
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 and includes an explanation of how objectivity and independence is safeguarded when
Senior executives
Ground employees:
Managerial
Non-managerial
Technical crew:
Managerial
Non-managerial
2017
December 31, 2017
2016
December 31, 2016
Average
number of
employees
Number of
employees
Percentage
of women
Average
number of
employees
Number of
employees
Percentage
of women
166
190
24%
215
188
23%
2,334
32,572
2,296
32,877
6,644
21,706
63,422
6,595
22,036
63,994
43%
35%
11%
68%
2,532
33,313
6,257
21,070
63,387
2,452
33,519
6,404
21,074
63,637
42%
35%
11%
68%
8 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
b Finance income
€ million
Interest on other interest-bearing deposits
Other finance income
c Net financing (charge)/credit relating to pensions
€ million
Net financing (charge)/credit relating to pensions
9 Tax
For the year to December 31, 2017
€ million
Current tax
Movement in respect of prior years
Movement in respect of current year
Total current tax
Deferred tax
Movement in respect of prior years
Movement in respect of current year
Rate change
Total deferred tax
2017
2016
(20)
(116)
(20)
(75)
7
(1)
(225)
2017
28
17
45
2017
(28)
–
1
1
–
2
–
2
3
(29)
(141)
(21)
(90)
3
(1)
(279)
2016
33
–
33
2016
12
Total
12
(298)
(286)
(8)
(366)
10
(364)
(650)
Income
statement
Other
comprehensive
income
Statement
of changes
in equity
12
(413)
(401)
(8)
(61)
(2)
(71)
–
114
114
–
(307)
12
(295)
a Tax charges
Tax (charge)/credit in the Income statement, Other comprehensive income and Statement of changes in equity:
Total tax
(472)
(181)
Current tax in Other comprehensive income all relates to employee retirement benefit plans and current tax in the Statement of
changes in equity all relates to share-based payments.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
9 Tax continued
For the year to December 31, 2016
€ million
Current tax
Movement in respect of prior years
Movement in respect of current year
Total current tax
Deferred tax
Movement in respect of prior years
Movement in respect of current year
Rate change
Total deferred tax
Income
statement
Other
comprehensive
income
Statement
of changes
in equity
13
(325)
(312)
(11)
(130)
43
(98)
–
143
143
–
158
(40)
118
–
10
10
1
(7)
–
(6)
Total
13
(172)
(159)
(10)
21
3
14
Total tax
(410)
261
4
(145)
Current tax in Other comprehensive income all relates to employee retirement benefit plans and current tax in the Statement of
changes in equity all relates to share-based payment schemes (€5 million) and finance costs (€5 million).
Current tax asset/(liability)
€ million
2017
2016
Opening
balance
127
(45)
Movement in
respect of
prior years
12
13
Movement in
respect of
current year
(298)
(172)
Cash
237
318
Exchange
movements
1
13
Closing
balance
79
127
Current tax asset is €258 million (2016: €228 million) and current tax liability is €179 million (2016: €101 million).
Deferred tax asset/(liability)
€ million
2017
2016
Opening
balance
350
297
Movement in
respect of
prior years
(8)
(10)
Movement in
respect of
current year Rate change
10
3
(366)
21
Exchange
movements
and other
4
39
Closing
balance
(10)
350
The deferred tax asset is €521 million (2016: €526 million) and all arises in Spain. A reversal of €86 million on the deferred tax
asset is expected within one year and the remainder beyond one year. The deferred tax liability is €531 million (2016: €176
million).
b Deferred tax
For the year to December 31, 2017
€ million
Fixed assets
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 payment schemes
Foreign exchange
Other items
Total deferred tax
Opening
balance
(1,065)
372
407
68
441
78
13
9
27
350
Movement in
respect of
prior years
Movement in
respect of
current year Rate change
Exchange
movements
and other
–
–
6
2
(4)
–
–
(7)
(5)
(8)
4
3
(65)
(24)
(293)
–
3
1
5
(366)
–
–
–
1
9
–
–
–
–
10
32
(1)
4
(8)
(13)
–
(1)
(1)
(8)
4
Closing
balance
(1,029)
374
352
39
140
78
15
2
19
(10)
Within tax in Other comprehensive income is a tax charge of €24 million (2016: €187 million) that may be reclassified
subsequently to the Income statement and a tax charge of €283 million (2016: tax credit of €345 million) that may not.
Within tax in Other comprehensive income arising from tax rate changes is a tax credit of €1 million (2016: charge of €12 million)
that may be reclassified subsequently to the Income statement and a tax credit of €9 million (2016: charge of €28 million) that
may not.
126
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Income
comprehensive
statement
Other
income
Statement
of changes
in equity
13
(325)
(312)
(11)
(130)
43
(98)
–
143
143
–
158
(40)
118
–
10
10
1
(7)
–
(6)
Total
13
(172)
(159)
(10)
21
3
14
(410)
261
4
(145)
9 Tax continued
For the year to December 31, 2016
€ million
Current tax
Movement in respect of prior years
Movement in respect of current year
Total current tax
Deferred tax
Movement in respect of prior years
Movement in respect of current year
Rate change
Total deferred tax
Total tax
Current tax asset/(liability)
€ million
2017
2016
€ million
2017
2016
million).
b Deferred tax
For the year to December 31, 2017
€ million
Fixed assets
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 payment schemes
Foreign exchange
Other items
Total deferred tax
may not.
126
INTERNATIONAL AIRLINES GROUP
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Current tax in Other comprehensive income all relates to employee retirement benefit plans and current tax in the Statement of
changes in equity all relates to share-based payment schemes (€5 million) and finance costs (€5 million).
Current tax asset is €258 million (2016: €228 million) and current tax liability is €179 million (2016: €101 million).
Deferred tax asset/(liability)
Opening
balance
Movement in
Movement in
respect of
prior years
respect of
current year
127
(45)
12
13
(298)
(172)
Cash
237
318
Exchange
movements
Closing
balance
1
13
79
127
Movement in
Movement in
Opening
balance
respect of
prior years
respect of
current year Rate change
Exchange
movements
and other
350
297
(8)
(10)
(366)
21
10
3
4
39
Closing
balance
(10)
350
The deferred tax asset is €521 million (2016: €526 million) and all arises in Spain. A reversal of €86 million on the deferred tax
asset is expected within one year and the remainder beyond one year. The deferred tax liability is €531 million (2016: €176
Opening
balance
(1,065)
372
407
68
441
78
13
9
27
350
Movement in
Movement in
respect of
prior years
respect of
current year Rate change
Exchange
movements
and other
–
–
6
2
(4)
–
–
(7)
(5)
(8)
(65)
(24)
(293)
4
3
–
3
1
5
–
–
–
1
9
–
–
–
–
(366)
10
Closing
balance
(1,029)
374
352
39
140
78
15
2
19
(10)
32
(1)
4
(8)
(13)
–
(1)
(1)
(8)
4
Within tax in Other comprehensive income is a tax charge of €24 million (2016: €187 million) that may be reclassified
subsequently to the Income statement and a tax charge of €283 million (2016: tax credit of €345 million) that may not.
Within tax in Other comprehensive income arising from tax rate changes is a tax credit of €1 million (2016: charge of €12 million)
that may be reclassified subsequently to the Income statement and a tax credit of €9 million (2016: charge of €28 million) that
For the year to December 31, 2016
€ million
Fixed assets
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 payment schemes
Foreign exchange
Other items
Total deferred tax
Opening
balance
(1,208)
472
410
298
168
78
22
8
49
297
Movement in
respect of
prior years
Movement in
respect of
current year Rate change
Exchange
movements
(7)
1
16
(2)
–
–
1
(4)
(15)
(10)
(8)
(99)
(9)
(192)
332
–
(8)
6
(1)
21
45
(1)
(1)
(12)
(28)
–
–
–
–
3
113
(1)
(9)
(24)
(31)
–
(2)
(1)
(6)
39
Closing
balance
(1,065)
372
407
68
441
78
13
9
27
350
Within tax in Other comprehensive income is a tax charge of €187 million that may be reclassified subsequently to the Income
statement and a tax credit of €345 million that may not. Within tax in Other comprehensive income arising from tax rate
changes is a tax charge of €12 million that may be reclassified subsequently to the Income statement and a tax charge of €28
million that may not.
Detailed deferred tax movement in respect of current year in the Income statement, Other comprehensive income and
Statement of changes in equity
For the year to December 31, 2017
€ million
Fixed assets
Employee leaving indemnities and other employee related provisions
Tax losses carried forward
Fair value losses recognised on cash flow hedges
Employee benefit plans
Share-based payment schemes
Foreign exchange
Other items
Total deferred tax
For the year to December 31, 2016
€ million
Fixed assets
Employee leaving indemnities and other employee related provisions
Tax losses carried forward
Fair value losses recognised on cash flow hedges
Employee benefit plans
Share-based payment schemes
Foreign exchange
Other items
Total deferred tax
Income
statement
Other
comprehensive
income
Statement of
changes in
equity
4
3
(65)
–
(10)
1
1
5
(61)
–
–
–
(24)
(283)
–
–
–
(307)
–
–
–
–
–
2
–
–
2
Income
statement
Other
comprehensive
income
Statement of
changes in
equity
(8)
(99)
(9)
(5)
(13)
(1)
6
(1)
(130)
–
–
–
(187)
345
–
–
–
158
–
–
–
–
–
(7)
–
–
(7)
Total
4
3
(65)
(24)
(293)
3
1
5
(366)
Total
(8)
(99)
(9)
(192)
332
(8)
6
(1)
21
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
9 Tax continued
c Reconciliation of the total tax charge/(credit) in the Income statement
The tax charge is calculated at the domestic rates applicable to profits or losses in the main countries of operation. The tax charge
on the profit for the year to December 31, 2017 and 2016 is lower than the notional tax charge.
The differences are explained below:
€ million
Accounting profit before tax
Tax calculated at 25 per cent in Spain (2016: 25 per cent), 19.25 per cent in the UK (2016: 20 per cent)
and 12.5 per cent in Ireland (2016: 12.5 per cent)1
Effects of:
Non-deductible expenses - recurring items
Current year tax assets not recognised
Tax rate changes
Other items
Employee benefit plans accounted for net of withholding tax
Euro preferred securities accounted for as non-controlling interests
Adjustments in respect of prior years
Investment credit
Non-deductible expenses - non-recurring
Previously unrecognised tax assets
Tax charge in the income statement
2017
2,493
2016
2,362
480
466
6
4
2
(1)
(4)
(4)
(4)
(7)
–
–
472
12
4
(43)
(2)
(6)
(12)
(2)
(7)
9
(9)
410
1 The expected tax charge is arrived at by aggregating the expected tax charges arising in each company in the Group. It changes each year as tax rates
and profit mix change.
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 and charges paid during the year is as follows:
€ million
Payroll related taxes
UK Air Passenger Duty
Other ticket taxes and charges
2017
478
838
1,694
3,010
2016
495
848
1,626
2,969
The reduction in UK air passenger duty paid reflects foreign exchange movements and not a reduction in underlying payments.
e Factors that may affect future tax charges
Unrecognised temporary differences
€ million
Spanish corporate income tax losses and other temporary differences
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 UK 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
None of the unrecognised temporary differences have an expiry date.
2017
47
36
8
283
179
2016
47
34
8
296
170
Unrecognised temporary differences - investment in subsidiaries and associates
No deferred tax liability has been recognised in respect of €2,044 million (2016: €170 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.
128
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
c Reconciliation of the total tax charge/(credit) in the Income statement
The tax charge is calculated at the domestic rates applicable to profits or losses in the main countries of operation. The tax charge
on the profit for the year to December 31, 2017 and 2016 is lower than the notional tax charge.
9 Tax continued
The differences are explained below:
€ million
Accounting profit before tax
Tax calculated at 25 per cent in Spain (2016: 25 per cent), 19.25 per cent in the UK (2016: 20 per cent)
and 12.5 per cent in Ireland (2016: 12.5 per cent)1
Effects of:
Non-deductible expenses - recurring items
Current year tax assets not recognised
Tax rate changes
Other items
Adjustments in respect of prior years
Investment credit
Non-deductible expenses - non-recurring
Previously unrecognised tax assets
Tax charge in the income statement
Employee benefit plans accounted for net of withholding tax
Euro preferred securities accounted for as non-controlling interests
1 The expected tax charge is arrived at by aggregating the expected tax charges arising in each company in the Group. It changes each year as tax rates
The Group also contributed tax and related revenues through payment of transaction and payroll related taxes and charges. A
breakdown of these other taxes and charges paid during the year is as follows:
and profit mix change.
d Other taxes
€ million
Payroll related taxes
UK Air Passenger Duty
Other ticket taxes and charges
The reduction in UK air passenger duty paid reflects foreign exchange movements and not a reduction in underlying payments.
e Factors that may affect future tax charges
Unrecognised temporary differences
€ million
Spanish corporate income tax losses and other temporary differences
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 UK 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
None of the unrecognised temporary differences have an expiry date.
Unrecognised temporary differences - investment in subsidiaries and associates
No deferred tax liability has been recognised in respect of €2,044 million (2016: €170 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.
2017
2,493
2016
2,362
480
466
6
4
2
(1)
(4)
(4)
(4)
(7)
–
–
472
12
4
(43)
(2)
(6)
(12)
(2)
(7)
9
(9)
410
2017
478
838
1,694
3,010
2016
495
848
1,626
2,969
2017
47
36
8
283
179
2016
47
34
8
296
170
UK tax rate changes
The main rate of corporation tax applicable from April 1, 2020 is reducing from 18 per cent to 17 per cent. This will reduce the Group’s
future current tax charge. The deferred tax on temporary differences and tax losses at December 31, 2017 was calculated at the rate
applicable to the year in which the temporary differences and tax losses are expected to reverse.
Tax audits
The Group files income tax returns in many jurisdictions throughout the world. Tax returns contain matters that are subject to
potentially differing interpretations of tax laws and regulations, which may give rise to queries from and disputes with tax authorities.
The resolution of these queries and disputes can take several years but the Group does not currently expect any material impact on
the Group’s financial position or results of operations to arise from such resolution. The extent to which there are open queries and
disputes depends upon the jurisdiction and the issue.
10 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 for diluted earnings per share
2017
2,001
17
2,018
2016
1,931
26
1,957
Weighted average number of ordinary shares in issue1
Assumed conversion on convertible bonds
Dilutive employee share schemes outstanding
Weighted average number for diluted earnings per share
2017
Number
‘000
2016
Number
‘000
2,088,489 2,075,568
115,688
19,734
2,210,990
72,418
18,446
2,179,353
Includes 34 million as the weighted average impact for 74,999,449 treasury shares purchased in the share buyback programme (note 27).
1
€ cents
Basic earnings per share
Diluted earnings per share
2017
95.8
92.6
2016
93.0
88.5
The calculation of basic and diluted earnings per share before exceptional items is included in the Alternative performance
measures section.
11 Dividends
€ million
Cash dividend declared
Interim dividend for 2017 of 12.5 € cents per share (2016: 11 € cents per share)
Final dividend for 2016 of 12.5 € cents per share
Proposed cash dividend
Final dividend for 2017 of 14.5 € cents per share
2017
2016
233
–
256
262
298
The proposed dividend would be distributed from net profit for the year to December 31, 2017.
Proposed dividends on ordinary shares are subject to approval at the Annual General Meeting and subject to approval are
recognised as a liability on that date.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
Fleet
Property
Equipment
Total
22,875
2,739
(2,957)
(178)
(2,740)
19,739
1,290
(532)
(2)
(797)
2,481
31
(5)
–
(297)
2,210
52
(31)
–
(88)
1,651
123
(50)
(21)
(170)
1,533
102
(101)
–
(50)
19,698
2,143
1,484
11,058
1,016
(1,309)
(140)
(1,430)
9,195
924
(242)
(412)
9,465
1,143
64
(5)
–
(149)
1,053
57
(26)
(44)
1,040
1,076
89
(27)
(9)
(122)
1,007
83
(78)
(38)
974
27,007
2,893
(3,012)
(199)
(3,207)
23,482
1,444
(664)
(2)
(935)
23,325
13,277
1,169
(1,341)
(149)
(1,701)
11,255
1,064
(346)
(494)
11,479
10,233
10,544
1,103
1,157
510
526
11,846
12,227
4,044
5,231
958
10,233
3,930
6,000
614
10,544
1,028
4
71
1,103
1,114
4
39
1,157
401
62
47
510
409
57
60
526
2017
464
315
324
1,103
5,473
5,297
1,076
11,846
5,453
6,061
713
12,227
2016
494
331
332
1,157
12 Property, plant and equipment
€ million
Cost
Balance at January 1, 2016
Additions
Disposals
Reclassifications
Exchange movements
Balance at December 31, 2016
Additions
Disposals
Reclassifications
Exchange movements
December 31, 2017
Depreciation and impairment
Balance at January 1, 2016
Charge for the year
Disposals
Reclassifications
Exchange movements
Balance at December 31, 2016
Charge for the year
Disposals
Exchange movements
December 31, 2017
Net book values
December 31, 2017
December 31, 2016
Analysis at December 31, 2017
Owned
Finance leased
Progress payments
Property, plant and equipment
Analysis at December 31, 2016
Owned
Finance leased
Progress payments
Property, plant and equipment
The net book value of property comprises:
€ million
Freehold
Long leasehold improvements
Short leasehold improvements1
Property
1 Short leasehold improvements relate to leasehold interests with duration of less than 50 years.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
12 Property, plant and equipment
Fleet
Property
Equipment
Total
€ million
Cost
Additions
Disposals
Balance at January 1, 2016
Reclassifications
Exchange movements
Balance at December 31, 2016
Additions
Disposals
Reclassifications
Exchange movements
December 31, 2017
Depreciation and impairment
Balance at January 1, 2016
Charge for the year
Disposals
Reclassifications
Exchange movements
Balance at December 31, 2016
Charge for the year
Disposals
Exchange movements
December 31, 2017
Net book values
December 31, 2017
December 31, 2016
Analysis at December 31, 2017
Owned
Finance leased
Progress payments
Property, plant and equipment
Analysis at December 31, 2016
Owned
Finance leased
Progress payments
Property, plant and equipment
€ million
Freehold
Property
Long leasehold improvements
Short leasehold improvements1
The net book value of property comprises:
1 Short leasehold improvements relate to leasehold interests with duration of less than 50 years.
19,698
2,143
1,484
23,325
22,875
2,739
(2,957)
(178)
(2,740)
19,739
1,290
(532)
(2)
(797)
11,058
1,016
(1,309)
(140)
(1,430)
9,195
924
(242)
(412)
2,481
31
(5)
–
(297)
2,210
52
(31)
–
(88)
1,143
64
(5)
–
(149)
1,053
57
(26)
(44)
4,044
5,231
958
1,028
4
71
10,233
1,103
3,930
6,000
614
10,544
1,114
4
39
1,157
1,651
123
(50)
(21)
(170)
1,533
102
(101)
–
(50)
1,076
89
(27)
(9)
(122)
1,007
83
(78)
(38)
974
401
62
47
510
409
57
60
526
2017
464
315
324
1,103
27,007
2,893
(3,012)
(199)
(3,207)
23,482
1,444
(664)
(2)
(935)
13,277
1,169
(1,341)
(149)
(1,701)
11,255
1,064
(346)
(494)
11,479
5,473
5,297
1,076
11,846
5,453
6,061
713
12,227
2016
494
331
332
1,157
9,465
1,040
10,233
10,544
1,103
1,157
510
526
11,846
12,227
At December 31, 2017 bank and other loans of the Group are secured on fleet assets with a cost of €938 million (2016: €1,071
million) and letters of credit of €260 million in favour of the British Airways Pension Trustees are secured on certain aircraft
(2016: €273 million).
13 Capital expenditure commitments
Capital expenditure authorised and contracted for but not provided for in the accounts amounts to €12,137 million (December 31,
2016: €14,022 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to
changes in exchange rates.
The outstanding commitments include €12,056 million for the acquisition of 92 Airbus A320s (from 2018 to 2022), 21 Airbus A321s
(from 2018 to 2020), 4 Airbus A330s (in 2018), 43 Airbus A350s (from 2018 to 2022) and 17 Boeing 787s (from 2018 to 2023).
14 Non-current assets held for sale
At December 31, 2017, there were no non-current assets held for sale (2016: €38 million).
Assets held for sale with a net book value of €38 million were disposed of during the year to December 31, 2017. €15 million related
to the Group’s investment in Propius Holdings Limited and €23 million related to the sale of five Airbus A340-300 aircraft. These
were classified as non-current assets held for sale at December 31, 2016 and presented within the Aer Lingus and Iberia operating
segments.
15 Intangible assets and impairment review
a
Intangible assets
€ million
Cost
Balance at January 1, 2016
Additions
Disposals
Reclassifications
Exchange movements
Balance at December 31, 2016
Additions
Disposals
Exchange movements
December 31, 2017
Amortisation and impairment
Balance at January 1, 2016
Charge for the year
Impairment charge recognised during the year3
Reclassifications
Exchange movements
Balance at December 31, 2016
Charge for the year
Disposals
Exchange movements
December 31, 2017
Net book values
December 31, 2017
December 31, 2016
Goodwill
Brand
Customer
loyalty
programmes
Landing
rights1
Other2
Total
605
–
–
–
(7)
598
–
–
(2)
596
249
–
–
–
–
249
–
–
–
249
347
349
451
–
–
–
–
451
–
–
–
451
–
–
–
–
–
–
–
–
–
–
253
–
–
–
–
253
–
–
–
253
–
–
–
–
–
–
–
–
–
–
1,684
–
–
–
(128)
1,556
1
–
(38)
1,519
86
6
14
–
(8)
98
6
–
(3)
101
451
451
253
253
1,418
1,458
905
154
(19)
20
(100)
960
174
(24)
(34)
1,076
368
98
–
9
(41)
434
114
(5)
(16)
527
549
526
3,898
154
(19)
20
(235)
3,818
175
(24)
(74)
3,895
703
104
14
9
(49)
781
120
(5)
(19)
877
3,018
3,037
1 The net book value includes non-EU based landing rights of €106 million (2016: €113 million) that have a definite life. The remaining life of these landing
rights is 18 years.
2 Other intangible assets consist primarily of software with a net book value of €473 million (2016: €474 million), and also include purchased emissions
allowances.
3 The impairment charge of €14 million in 2016 relates to landing rights associated with British Airwaysʾ Openskies operation, €11 million of which related
to landing rights in the EU that have an indefinite life.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
15 Intangible assets and impairment review continued
Impairment review
b
The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group
are:
€ million
2017
Iberia
January 1 and December 31, 2017
British Airways
January 1, 2017
Additions
Exchange movements
December 31, 2017
Vueling
January 1 and December 31, 2017
Aer Lingus
January 1 and December 31, 2017
Avios
January 1 and December 31, 2017
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
–
423
306
49
–
(2)
47
771
1
(34)
738
–
–
–
–
28
89
35
272
62
110
–
–
–
–
–
–
–
Total
729
820
1
(36)
785
152
444
–
–
–
253
253
December 31, 2017
347
1,312
451
253
2,363
€ million
2016
Iberia
January 1 and December 31, 2016
British Airways
January 1, 2016
Impairment
Exchange movements
December 31, 2016
Vueling
January 1 and December 31, 2016
Aer Lingus
January 1 and December 31, 2016
Avios
January 1 and December 31, 2016
Goodwill
Landing
rights
Customer
loyalty
programmes
Brand
Total
–
423
306
–
729
56
–
(7)
49
901
(11)
(119)
771
–
–
–
–
28
89
35
–
–
–
–
–
957
(11)
(126)
820
152
272
62
110
–
444
–
–
–
253
253
December 31, 2016
349
1,345
451
253
2,398
132
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
15 Intangible assets and impairment review continued
b
Impairment review
The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group
Goodwill
Landing
rights
Customer
loyalty
Brand
programmes
Total
January 1 and December 31, 2017
–
423
306
are:
€ million
2017
Iberia
British Airways
January 1, 2017
Additions
Exchange movements
December 31, 2017
Vueling
January 1 and December 31, 2017
Aer Lingus
January 1 and December 31, 2017
Avios
January 1 and December 31, 2017
€ million
2016
Iberia
British Airways
January 1, 2016
Impairment
Exchange movements
December 31, 2016
Vueling
January 1 and December 31, 2016
Aer Lingus
January 1 and December 31, 2016
Avios
January 1 and December 31, 2016
December 31, 2017
347
1,312
451
253
2,363
–
–
–
253
253
Goodwill
Landing
rights
Brand
programmes
Total
Customer
loyalty
January 1 and December 31, 2016
–
423
306
–
729
49
–
(2)
47
771
1
(34)
738
–
–
–
–
28
89
35
272
62
110
–
–
–
–
–
–
–
–
–
–
–
–
729
820
1
(36)
785
152
444
957
(11)
(126)
820
152
56
–
(7)
49
901
(11)
(119)
771
–
–
–
–
28
89
35
272
62
110
–
444
–
–
–
253
253
December 31, 2016
349
1,345
451
253
2,398
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 the Board 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 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
Lease adjusted operating margin
Average ASK growth per annum
Long-term growth rate
Pre-tax discount rate
British
Airways
15
2
2.3
8.5
British
Airways
12–15
2
2.5
8.5
2017
Vueling
12–15
10
2.0
10.6
2016
Vueling
7–15
7
2.0
10.6
Aer Lingus
15
5
2.0
7.8
Aer Lingus
12–15
8
2.0
7.8
Iberia
10–14
8
2.0
9.8
Iberia
8–14
4
2.0
9.8
Avios
n/a1
n/a1
2.0
9.1
Avios
n/a1
n/a1
2.4
9.1
1 Lease adjusted operating margin and ASK growth per annum assumptions are not applicable for the Avios loyalty reward business, which conducts
business with partners both within and outside IAG.
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 2022. 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 planned network growth and taking into account
Management’s expectation of the market.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
15 Intangible assets and impairment review continued
The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics). The airline’s network plans are reviewed annually as part of the
Business plan and reflect Management’s plans in response to specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time
value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline
industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by
airline investors and the cost of debt is 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.
Summary of results
In 2017, Management reviewed the recoverable amount of each of its CGUs and concluded the recoverable amounts exceeded the
carrying values. Sensitivities have been considered for each CGU. Reducing long-term growth rates to zero, increasing pre-tax
discount rates by 4 points, and increasing the fuel price by 40 per cent, does not result in any impairment.
16 Investments
Investments in subsidiaries
a
The Group’s principal subsidiaries at December 31, 2017 are listed in the Group investments section.
All subsidiary undertakings are included in the consolidation. There have been no significant changes in ownership interests of
subsidiaries during the year.
The total non-controlling interest at December 31, 2017 is €307 million which largely comprises €300 million of 6.75 per cent fixed
coupon euro preferred securities issued by British Airways Finance (Jersey) L.P. (note 30).
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.
134
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
15 Intangible assets and impairment review continued
The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market
using gross domestic product (GDP) (source: Oxford Economics). The airline’s network plans are reviewed annually as part of the
Business plan and reflect Management’s plans in response to specific market risk or opportunity.
Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time
value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline
industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into
consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by
airline investors and the cost of debt is 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
In 2017, Management reviewed the recoverable amount of each of its CGUs and concluded the recoverable amounts exceeded the
carrying values. Sensitivities have been considered for each CGU. Reducing long-term growth rates to zero, increasing pre-tax
discount rates by 4 points, and increasing the fuel price by 40 per cent, does not result in any impairment.
the timing of future tax flows.
Summary of results
16 Investments
a
Investments in subsidiaries
The Group’s principal subsidiaries at December 31, 2017 are listed in the Group investments section.
All subsidiary undertakings are included in the consolidation. There have been no significant changes in ownership interests of
subsidiaries during the year.
The total non-controlling interest at December 31, 2017 is €307 million which largely comprises €300 million of 6.75 per cent fixed
coupon euro preferred securities issued by British Airways Finance (Jersey) L.P. (note 30).
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.
Investments accounted for using the equity method
b
The share of assets, liabilities, revenue and profit of the Group’s associates and joint ventures, 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 Investments accounted for using the equity method is shown as follows:
€ million
At beginning of year
Share of retained profits
Additions
Disposals
Exchange movements
Dividends received
Reclassification
2017
96
(68)
86
3
2016
88
(61)
52
6
2017
2016
29
3
2
(2)
1
(3)
–
30
41
6
–
–
–
(3)
(15)
29
At December 31, 2017 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, 2017 the investment in Sociedad Conjunta para la Emision y Gestion de Medios de Pago EFC, S.A. exceeded 50 per
cent ownership by the Group (50.5 per cent). The entity is treated as a joint venture as decisions regarding its strategy and
operations require the unanimous consent of the parties who share control, including IAG.
17 Available-for-sale financial assets
Available-for-sale financial assets include the following:
€ million
Listed securities
Comair Limited
Unlisted securities
The net gain relating to available-for-sale financial assets was €7 million (2016: €4 million).
2017
2016
23
56
79
15
58
73
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
18 Trade and other receivables
€ 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 days terms (2016: 30 days).
19 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
2017
2016
1,557
(63)
1,494
764
194
2,452
297
66
13
376
2017
64
15
(1)
(13)
(2)
63
2017
1,171
117
153
53
1,494
2017
1,963
1,329
3,292
3,384
6,676
1,469
(64)
1,405
717
182
2,304
313
114
72
499
2016
84
7
(1)
(23)
(3)
64
2016
1,017
235
96
57
1,405
2016
2,021
1,316
3,337
3,091
6,428
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, 2017 the Group had no outstanding bank overdrafts (2016: 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.
At December 31, 2017 Aer Lingus held €43 million of restricted cash (2016: €47 million) within interest-bearing deposits maturing
after more than three months to be used for employee related obligations.
136
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
18 Trade and other receivables
€ 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
Neither past due date nor impaired
€ million
< 30 days
30 - 60 days
> 60 days
Net trade receivables
The ageing analysis of net trade receivables is as follows:
Trade receivables are generally non-interest-bearing and on 30 days terms (2016: 30 days).
19 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
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, 2017 the Group had no outstanding bank overdrafts (2016: 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.
At December 31, 2017 Aer Lingus held €43 million of restricted cash (2016: €47 million) within interest-bearing deposits maturing
after more than three months to be used for employee related obligations.
2017
2016
a Net debt
Movements in net debt were as follows:
1,557
(63)
1,494
764
194
2,452
297
66
13
376
2017
64
15
(1)
(13)
(2)
63
2017
1,171
117
153
53
1,494
2017
1,963
1,329
3,292
3,384
6,676
1,469
(64)
1,405
717
182
2,304
313
114
72
499
2016
84
7
(1)
(23)
(3)
64
2016
1,017
235
96
57
1,405
2016
2,021
1,316
3,337
3,091
6,428
€ million
Bank and other loans
Finance leases
Interest-bearing borrowings
Cash and cash equivalents
Other current interest-bearing deposits
20 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 payment days for payment to suppliers
Ratio of transactions paid
Ratio of transactions outstanding for payment
€ million
Total payments made
Total payments outstanding
21 Other long-term liabilities
€ million
Non-current trade creditors
Accruals and deferred income
22 Long-term borrowings
a Current
€ million
Bank and other loans
Finance leases
b Non-current
€ million
Bank and other loans
Finance leases
Balance at
January 1,
2017
(1,913)
(6,602)
(8,515)
3,337
3,091
(2,087)
Cash flows
138
657
795
141
432
1,368
Exchange
movements
26
424
450
(186)
(139)
125
Other non-
cash
(75)
14
(61)
–
–
(61)
Balance at
December 31,
2017
(1,824)
(5,507)
(7,331)
3,292
3,384
(655)
2017
2,135
926
238
467
3,766
2017
37
38
35
2017
4,879
140
2017
3
219
222
2017
183
747
930
2017
1,641
4,760
6,401
2016
1,776
910
218
401
3,305
2016
31
30
53
2016
4,600
86
2016
4
234
238
2016
149
777
926
2016
1,764
5,825
7,589
Banks and other loans are repayable up to the year 2027. Bank and other loans of the Group amounting to €539 million (2016:
€613 million) are secured on aircraft. Finance leases are all secured on aircraft or property, plant and equipment.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
22 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 20221
Floating rate euro mortgage loans secured on aircraft2
€200 million fixed rate unsecured bonds3
Floating rate euro syndicate loan secured on investments4
Fixed rate US dollar mortgage loans secured on aircraft5
Fixed rate Chinese yuan mortgage loans secured on aircraft6
Fixed rate unsecured US dollar loans7
Floating rate pound sterling mortgage loans secured on aircraft8
Fixed rate unsecured euro loans with the Spanish State (Department of Industry)9
Floating rate US dollar mortgage loans secured on aircraft10
European Investment Bank sterling loans secured on certain property11
Less current instalments due on bank and other loans
2017
472
450
278
200
148
117
68
49
27
15
–
–
1,824
(183)
1,641
2016
463
441
304
200
176
157
87
–
53
18
12
2
1,913
(149)
1,764
1 Two senior unsecured bonds convertible into ordinary shares of IAG were issued by the Group in November 2015; €500 million fixed rate 0.25 per cent
raising net proceeds of €494 million and due in 2020, and €500 million fixed rate 0.625 per cent raising net proceeds of €494 million and due in 2022.
The Group holds an option to redeem each convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to
the final maturity date. The bonds contain dividend protection, and a total of 72,417,846 options related to the bonds were outstanding from issuance
and at December 31, 2017.
2 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.17 and 1.17 per cent. The loans are
repayable between 2024 and 2027.
3 €200 million fixed rate unsecured bonds between 2.5 to 3.75 per cent coupon repayable between 2018 and 2027.
4 Floating rate euro syndicate loan secured on investments is secured on specific assets of the Group and bears interest of 1.375 per cent plus 3 month
EURIBOR. The loan is repayable in 2020.
5 Fixed rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 3.81 and 4.76 per cent. The loans
are repayable between 2021 and 2026.
6 Fixed rate Chinese yuan mortgage loans are secured on specific aircraft assets of the Group and bear interest of 5.20 per cent. The loans are repayable
in 2022.
7 Fixed rate unsecured US dollar loans bearing interest between 1.98 to 2.37 per cent. The loans are repayable in 2023.
8 Floating rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of 1.07 per cent. The loans are
repayable between 2018 and 2019.
9 Fixed rate unsecured euro loans with the Spanish State (Department of Industry) bear interest of between nil and 5.68 per cent and are repayable
between 2018 and 2026.
10 Floating rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of 3.66 per cent. The loans were repaid
in 2017.
11 European Investment Bank pound sterling loan is secured on certain property assets of the Group and bears interest of 0.50 per cent. The loan was
repaid in 2017.
138
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
22 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 20221
Floating rate euro mortgage loans secured on aircraft2
€200 million fixed rate unsecured bonds3
Floating rate euro syndicate loan secured on investments4
Fixed rate US dollar mortgage loans secured on aircraft5
Fixed rate Chinese yuan mortgage loans secured on aircraft6
Fixed rate unsecured US dollar loans7
Floating rate pound sterling mortgage loans secured on aircraft8
Fixed rate unsecured euro loans with the Spanish State (Department of Industry)9
Floating rate US dollar mortgage loans secured on aircraft10
European Investment Bank sterling loans secured on certain property11
Less current instalments due on bank and other loans
1 Two senior unsecured bonds convertible into ordinary shares of IAG were issued by the Group in November 2015; €500 million fixed rate 0.25 per cent
raising net proceeds of €494 million and due in 2020, and €500 million fixed rate 0.625 per cent raising net proceeds of €494 million and due in 2022.
The Group holds an option to redeem each convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to
the final maturity date. The bonds contain dividend protection, and a total of 72,417,846 options related to the bonds were outstanding from issuance
2 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.17 and 1.17 per cent. The loans are
3 €200 million fixed rate unsecured bonds between 2.5 to 3.75 per cent coupon repayable between 2018 and 2027.
4 Floating rate euro syndicate loan secured on investments is secured on specific assets of the Group and bears interest of 1.375 per cent plus 3 month
5 Fixed rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 3.81 and 4.76 per cent. The loans
6 Fixed rate Chinese yuan mortgage loans are secured on specific aircraft assets of the Group and bear interest of 5.20 per cent. The loans are repayable
7 Fixed rate unsecured US dollar loans bearing interest between 1.98 to 2.37 per cent. The loans are repayable in 2023.
8 Floating rate pound sterling mortgage loans are secured on specific aircraft assets of the Group and bear interest of 1.07 per cent. The loans are
9 Fixed rate unsecured euro loans with the Spanish State (Department of Industry) bear interest of between nil and 5.68 per cent and are repayable
10 Floating rate US dollar mortgage loans are secured on specific aircraft assets of the Group and bear interest of 3.66 per cent. The loans were repaid
11 European Investment Bank pound sterling loan is secured on certain property assets of the Group and bears interest of 0.50 per cent. The loan was
and at December 31, 2017.
repayable between 2024 and 2027.
EURIBOR. The loan is repayable in 2020.
are repayable between 2021 and 2026.
in 2022.
repayable between 2018 and 2019.
between 2018 and 2026.
in 2017.
repaid in 2017.
d Total loans and finance leases
Million
2017
2016
2017
472
450
278
200
148
117
68
49
27
15
–
–
1,824
(183)
1,641
2016
463
441
304
200
176
157
87
–
53
18
12
2
1,913
(149)
1,764
Loans
Bank:
US dollar
Euro
Pound sterling
Chinese yuan
Fixed rate bonds:
Euro
Finance leases
US dollar
Euro
Japanese yen
Pound sterling
$196
€440
£25
$176
€498
£47
CNY 525 CNY 623
€809
€702
€1,122
€1,122
€1,104
€1,104
$2,882
€2,296
¥63,978
£258
€5,507
$3,246
€2,343
¥63,614
£527
€6,602
€7,331
€8,515
e Obligations under finance leases
The Group uses finance leases principally to acquire aircraft. These leases have both renewal and purchase options, at the option of
the Group. Future minimum finance 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
2017
2016
875
2,783
2,464
6,122
(615)
5,507
747
2,409
2,351
5,507
905
3,339
3,070
7,314
(712)
6,602
777
2,938
2,887
6,602
23 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 to 14 years for aircraft and less than one year to 21 years for property, plant and equipment. One ground
lease has a remaining lease of 128 years. 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
2017
Property,
plant and
equipment
190
340
1,962
2,492
Fleet
802
2,559
1,789
5,150
Total
992
2,899
3,751
7,642
Fleet
975
2,970
1,918
5,863
2016
Property,
plant and
equipment
158
233
2,060
2,451
Total
1,133
3,203
3,978
8,314
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
23 Operating lease commitments continued
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 six years and the assets are surplus to the Group’s requirements. Future
minimum rentals receivable under non-cancellable operating leases are €8 million (2016: €12 million) with €7 million (2016: €7 million)
falling within one year, €1 million (2016: €5 million) between one and five years and nil (2016: nil) over five years.
24 Provision for liabilities and charges
€ million
Net book value January 1, 2017
Provisions recorded during the year
Utilised during the year
Release of unused amounts
Unwinding of discount
Exchange differences
Net book value December 31, 2017
Analysis:
Current
Non-current
Restoration
and
handback
provisions
1,201
355
(268)
(38)
3
(128)
1,125
132
993
1,125
Restructuring
provisions
692
302
(248)
(17)
2
(4)
727
241
486
727
Employee
leaving
indemnities
and other
employee
related
provisions
593
22
(24)
(3)
14
(3)
Legal claims
provisions
189
112
(125)
(34)
1
(3)
Other
provisions
83
139
(126)
(26)
–
(1)
599
140
61
538
599
80
60
140
69
33
36
69
Total
2,758
930
(791)
(118)
20
(139)
2,660
547
2,113
2,660
Restoration and handback provisions
The provision for restoration and handback costs is maintained to meet the contractual maintenance and return conditions on
aircraft held under operating leases. The provision also includes 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 leased asset term which is up to 14
years for aircraft.
Restructuring
The Group recognises a provision for targeted voluntary severance schemes. 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 0.08 per cent. The payments related to this provision will continue in the next ten years.
During the year the Group recognised a provision of €108 million in relation to the restructuring plans at British Airways (note 4).
Further costs related to this provision are expected to be incurred in 2018 and the payments will be made over a maximum of
five years.
In 2017, a provision of €180 million was also recognised at Iberia in relation to the new Transformation Plan (note 4). The payments
related to the provision are expected to be incurred over more than ten years.
At December 31, 2017, €719 million of this provision related to collective redundancy programmes (2016: €674 million).
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 having met certain conditions, 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, 2017 with the use of independent actuaries using the
projected unit credit method, based on a discount rate consistent with the iBoxx index of 1.40 per cent and 0.08 per cent
depending on whether the employees are currently active or not, the PERM/F-2000P mortality tables, and assuming a 1.50 per cent
annual increase in the Consumer Price Index (CPI). This is mainly a long-term provision. The amount relating to this provision was
€542 million at December 31, 2017 (2016: €524 million).
140
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
23 Operating lease commitments continued
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 six years and the assets are surplus to the Group’s requirements. Future
minimum rentals receivable under non-cancellable operating leases are €8 million (2016: €12 million) with €7 million (2016: €7 million)
falling within one year, €1 million (2016: €5 million) between one and five years and nil (2016: nil) over five years.
24 Provision for liabilities and charges
€ million
Net book value January 1, 2017
Provisions recorded during the year
Utilised during the year
Release of unused amounts
Unwinding of discount
Exchange differences
Net book value December 31, 2017
Analysis:
Current
Non-current
Restructuring
provisions
Legal claims
provisions
Other
provisions
Restoration
and
handback
provisions
1,201
355
(268)
(38)
3
(128)
1,125
132
993
1,125
Employee
leaving
indemnities
and other
employee
related
provisions
593
22
(24)
(3)
14
(3)
599
61
538
599
692
302
(248)
(17)
2
(4)
727
241
486
727
189
112
(125)
(34)
1
(3)
140
80
60
140
83
139
(126)
(26)
–
(1)
69
33
36
69
Total
2,758
930
(791)
(118)
20
(139)
2,660
547
2,113
2,660
Restoration and handback provisions
The provision for restoration and handback costs is maintained to meet the contractual maintenance and return conditions on
aircraft held under operating leases. The provision also includes 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 leased asset term which is up to 14
years for aircraft.
Restructuring
The Group recognises a provision for targeted voluntary severance schemes. 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 0.08 per cent. The payments related to this provision will continue in the next ten years.
During the year the Group recognised a provision of €108 million in relation to the restructuring plans at British Airways (note 4).
Further costs related to this provision are expected to be incurred in 2018 and the payments will be made over a maximum of
five years.
In 2017, a provision of €180 million was also recognised at Iberia in relation to the new Transformation Plan (note 4). The payments
related to the provision are expected to be incurred over more than ten years.
At December 31, 2017, €719 million of this provision related to collective redundancy programmes (2016: €674 million).
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 having met certain conditions, 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, 2017 with the use of independent actuaries using the
projected unit credit method, based on a discount rate consistent with the iBoxx index of 1.40 per cent and 0.08 per cent
depending on whether the employees are currently active or not, the PERM/F-2000P mortality tables, and assuming a 1.50 per cent
annual increase in the Consumer Price Index (CPI). This is mainly a long-term provision. The amount relating to this provision was
€542 million at December 31, 2017 (2016: €524 million).
Legal claims provisions
Legal claims provisions includes:
• Amounts for 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;
• Provisions related to tax assessment; and
• Amounts related to investigations by a number of competition authorities in connection with alleged anti-competitive activity
concerning the Group’s passenger and cargo businesses. The provision includes the payment of €104 million for the reissued
fine in March 2017 against British Airways. The final amount required to pay the remaining claims and fines is subject to
uncertainty (note 32).
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;
• During 2017 a €65 million provision was recognised on additional compensation fees and baggage claims related to
operational disruption at British Airways due to a power failure.
• A provision for the Emissions Trading Scheme 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.
25 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. Further information on the Group’s financial instruments exposed to these risks is
included in note 26. The Board approves the key strategic principles and the risk appetite, defining the amount of risk that the Group
is prepared to retain. The Group's Financial Risk Management programme focuses on the unpredictability of financial markets and
seeks to minimise the risk of incremental costs arising from adverse financial market movements.
Financial risks are managed under the overall oversight of the Group Treasury department. Fuel price fluctuations, euro-US dollar
and sterling-US dollar exchange rate volatility represents the largest financial risks facing the Group. Other currencies as well as
interest rate risk are also the subject of the Financial Risk Management programme. The IAG Management Committee approves the
Group hedging profile and delegates to the operating company Risk Committee to agree on the degree of flexibility in applying the
levels as defined by the IAG Management Committee. Each operating company Risk Committee meets at least once a month to
review and approve a mandate to place hedging cover in the market including the instruments to be used.
The Group Treasury department provides a quarterly report on the hedging position to the IAG Management Committee and the
Audit and Compliance Committee. The Board reviews the strategy and risk appetite once a year.
a Fuel price risk
The Group is exposed to fuel price risk. The Group’s fuel price risk management strategy aims to provide protection against sudden
and significant increases in fuel prices while ensuring that the Group is not competitively disadvantaged in the event of a substantial
fall in the price. The current Group strategy is to hedge a proportion of fuel consumption for the next twelve quarters, within certain
defined limits.
Within the strategy, the Financial Risk Management programme allows for the use of a number of derivative instruments 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 result before tax and equity:
Increase/(decrease)
in fuel price
per cent
30
(30)
2017
Effect on result
before tax
€ million
41
(48)
Effect on
equity
€ million
1,142
(1,039)
Increase/(decrease)
in fuel price
per cent
30
(30)
2016
Effect on result
before tax
€ million
73
(114)
Effect on
equity
€ million
1,006
(855)
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
25 Financial risk management objectives and policies continued
b Foreign currency risk
The Group presents its consolidated financial statements in euros, has functional entities in euro and pound 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 denominated are primarily euro, US dollar and pound sterling. The Group generates a surplus in most currencies in
which it does business. The US dollar is an exception as fuel purchases, maintenance expenses and debt repayments denominated
in US dollars typically create a deficit.
The Group has a number of strategies to hedge foreign currency risk. 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 a proportion of up to three years of US dollar exposure, within certain defined limits.
British Airways utilises its US dollar, euro, Japanese yen and Chinese yuan debt repayments as a hedge of future US dollar, euro,
Japanese yen and Chinese yuan revenues. Iberia’s balance sheet assets and liabilities in US dollars are hedged through a rolling
programme of swaps and US dollar financial assets that eliminate the profit and loss volatility arising from revaluation of these items
into euros. Vueling and Aer Lingus manage their net position in US dollars using derivative financial instruments.
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in the US dollar, sterling,
Japanese yen and Chinese yuan 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
2017
2016
10
(10)
10
(10)
(2)
6
9
(9)
253
(72)
(29)
73
10
(10)
10
(10)
(36)
35
(39)
40
Strengthening/
(weakening) in
Japanese yen
rate
per cent
Effect on
result
before
tax
€ million
Strengthening/
(weakening) in
Chinese yuan
rate
per cent
Effect on
result
before
tax
€ million
Effect on
equity
€ million
Effect on
equity
€ million
10
(10)
10
(10)
(2)
2
(3)
3
(45)
45
(50)
50
10
(10)
10
(10)
–
–
1
(1)
(7)
7
(8)
8
Effect on
equity
€ million
232
(233)
277
(277)
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, 75 per cent of the Group’s borrowings were at fixed rates and
25 per cent were at floating rates.
All cash deposits are generally 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 US dollar, euro and
sterling interest rates, on result before tax and equity:
Strengthening/
(weakening) in
US interest
rate
Basis points
Effect on
result
before tax
€ 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
Effect on
equity
€ million
2017
2016
50
(50)
50
(50)
(1)
1
(1)
1
–
–
7
(8)
50
(50)
50
(50)
(6)
6
(11)
12
–
–
–
–
50
(50)
50
(50)
3
(3)
10
(10)
–
–
–
–
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
25 Financial risk management objectives and policies continued
b Foreign currency risk
The Group presents its consolidated financial statements in euros, has functional entities in euro and pound 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 denominated are primarily euro, US dollar and pound sterling. The Group generates a surplus in most currencies in
which it does business. The US dollar is an exception as fuel purchases, maintenance expenses and debt repayments denominated
in US dollars typically create a deficit.
The Group has a number of strategies to hedge foreign currency risk. 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 a proportion of up to three years of US dollar exposure, within certain defined limits.
British Airways utilises its US dollar, euro, Japanese yen and Chinese yuan debt repayments as a hedge of future US dollar, euro,
Japanese yen and Chinese yuan revenues. Iberia’s balance sheet assets and liabilities in US dollars are hedged through a rolling
programme of swaps and US dollar financial assets that eliminate the profit and loss volatility arising from revaluation of these items
into euros. Vueling and Aer Lingus manage their net position in US dollars using derivative financial instruments.
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in the US dollar, sterling,
Japanese yen and Chinese yuan exchange rates, with all other variables held constant, on result before tax and equity:
Strengthening/
Effect on
(weakening) in
Effect on
result
Effect on
pound
result
Effect on
before tax
€ million
equity
€ million
sterling rate
before tax
equity
rate
per cent
€ million
€ million
per cent
€ million
€ million
(weakening) in
Japanese yen
result
before
Effect on
tax
equity
(weakening) in
Chinese yuan
result
before
Effect on
rate
tax
per cent
€ million
equity
€ million
(weakening) in
US dollar rate
per cent
Strengthening/
Strengthening/
Effect on
Strengthening/
Effect on
2017
2016
10
(10)
10
(10)
(2)
6
9
(9)
253
(72)
(29)
73
10
(10)
10
(10)
(36)
232
35
(233)
(39)
277
40
(277)
10
(10)
10
(10)
(2)
2
(3)
3
(45)
45
(50)
50
10
(10)
10
(10)
–
–
1
(1)
(7)
7
(8)
8
c
Interest rate risk
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, 75 per cent of the Group’s borrowings were at fixed rates and
25 per cent were at floating rates.
All cash deposits are generally on tenors less than one year. The interest rate is predominantly fixed for the tenor of the deposit.
Strengthening/
(weakening) in
US interest
rate
Basis points
Effect on
result
before tax
€ 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
Effect on
equity
€ million
2017
2016
50
(50)
50
(50)
(1)
1
(1)
1
–
–
7
(8)
50
(50)
50
(50)
(6)
6
(11)
12
–
–
–
–
50
(50)
50
(50)
3
(3)
10
(10)
–
–
–
–
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 department. The Risk 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 using available market information such as credit ratings. Sovereign risk is also monitored, country concentration
and sovereign credit ratings are monitored by the Group Treasury department and reported to the Audit and Compliance
Committee quarterly.
Each operating company invests surplus cash in interest-bearing accounts, time deposits, and money market funds, 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.
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.
At December 31, 2017 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
Mark-to-market of treasury
controlled financial
instruments allocated by
geography
2017
42%
1%
2%
33%
22%
2016
36%
1%
1%
38%
24%
The following table demonstrates the sensitivity of financial instruments to a reasonable possible change in the US dollar, euro and
sterling interest rates, on result before tax and equity:
At December 31, 2017 the Group had undrawn revolving credit facilities of €16 million (2016: €17 million). The Group held undrawn
uncommitted money market lines of €28 million (2016: €30 million).
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 using committed credit lines.
The Group held undrawn general and committed aircraft financing facilities:
Million
Euro facilities expiring between January and October 2018
US dollar facility expiring December 2021
US dollar facility expiring June 2022
2017
Currency € equivalent
€217
$1,164
$1,053
217
985
891
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
25 Financial risk management objectives and policies continued
Million
Euro facilities expiring between January and October 2017
US dollar facility expiring December 2021
US dollar facility expiring June 2022
2016
Currency
€ equivalent
€215
$1,164
$1,030
215
1,117
988
The following table categorises the Group’s (outflows) and inflows in respect of 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.
Within 6
months
6-12
months
(426)
(31)
(29)
(3,454)
–
43
207
2
(49)
(2)
(2)
(449)
(58)
(76)
–
–
10
141
–
(56)
–
(2)
1-2
years
(801)
(99)
(85)
(15)
1
8
112
2
(75)
–
(3)
2-5
years
More than 5
years
Total
2017
(1,982)
(1,224)
(144)
–
(2,464)
(77)
(150)
–
(6,122)
(1,489)
(484)
(3,469)
–
2
22
–
(35)
–
(1)
–
–
–
–
–
–
–
1
63
482
4
(215)
(2)
(8)
(11,239)
(3,741)
(490)
(955)
(3,362)
(2,691)
Within 6
months
6-12
months
(376)
(72)
(34)
(3,049)
18
93
68
2
(14)
(23)
(38)
(3,425)
(529)
(31)
(67)
–
–
85
65
2
–
(2)
(24)
(501)
1-2
years
(982)
(70)
(105)
(16)
–
93
55
2
2-5
years
More than 5
years
Total
2016
(2,357)
(737)
(198)
–
(3,070)
(649)
(181)
–
(7,314)
(1,559)
(585)
(3,065)
–
5
12
–
–
–
–
–
18
276
200
6
–
(7)
(12)
(1,042)
–
–
–
(3,275)
–
–
–
(3,900)
(14)
(32)
(74)
(12,143)
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Aircraft lease hedges
Forward contracts
Fuel derivatives
Currency options
Derivative financial instruments (liabilities):
Forward contracts
Fuel derivatives
Currency options
December 31, 2017
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Aircraft lease hedges
Forward contracts
Fuel derivatives
Currency options
Derivative financial instruments (liabilities):
Aircraft lease hedges
Forward contracts
Fuel derivatives
December 31, 2016
144
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
25 Financial risk management objectives and policies continued
Million
Euro facilities expiring between January and October 2017
US dollar facility expiring December 2021
US dollar facility expiring June 2022
2016
Currency
€ equivalent
€215
$1,164
$1,030
215
1,117
988
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 ISDA (International Swaps and Derivatives Association) documentation. 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.
The following table categorises the Group’s (outflows) and inflows in respect of 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.
Within 6
months
6-12
months
2-5
years
More than 5
years
Total
2017
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Derivative financial instruments (liabilities):
Aircraft lease hedges
Forward contracts
Fuel derivatives
Currency options
Forward contracts
Fuel derivatives
Currency options
December 31, 2017
€ million
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Trade and other payables
Derivative financial instruments (assets):
Derivative financial instruments (liabilities):
Aircraft lease hedges
Forward contracts
Fuel derivatives
Currency options
Aircraft lease hedges
Forward contracts
Fuel derivatives
December 31, 2016
(426)
(31)
(29)
(3,454)
–
43
207
2
(49)
(2)
(2)
(376)
(72)
(34)
(3,049)
18
93
68
2
(14)
(23)
(38)
(3,425)
(449)
(58)
(76)
–
–
10
141
–
(56)
–
(2)
(529)
(31)
(67)
–
–
85
65
2
–
(2)
(24)
(501)
1-2
years
(801)
(99)
(85)
(15)
1
8
112
2
(75)
–
(3)
1-2
years
(982)
(70)
(105)
(16)
–
93
55
2
–
(7)
(12)
(1,982)
(1,224)
(144)
–
(2,464)
(77)
(150)
(6,122)
(1,489)
(484)
(3,469)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
63
482
4
(215)
(2)
(8)
18
276
200
6
(14)
(32)
(74)
–
2
22
–
(35)
–
(1)
–
5
12
–
–
–
–
(1,042)
(3,275)
(3,900)
(12,143)
(3,741)
(490)
(955)
(3,362)
(2,691)
(11,239)
Within 6
months
6-12
months
2-5
years
More than 5
years
Total
2016
(2,357)
(3,070)
(737)
(198)
–
(649)
(181)
(7,314)
(1,559)
(585)
(3,065)
December 31, 2017
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
December 31, 2016
€ million
Financial assets
Derivative financial assets
Financial liabilities
Derivative financial liabilities
Financial
instruments
that are
offset under
netting
agreements
Net amounts
of financial
instruments
in the
balance
sheet
Gross value
of financial
instruments
Related
amounts not
offset in the
balance
sheet Net amount
551
226
(1)
(1)
550
(5)
545
225
(5)
220
Financial
instruments
that are
offset under
netting
agreements1
Net amounts
of financial
instruments
in the
balance
sheet
Gross value
of financial
instruments1
Related
amounts not
offset in the
balance
sheet Net amount
531
(33)
498
(14)
484
141
(33)
108
(14)
94
1 The gross value of financial instruments and the financial instruments that are offset under netting agreements have been amended from the figures
presented in 2016, with no impact on the Balance sheet.
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, to reduce the cost of capital and to provide returns to shareholders.
The Group monitors capital on the basis of the adjusted gearing ratio. For the year to December 31, 2017, the adjusted gearing ratio
was 45 per cent (2016: 51 per cent). The definition and calculation for this performance measure is included in the Alternative
performance measures section.
Further detail on liquidity and capital resources and capital risk management is disclosed in the financial review.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments
a Financial assets and liabilities by category
The detail of the Group’s financial instruments at December 31, 2017 and December 31, 2016 (excluding investments accounted for
under the equity method) by nature and classification for measurement purposes is as follows:
December 31, 2017
€ million
Non-current assets
Available-for-sale financial assets
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
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
Loans and
receivables
Derivatives
used for
hedging
Available-for-
sale
Non-financial
assets
–
–
200
1,494
337
–
3,384
3,292
–
145
–
–
–
405
–
–
79
–
–
–
–
–
–
–
–
–
176
–
621
–
–
–
Financial liabilities
Loans and
payables
Derivatives
used for
hedging
Non-financial
liabilities
6,401
–
15
930
3,454
–
–
114
–
–
–
111
–
–
207
–
312
–
Total
carrying
amount by
balance
sheet
item
79
145
376
1,494
958
405
3,384
3,292
Total
carrying
amount by
balance
sheet
item
6,401
114
222
930
3,766
111
146
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INTERNATIONAL AIRLINES GROUP
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments
a Financial assets and liabilities by category
December 31, 2017
The detail of the Group’s financial instruments at December 31, 2017 and December 31, 2016 (excluding investments accounted for
under the equity method) by nature and classification for measurement purposes is as follows:
€ million
Non-current assets
Available-for-sale financial assets
Derivative financial instruments
Other non-current assets
Current assets
Trade receivables
Other current assets
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
Loans and
receivables
Derivatives
used for
hedging
Available-for-
Non-financial
sale
assets
–
–
200
1,494
337
–
3,384
3,292
Total
carrying
amount by
balance
sheet
item
79
145
376
1,494
958
405
3,384
3,292
Total
carrying
amount by
balance
sheet
item
6,401
114
222
930
3,766
111
–
–
176
–
621
–
–
–
–
–
207
–
312
–
–
145
–
405
–
–
–
–
6,401
–
15
930
3,454
–
79
–
–
–
–
–
–
–
–
114
–
–
–
111
Financial liabilities
Loans and
payables
Derivatives
used for
hedging
Non-financial
liabilities
December 31, 2016
€ 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
Loans and
receivables
Derivatives
used for
hedging
Available-for-
sale
Non-financial
assets
Total carrying
amount by
balance sheet
item
–
–
267
1,405
304
–
–
3,091
3,337
–
169
–
–
–
–
329
–
–
73
–
–
–
–
–
–
–
–
–
–
232
–
595
38
–
–
–
73
169
499
1,405
899
38
329
3,091
3,337
Financial liabilities
Loans and
payables
Derivatives
used for
hedging
Non-financial
liabilities
Total
carrying
amount by
balance sheet
item
7,589
–
16
926
3,049
–
–
20
–
–
–
88
–
–
222
–
256
–
7,589
20
238
926
3,305
88
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147
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments continued
b Fair value of financial assets and financial liabilities
The fair values of the Group’s financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in
determining the fair values as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and
those prices present actual and regularly occurring market transactions on an arm’s length basis;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These
valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific
estimates; and
Level 3: Inputs for the asset or liability that are not based on observable market data.
The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade
and other payables approximate their carrying value largely due to the short-term maturities of these instruments.
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:
Level 1: The fair value of listed asset investments classified as available-for-sale and listed interest-bearing borrowings is based on
market value at the balance sheet date.
Level 2: The fair value of derivatives and other interest-bearing borrowings is determined as follows:
• Forward currency transactions and over-the-counter fuel derivatives are measured at the market value of instruments with
similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is
deemed to be not significant.
• The fair value of the Group’s interest-bearing borrowings including leases is determined by discounting the remaining
contractual cash flows at the relevant market interest rates at the balance sheet date.
Level 3: Unlisted investments are predominantly measured at historic cost less accumulated impairment losses.
The carrying amounts and fair values of the Group’s financial assets and liabilities, excluding investments accounted for under the
equity method, at December 31, 2017 are as follows:
Fair value
Level 1
Level 2
Level 3
Total
23
–
56
79
–
–
–
–
1
63
482
4
–
1,079
–
–
–
–
5,639
287
453
215
2
8
–
–
–
–
–
–
–
–
–
–
1
63
482
4
5,639
1,366
453
215
2
8
Carrying
value
Total
79
1
63
482
4
5,507
1,371
453
215
2
8
€ million
Financial assets
Available-for-sale financial assets
Derivative financial assets:
Aircraft lease hedges1
Forward contracts1
Fuel derivatives1
Currency option contracts1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Forward contracts2
Fuel derivatives2
Currency option contracts2
1 Current portion of derivative financial assets is €405 million.
2 Current portion of derivative financial liabilities is €111 million.
148
148
INTERNATIONAL AIRLINES GROUP
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments continued
b Fair value of financial assets and financial liabilities
The fair values of the Group’s financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in
determining the fair values as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and
those prices present actual and regularly occurring market transactions on an arm’s length basis;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These
valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific
estimates; and
Level 3: Inputs for the asset or liability that are not based on observable market data.
The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade
and other payables approximate their carrying value largely due to the short-term maturities of these instruments.
The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:
Level 1: The fair value of listed asset investments classified as available-for-sale and listed interest-bearing borrowings is based on
market value at the balance sheet date.
Level 2: The fair value of derivatives and other interest-bearing borrowings is determined as follows:
• Forward currency transactions and over-the-counter fuel derivatives are measured at the market value of instruments with
similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is
deemed to be not significant.
• The fair value of the Group’s interest-bearing borrowings including leases is determined by discounting the remaining
contractual cash flows at the relevant market interest rates at the balance sheet date.
Level 3: Unlisted investments are predominantly measured at historic cost less accumulated impairment losses.
The carrying amounts and fair values of the Group’s financial assets and liabilities, excluding investments accounted for under the
equity method, at December 31, 2017 are as follows:
Available-for-sale financial assets
23
–
56
79
€ million
Financial assets
Derivative financial assets:
Aircraft lease hedges1
Forward contracts1
Fuel derivatives1
Currency option contracts1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Forward contracts2
Fuel derivatives2
Currency option contracts2
1 Current portion of derivative financial assets is €405 million.
2 Current portion of derivative financial liabilities is €111 million.
Fair value
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
–
–
–
1,079
1
63
482
4
5,639
287
453
215
2
8
–
–
–
–
–
–
–
–
–
–
1
63
482
4
5,639
1,366
453
215
2
8
Carrying
value
Total
79
1
63
482
4
5,507
1,371
453
215
2
8
The carrying amounts and fair values of the Group’s financial assets and liabilities, excluding investments accounted for under the
equity method, at December 31, 2016 are set out below:
€ million
Financial assets
Available-for-sale financial assets
Derivative financial assets:
Aircraft lease hedges1
Forward contracts1
Fuel derivatives1
Currency option contracts1
Financial liabilities
Interest-bearing loans and borrowings:
Finance lease obligations
Fixed rate borrowings
Floating rate borrowings
Derivative financial liabilities:
Aircraft lease hedges2
Cross currency swaps2
Forward contracts2
Fuel derivatives2
Fair value
Level 1
Level 2
Level 3
Total
Carrying
value
Total
–
58
73
73
15
–
–
–
–
5
252
212
29
–
1,020
–
6,823
286
547
–
–
–
–
1
1
32
74
–
–
–
–
–
–
–
–
–
–
–
5
252
212
29
5
252
212
29
6,823
1,306
547
6,602
1,366
547
1
1
32
74
1
1
32
74
1 Current portion of derivative financial assets is €329 million.
2 Current portion of derivative financial liabilities is €88 million.
There have been no transfers between levels of fair value hierarchy during the year.
The financial instruments listed in the previous table are measured at fair value for reporting purposes with the exception of the
interest-bearing borrowings.
148
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149
www.iairgroup.com 149
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments continued
Level 3 financial assets reconciliation
c
The following table summarises key movements in Level 3 financial assets:
€ million
Opening balance for the year
Additions
Exchange movements
Closing balance for the year
December
31, 2017
58
1
(3)
56
December 31,
2016
65
–
(7)
58
The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less
accumulated impairment losses with the exception of the Group’s investment in The Airline Group Limited. This unlisted
investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to
December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from
which to determine a fair value. The investment remains classified as a Level 3 financial asset due to the valuation criteria
applied not being observable.
d Hedges
Cash flow hedges
At December 31, 2017 the Group’s principal risk management activities that were hedging future forecast transactions were:
• Future loan repayment instalments in foreign currency, hedging foreign exchange risk on revenue cash inflows;
• Forward crude, gas oil and jet kerosene derivative contracts, hedging price risk on fuel cash outflows; and
• Foreign exchange contracts, hedging foreign exchange risk on revenue cash inflows and certain operational payments.
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, 2017
Financial instruments designated as hedging instruments
€ million
Debt repayments to hedge future revenue
Forward contracts to hedge future payments
Hedges of future fuel purchases
Currency options to hedge future payments
Related deferred tax credit
Total amount included within equity
Cash flows hedged
Within 6
months
40
15
(212)
(1)
(158)
6-12 months
42
47
(140)
1
(50)
1-2 years
63
67
(100)
1
31
2-5 years
162
33
(22)
–
173
More than 5
years
279
–
–
–
279
Total
December
31, 2017
586
162
(474)
1
275
(44)
231
150
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INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
26 Financial instruments continued
c
Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:
December
31, 2017
December 31,
2016
58
1
(3)
56
65
–
(7)
58
€ million
Opening balance for the year
Additions
Exchange movements
Closing balance for the year
applied not being observable.
d Hedges
Cash flow hedges
The fair value of Level 3 financial assets cannot be measured reliably; as such these assets are stated at historic cost less
accumulated impairment losses with the exception of the Group’s investment in The Airline Group Limited. This unlisted
investment had previously been valued at nil, since the fair value could not be reasonably calculated. During the year to
December 31, 2014 other shareholders disposed of a combined holding of 49.9 per cent providing a market reference from
which to determine a fair value. The investment remains classified as a Level 3 financial asset due to the valuation criteria
At December 31, 2017 the Group’s principal risk management activities that were hedging future forecast transactions were:
• Future loan repayment instalments in foreign currency, hedging foreign exchange risk on revenue cash inflows;
• Forward crude, gas oil and jet kerosene derivative contracts, hedging price risk on fuel cash outflows; and
• Foreign exchange contracts, hedging foreign exchange risk on revenue cash inflows and certain operational payments.
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, 2017
Financial instruments designated as hedging instruments
€ million
Debt repayments to hedge future revenue
Forward contracts to hedge future payments
Hedges of future fuel purchases
Currency options to hedge future payments
Related deferred tax credit
Total amount included within equity
Cash flows hedged
More than 5
Total
December
31, 2017
Within 6
months
40
15
(212)
(1)
(158)
6-12 months
1-2 years
2-5 years
42
47
(140)
1
(50)
63
67
(100)
1
31
162
33
(22)
–
173
years
279
–
–
–
279
586
162
(474)
1
275
(44)
231
The notional values of the significant financial instruments used as cash flow hedges were as follows:
December 31, 2017
€ million
To hedge future currency revenues in euros
To hedge future currency revenues in US dollars
To hedge future currency revenues in pounds sterling
To hedge future operating payments in US dollars
Hedges of future fuel purchases
Interest rate swaps:
- Floating to fixed (US dollars)
- Floating to fixed (euro)
Debt repayments to hedge future revenue:
- US dollars
- Euro
- Japanese yen
- Chinese yuan
December 31, 2016
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, 2016
€ million
To hedge future currency revenues in euros
To hedge future currency revenues in US dollars
To hedge future currency revenues in pounds sterling
To hedge future operating payments in US dollars
Hedges of future fuel purchases
Cross currency swaps:
- Floating to fixed (US dollars)
- Floating to fixed (euro)
- Fixed to floating (US dollars)
Debt repayments to hedge future revenue:
- US dollars
- Euro
- Japanese yen
- Chinese yuan
Notional principal amounts
(in local currency)
€488
$377
£175
$6,945
$4,186
246
$156
€246
$2,511
$2,511
€1,922
¥60,805
CNY 525
Total
December 31,
2016
819
(218)
(127)
(3)
(14)
457
(73)
384
Cash flows hedged
Within 6
months
34
(65)
(24)
(3)
(2)
(60)
6-12 months
77
(76)
(44)
–
(7)
(50)
1-2 years
108
(73)
(48)
–
(5)
(18)
2-5 years
239
(4)
(11)
–
–
224
More than 5
years
361
–
–
–
–
361
Notional principal amounts
(in local currency)
€480
$174
£88
$3,037
$4,304
$57
€17
$340
$2,798
€2,111
¥60,577
CNY 623
The ineffective portion recognised in the Income statement during year on cash flow hedges was a gain of €7 million (2016:
gain of €36 million).
The Group has no significant fair value hedges at December 31, 2017 and 2016.
150
INTERNATIONAL AIRLINES GROUP
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www.iairgroup.com
151
151
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
27 Share capital and share premium
Alloted, called up and fully paid
January 1, 2017: Ordinary shares of €0.50 each
Cancellation of ordinary shares of €0.50 each
Prior years’ losses offset1
December 31, 2017
Number of
shares
000s
Ordinary
share capital
€ million
2,132,989
(74,999)
–
2,057,990
1,066
(37)
–
1,029
Share
premium
€ million
6,105
–
(83)
6,022
1 Offset of prior years’ losses that are included in the Company’s separate balance sheet, against share premium.
During the year IAG carried out a share buyback programme as part of its corporate finance strategy to return cash to shareholders
while reinvesting in the business and managing leverage. The programme total was €500 million and it was completed in December
2017. Under this programme, IAG acquired 74,999,449 ordinary shares, which were subsequently cancelled. The weighted average
impact of these shares in issuance during the year was 34 million (note 10).
28 Treasury shares
IAG has authority to acquire its own shares, subject to specific conditions as set out in the Corporate governance section.
In February 2018, the Group also announced its intention to carry out a €500 million share buyback programme during the
course of 2018 as part of its corporate finance strategy to return cash to shareholders while reinvesting in the business and
managing leverage.
The treasury shares balance consists of shares held directly by the Group. During the year to December 31, 2017, IAG purchased
directly 74,999,449 shares, which were held as treasury shares, as part of its €500 million share buyback programme launched in
March 2017 (note 27). These shares were bought at a weighted average price of €6.67 per share. On completion of the programme,
these treasury shares were cancelled. A total of 2.6 million shares were issued to employees during the year as a result of vesting of
employee share schemes. At December 31, 2017 the Group held 9.9 million shares (2016: 12.5 million), which represented 0.49 per
cent of the Issued share capital of the Company.
29 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 nil-cost and share award plans whereby shares
are issued to employees at no cost, subject to the achievement by the Group of specified performance targets.
IAG Performance Share Plan
a
The IAG Performance Share Plan (PSP) is 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. In 2014, a conditional award of shares was subject to the
achievement of a variety of performance conditions, which vest after three years subject to the employee remaining employed by
the Group. From 2015, the awards were 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 award made in 2014 vests 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 awards made from 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
b
The IAG Incentive Award Deferral Plan (IADP) is 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.
c Share-based payment schemes summary
Performance Share Plans
Incentive Award Deferral Plans
Outstanding
at January 1,
2017
‘000s
14,054
5,681
19,735
Granted
number
‘000s
5,897
657
6,554
Lapsed
number
‘000s
3,377
125
3,502
Outstanding
at December
31, 2017
‘000s
Vested and
exercisable
December 31,
2017
‘000s
14,138
4,299
18,437
43
17
60
Vested
number
‘000s
2,436
1,914
4,350
152
152
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
27 Share capital and share premium
Alloted, called up and fully paid
January 1, 2017: Ordinary shares of €0.50 each
Cancellation of ordinary shares of €0.50 each
Prior years’ losses offset1
December 31, 2017
Number of
shares
000s
Ordinary
share capital
€ million
Share
premium
€ million
2,132,989
(74,999)
–
1,066
6,105
(37)
–
–
(83)
2,057,990
1,029
6,022
1 Offset of prior years’ losses that are included in the Company’s separate balance sheet, against share premium.
During the year IAG carried out a share buyback programme as part of its corporate finance strategy to return cash to shareholders
while reinvesting in the business and managing leverage. The programme total was €500 million and it was completed in December
2017. Under this programme, IAG acquired 74,999,449 ordinary shares, which were subsequently cancelled. The weighted average
impact of these shares in issuance during the year was 34 million (note 10).
28 Treasury shares
managing leverage.
IAG has authority to acquire its own shares, subject to specific conditions as set out in the Corporate governance section.
In February 2018, the Group also announced its intention to carry out a €500 million share buyback programme during the
course of 2018 as part of its corporate finance strategy to return cash to shareholders while reinvesting in the business and
The treasury shares balance consists of shares held directly by the Group. During the year to December 31, 2017, IAG purchased
directly 74,999,449 shares, which were held as treasury shares, as part of its €500 million share buyback programme launched in
March 2017 (note 27). These shares were bought at a weighted average price of €6.67 per share. On completion of the programme,
these treasury shares were cancelled. A total of 2.6 million shares were issued to employees during the year as a result of vesting of
employee share schemes. At December 31, 2017 the Group held 9.9 million shares (2016: 12.5 million), which represented 0.49 per
cent of the Issued share capital of the Company.
29 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 nil-cost 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
IAG Performance Share Plan
The IAG Performance Share Plan (PSP) is 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. In 2014, a conditional award of shares was subject to the
achievement of a variety of performance conditions, which vest after three years subject to the employee remaining employed by
the Group. From 2015, the awards were 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 award made in 2014 vests 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 awards made from 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.
b
IAG Incentive Award Deferral Plan
per cent in shares after three years through the IADP.
c Share-based payment schemes summary
The IAG Incentive Award Deferral Plan (IADP) is 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
Performance Share Plans
Incentive Award Deferral Plans
Outstanding
at January 1,
2017
‘000s
14,054
5,681
19,735
Outstanding
at December
Vested and
exercisable
December 31,
Granted
number
‘000s
5,897
657
6,554
Lapsed
number
‘000s
3,377
125
3,502
Vested
number
‘000s
2,436
1,914
4,350
31, 2017
‘000s
14,138
4,299
18,437
2017
‘000s
43
17
60
The fair value of equity-settled share-based payment plans determined using the Monte-Carlo valuation model, taking into
account the terms and conditions upon which the plans were granted, used the following assumptions:
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 (£)
Weighted average fair value (£)
December 31,
2017
December 31,
2016
35
20
65
4.8
5.46
3.66
30
20
60
4.8
5.41
2.27
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 also takes into account a market condition of TSR 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 €33 million for the year to December 31, 2017 (2016: €36 million).
30 Other reserves and non-controlling interests
For the year to December 31, 2017
Retained
earnings
Unrealised
gains and
losses1
Currency
translation2
Other reserves
Equity
portion of
convertible
bond3
Merger
reserve4
Redeemed
capital
reserve5
Total other
reserves
Non-
controlling
interest6
€ million
January 1, 2017
Profit for the year
2,001
–
952
(299)
(6)
–
101
(2,467)
–
–
Other comprehensive income
for the year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash
flow hedges
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
Dividend
Cancellation of treasury shares
Dividend of a subsidiary
Transfer in Company reserves
Distributions made to holders of
perpetual securities
–
–
–
–
–
–
739
34
(33)
(518)
(500)
–
83
–
84
(38)
(19)
101
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(146)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
December 31, 2017
2,758
(162)
(152)
101
(2,467)
–
–
–
–
–
–
–
–
–
–
–
–
37
–
–
–
37
(1,719)
308
2,001
20
84
(38)
(19)
101
9
(146)
739
34
(33)
(518)
(463)
–
83
–
115
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(20)
307
152
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
153
153
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
30 Other reserves and non-controlling interests continued
For the year to December 31, 2016
€ million
January 1, 2016
Retained
earnings
Unrealised
gains and
losses1
Currency
translation2
Other reserves
Equity
portion of
convertible
bond3
Merger
reserve4
Redeemed
capital
reserve5
Total
other
reserves
Non-
controlling
interest6
1,160
(914)
500
173
(2,467)
–
(1,548)
308
Profit for the year
1,931
–
–
–
–
–
1,931
21
Other comprehensive income for the
year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash flow
hedges
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, 2016
–
–
–
–
–
–
(1,807)
35
(73)
45
(339)
–
(57)
918
(68)
(182)
4
–
–
–
–
–
–
–
–
–
–
–
–
(506)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(72)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
952
–
(299)
–
(6)
–
101
–
(2,467)
–
–
–
–
–
–
(57)
918
(68)
(182)
4
(506)
–
(1,807)
–
–
–
–
–
–
–
35
(73)
(27)
(339)
–
–
(1,719)
–
–
–
–
–
–
–
–
–
–
–
(1)
(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 non-euro functional currency
subsidiaries and investments accounted for under the equity method into the Group’s reporting currency of euros. The movement through this reserve
is affected by the fluctuations in the pound sterling to euro foreign exchange translation rate.
3 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2017, this 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 22). At January 1, 2016 this also
related to the €390 million fixed rate 1.75 per cent convertible bond. The equity portion of this bond was transferred to retained earnings on conversion
during the year to December 31, 2016.
4 The merger reserve originated from the merger transaction between British Airways and Iberia. The balance represents the difference between the fair
value of the Group on the transaction date, and the fair value of Iberia and the book value of British Airways (including its reserves).
5 The redeemed capital reserve represents the nominal value of the decrease in share capital, relating to cancelled shares.
6 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.
154
154
INTERNATIONAL AIRLINES GROUP
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
30 Other reserves and non-controlling interests continued
For the year to December 31, 2016
Retained
earnings
Unrealised
gains and
Currency
losses1
translation2
Merger
reserve4
Redeemed
capital
reserve5
Total
other
reserves
Non-
controlling
interest6
1,160
(914)
500
173
(2,467)
–
(1,548)
308
Other reserves
Equity
portion of
convertible
bond3
Profit for the year
1,931
–
–
–
–
–
1,931
21
€ million
January 1, 2016
Other comprehensive income for the
year
Cash flow hedges reclassified and
reported in net profit:
Passenger revenue
Fuel and oil costs
Currency differences
Net change in fair value of cash flow
hedges
Net change in fair value of available-
for-sale financial assets
Currency translation differences
Cost of share-based payments
Vesting of share-based payment
Equity portion of convertible bond
schemes
issued
Dividend
Dividend of a subsidiary
Distributions made to holders of
perpetual securities
December 31, 2016
Remeasurements of post-employment
benefit obligations
(1,807)
–
–
–
–
–
–
35
(73)
45
(339)
–
–
(57)
918
(68)
(182)
4
–
–
–
–
–
–
–
–
(506)
–
–
–
–
–
–
–
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
–
(72)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,807)
–
–
–
–
–
–
–
–
–
–
–
–
–
(57)
918
(68)
(182)
4
(506)
35
(73)
(27)
(339)
–
–
(1,719)
–
–
–
–
–
–
–
–
–
–
–
(1)
(20)
308
952
(299)
101
(2,467)
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 non-euro functional currency
subsidiaries and investments accounted for under the equity method into the Group’s reporting currency of euros. The movement through this reserve
is affected by the fluctuations in the pound sterling to euro foreign exchange translation rate.
3 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2017, this 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 22). At January 1, 2016 this also
related to the €390 million fixed rate 1.75 per cent convertible bond. The equity portion of this bond was transferred to retained earnings on conversion
during the year to December 31, 2016.
4 The merger reserve originated from the merger transaction between British Airways and Iberia. The balance represents the difference between the fair
value of the Group on the transaction date, and the fair value of Iberia and the book value of British Airways (including its reserves).
5 The redeemed capital reserve represents the nominal value of the decrease in share capital, relating to cancelled shares.
6 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.
31 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
24).
Defined contribution schemes
The Group operates a number of defined contribution schemes for its employees.
Costs recognised in respect of defined contribution pension plans in Spain, UK and Ireland for the year to December 31, 2017 were
€135 million (2016: €132 million).
Defined benefit schemes
i APS and NAPS
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. On December 8, 2017, British Airways announced that it intends to
open a new defined contribution pension scheme on April 1, 2018, replacing the principal defined contribution scheme (the British
Airways Retirement Plan) and NAPS, which will close to future accrual on March 31, 2018. British Airways has offered a range of
transition options to NAPS members. The NAPS liabilities are expected to fall as a result of the closure, because deferred pensions
are assumed to rise in line with the Consumer Price Index (CPI) whereas salary growth for active members is assumed to rise in line
with pay rises and promotions, which are assumed to be higher. The impact of the closure on the liabilities will only be known once
members have selected their transition option, expected to be in March 2018. The changes are subject to the NAPS Trustee
agreeing to amend the scheme's rules to enable closure to future accrual, and therefore have not been reflected in the financial
statements for the year to December 31, 2017. The Group is committed to recovery plan payments of €339 million per year to NAPS
until 2027, plus additional payments of up to €170 million per year, depending on British Airways’ cash balance at the end of March
each year.
The benefits provided under APS are based on final average pensionable pay and, for the majority of members, are subject to
inflationary increases in payment in line with the Government’s Pension Increase (Review) Orders (PIRO), which are based on CPI.
The 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, with pension increases also based on PIRO, subject to a cap
of a maximum of five per cent in any given year.
As reported in previous years, the Trustee of APS has proposed an additional discretionary increase above CPI inflation for pensions
in payment for the year to March 31, 2014. British Airways challenged the decision as it considers the Trustee has no power to grant
such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the legal
proceedings was issued in May 2017, that concluded the Trustee does have the power to grant discretionary increases, whilst
reiterating they must take into consideration all relevant factors. The Group has appealed the judgment and awaits an appeal
hearing, expected to be in May 2018. The payment of the 2013/14 discretionary increase is subject to an injunction as a result of
British Airways’ appeal. The delayed 2015 triennial valuation will be completed once the outcome of the appeal is known. British
Airways is committed to an existing recovery plan, which sees deficit payments of €62 million per annum until March 2023.
APS and NAPS are governed by separate Trustee Boards. Although APS and NAPS have separate Trustee Boards, 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 sub 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.
154
INTERNATIONAL AIRLINES GROUP
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155
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www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
31 Employee benefit obligations continued
Deficit payment plans are agreed with the Trustee 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
with respect to APS and March 31, 2015 with respect to NAPS (note 31i). The actuarial valuations performed at March 31, 2012 and
March 31, 2015 are different to the valuation performed at December 31, 2017 under IAS 19 ‘Employee benefits’ mainly due to timing
differences of the measurement dates and to the specific scheme assumptions in the actuarial valuation compared with IAS 19
guidance used in the accounting valuation assumptions.
ii Other plans
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. In addition, Aer Lingus operates
certain defined benefit plans, both funded and unfunded.
The defined benefit plans expose the Group to actuarial risks, such as longevity risk, interest rate risk, inflation risk, and market
(investment) risk including currency risk.
iii Cash payments
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, 2017 net of service costs were €666 million (2016:
€740 million) being the employer contributions of €899 million (2016: €936 million) less the current service cost of €233 million
(2016: €196 million) (note 31b).
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, 2017
Represented by:
Employee benefit assets
Employee benefit obligations
2017
APS
9,185
(7,606)
1,579
(570)
–
1,009
NAPS
19,558
(20,060)
(502)
–
–
(502)
Other1
429
(697)
(268)
–
(8)
(276)
Total
29,172
(28,363)
809
(570)
(8)
231
1,023
(792)
231
156
156
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
31 Employee benefit obligations continued
Deficit payment plans are agreed with the Trustee 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
with respect to APS and March 31, 2015 with respect to NAPS (note 31i). The actuarial valuations performed at March 31, 2012 and
March 31, 2015 are different to the valuation performed at December 31, 2017 under IAS 19 ‘Employee benefits’ mainly due to timing
differences of the measurement dates and to the specific scheme assumptions in the actuarial valuation compared with IAS 19
guidance used in the accounting valuation assumptions.
ii Other plans
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. In addition, Aer Lingus operates
certain defined benefit plans, both funded and unfunded.
The defined benefit plans expose the Group to actuarial risks, such as longevity risk, interest rate risk, inflation risk, and market
(investment) risk including currency risk.
iii Cash payments
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, 2017 net of service costs were €666 million (2016:
€740 million) being the employer contributions of €899 million (2016: €936 million) less the current service cost of €233 million
(2016: €196 million) (note 31b).
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, 2017
Represented by:
Employee benefit assets
Employee benefit obligations
(7,606)
(20,060)
APS
9,185
1,579
(570)
–
2017
NAPS
19,558
(502)
–
–
Other1
429
(697)
(268)
–
(8)
1,009
(502)
(276)
Total
29,172
(28,363)
809
(570)
(8)
231
1,023
(792)
231
€ 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, 2016
Represented by:
Employee benefit assets
Employee benefit obligations
APS
9,637
(8,036)
1,601
(580)
–
1,021
2016
NAPS
18,366
(20,376)
(2,010)
–
–
(2,010)
Other1
445
(781)
(336)
–
(10)
(346)
Total
28,448
(29,193)
(745)
(580)
(10)
(1,335)
1,028
(2,363)
(1,335)
1 The present value of scheme liabilities for the US PRMB was €15 million at December 31, 2017 (2016: €18 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 Trustee.
b Amounts recognised in the Income statement
Pension costs charged to operating result are:
€ million
Defined benefit plans:
Current service cost
Past service cost1
Defined contribution plans
Pension costs recorded as employee costs
In 2016, includes a past service gain of €51 million in respect of the US PMRB, which was classified as an exceptional item.
1
Pension costs charged/(credited) as finance costs are:
€ million
Interest income on scheme assets
Interest expense on scheme liabilities
Interest expense on asset ceiling
Net financing expense/(income) relating to pensions
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 plan liabilities for changes in demographic assumptions
Remeasurement of experience losses/(gains)
Remeasurement of the APS asset ceiling
Exchange movements
Pension remeasurements (credited)/charged to Other comprehensive income
2017
2016
233
2
235
135
370
2017
(730)
743
15
28
2017
(1,698)
530
–
274
2
(7)
(899)
196
(52)
144
132
276
2016
(952)
921
19
(12)
2016
(3,370)
5,624
131
(268)
81
56
2,254
156
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
www.iairgroup.com
157
157
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Notes to the consolidated financial statements continued
For the year to December 31, 2017
31 Employee benefit obligations continued
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
Interest income
Return on plan assets excluding interest income
Employer contributions1
Employee contributions
Benefits paid
Exchange movements
December 31
2017
28,448
730
1,698
881
101
(1,324)
(1,362)
29,172
2016
28,342
952
3,370
906
111
(1,315)
(3,918)
28,448
1
Includes employer contributions to APS of €109 million (2016: €112 million) and to NAPS of €748 million (2016: €763 million), of which deficit funding
payments represented €104 million for APS (2016: €106 million) and €516 million for NAPS (2016: €638 million).
For both APS and NAPS, the Trustee has 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 achieve 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.
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.
Scheme assets held by all defined benefit schemes operated by the Group at December 31 comprise:
€ million
Return seeking investments – equities
UK
Rest of world
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.
158
158
INTERNATIONAL AIRLINES GROUP
Annual Report and Accounts 2017
2017
2016
2,646
6,677
9,323
777
1,906
1,023
3,706
4,885
95
7,614
177
12,771
670
178
1,770
(109)
863
29,172
3,049
7,495
10,544
825
1,783
1,204
3,812
3,850
116
6,690
128
10,784
511
228
1,872
(35)
732
28,448
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Notes to the consolidated financial statements continued
For the year to December 31, 2017
31 Employee benefit obligations continued
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:
Return on plan assets excluding interest income
€ million
January 1
Interest income
Employer contributions1
Employee contributions
Benefits paid
Exchange movements
December 31
1
Includes employer contributions to APS of €109 million (2016: €112 million) and to NAPS of €748 million (2016: €763 million), of which deficit funding
payments represented €104 million for APS (2016: €106 million) and €516 million for NAPS (2016: €638 million).
For both APS and NAPS, the Trustee has 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 achieve 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.
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
Scheme assets held by all defined benefit schemes operated by the Group at December 31 comprise:
upside participation.
€ million
UK
Rest of world
Return seeking investments – equities
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.
2017
2016
28,448
28,342
730
1,698
881
101
(1,324)
(1,362)
29,172
952
3,370
906
111
(1,315)
(3,918)
28,448
2017
2016
2,646
6,677
9,323
777
1,906
1,023
3,706
4,885
95
7,614
177
12,771
670
178
1,770
(109)
863
3,049
7,495
10,544
825
1,783
1,204
3,812
3,850
116
6,690
128
10,784
511
228
1,872
(35)
732
29,172
28,448
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, 2017
December 31, 2016
APS
742
6,428
7,170
1,637
378
9,185
NAPS
12,074
6,240
18,314
–
1,244
19,558
APS
1,582
5,936
7,518
1,811
308
9,637
NAPS
12,565
4,728
17,293
–
1,073
18,366
The strategic benchmark for asset allocations differentiates 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, 2017, the benchmark for APS,
expressed as a percentage of the assets excluding the insurance contract, was 9.5 per cent (2016: 19 per cent) in return seeking
assets and 90.5 per cent (2016: 81 per cent) in liability matching investments; and for NAPS the benchmark was 65 per cent
(2016: 68 per cent) in return seeking assets and 35 per cent (2016: 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 (2016: 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 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. With effect from June 2010, the Trustee of APS also secured a longevity swap contract with
Rothesay Life, which covers 20 per cent (2016: 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. During 2017, the Trustee of APS secured
two additional longevity swap contracts, one with Canada Life and one with Partner Reinsurance covering 13 per cent and 8 per
cent respectively of the pensioner liabilities as at January 1, 2017 (the commencement date of the contracts). The principal increases
to pensions in payment under the contract are based on RPI inflation.
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
Current service cost
Past service cost
Interest expense
Remeasurements - financial assumptions
Remeasurements - demographic assumptions
Remeasurements of experience losses/(gains)
Benefits paid
Employee contributions
Exchange movements
December 31
2017
29,193
233
2
743
530
–
274
(1,324)
101
(1,389)
28,363
2016
27,670
196
(52)
921
5,624
131
(268)
(1,315)
111
(3,825)
29,193
The defined benefit obligation comprises €28 million (2016: €33 million) arising from unfunded plans and €28,335 million (2016:
€29,160 million) from plans that are wholly or partly funded.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
31 Employee benefit obligations continued
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling representing the IAS 19 irrecoverable surplus in APS is set out below:
€ million
January 1
Interest expense
Remeasurements
Exchange movements
December 31
2017
580
15
2
(27)
570
2016
561
19
81
(81)
580
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Per cent per annum
Discount rate1
Rate of increase in pensionable pay2
Rate of increase of pensions in payment3
RPI rate of inflation
CPI rate of inflation
2017
2016
APS
2.45
3.15
2.05
3.15
2.05
Other
schemes
NAPS
1.6 – 3.6
2.55
3.15
2.5 – 3.6
2.05 0.0 – 3.5
2.5 – 3.1
3.15
1.75 – 3.0
2.05
APS
2.60
3.20
2.10
3.20
2.10
NAPS
2.70
3.20
2.10
3.20
2.10
Other
schemes
1.5 – 4.1
3.0 – 3.7
0.4 – 3.5
3.0 – 3.2
1.75 – 3.0
1 Discount rate is determined by reference to the yield on high quality corporate bonds of currency and term consistent with the scheme liabilities.
2 Rate of increase in pensionable pay is assumed to be in line with long-term market inflation expectations. 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.
3 It has been assumed that the rate of increase of pensions in payment will be in line with CPI for APS and NAPS. The APS Trustee has proposed an
additional discretionary increase of 20 basis points for the year to March 31, 2014, a decision that British Airways has challenged. British Airways initiated
legal proceedings to determine the legitimacy of the additional increase. The proposed discretionary increase is not included in the assumptions above.
Rate of increase in healthcare costs is based on medical trend rates of 6.5 per cent grading down to 5.0 per cent over seven years
(2016: 6.75 per cent to 5.0 per cent over seven years).
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
2017
28.4
29.7
30.2
32.8
2016
28.3
29.5
30.1
32.6
At December 31, 2017, the weighted-average duration of the defined benefit obligation was 12 years for APS (2016: 12 years) and
20 years for NAPS (2016: 20 years).
In the US, mortality rates were based on the RP-14 mortality tables.
160
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
€ million
January 1
Interest expense
Remeasurements
Exchange movements
December 31
g Actuarial assumptions
The principal assumptions used for the purposes of the actuarial valuations were as follows:
Per cent per annum
Discount rate1
Rate of increase in pensionable pay2
Rate of increase of pensions in payment3
RPI rate of inflation
CPI rate of inflation
2017
2016
APS
2.45
3.15
2.05
3.15
2.05
NAPS
2.55
3.15
Other
schemes
1.6 – 3.6
2.5 – 3.6
2.05 0.0 – 3.5
3.15
2.5 – 3.1
2.05
1.75 – 3.0
APS
2.60
3.20
2.10
3.20
2.10
NAPS
2.70
3.20
2.10
3.20
2.10
Other
schemes
1.5 – 4.1
3.0 – 3.7
0.4 – 3.5
3.0 – 3.2
1.75 – 3.0
1 Discount rate is determined by reference to the yield on high quality corporate bonds of currency and term consistent with the scheme liabilities.
2 Rate of increase in pensionable pay is assumed to be in line with long-term market inflation expectations. 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.
3 It has been assumed that the rate of increase of pensions in payment will be in line with CPI for APS and NAPS. The APS Trustee has proposed an
additional discretionary increase of 20 basis points for the year to March 31, 2014, a decision that British Airways has challenged. British Airways initiated
legal proceedings to determine the legitimacy of the additional increase. The proposed discretionary increase is not included in the assumptions above.
Rate of increase in healthcare costs is based on medical trend rates of 6.5 per cent grading down to 5.0 per cent over seven years
(2016: 6.75 per cent to 5.0 per cent over seven years).
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
2017
28.4
29.7
30.2
32.8
2016
28.3
29.5
30.1
32.6
At December 31, 2017, the weighted-average duration of the defined benefit obligation was 12 years for APS (2016: 12 years) and
20 years for NAPS (2016: 20 years).
In the US, mortality rates were based on the RP-14 mortality tables.
31 Employee benefit obligations continued
f Effect of the asset ceiling
A reconciliation of the effect of the asset ceiling representing the IAS 19 irrecoverable surplus in APS is set out below:
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:
2017
580
15
2
(27)
570
2016
561
19
81
(81)
580
€ 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 scheme
liabilities
NAPS
396
68
317
577
Other
schemes
8
1
1
2
APS
91
1
68
339
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 and March 31, 2015
respectively, using assumptions and methodologies agreed between the Group and Trustee of each scheme. At the date of the
actuarial valuation, the actuarial deficits of APS and NAPS amounted to €932 million and €3,818 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
Total expected deficit payments for APS and NAPS
APS
62
249
16
327
NAPS
339
1,359
1,612
3,310
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 scheme, subject to withholding taxes that would be payable by the Trustee. This determination has been
made independently for each scheme. As such, no additional liability is required.
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 €593 million in employer contributions and deficit payments to its two significant post-retirement
benefit plans in 2018. This is made up of €62 million and €339 million of deficit payments for APS and NAPS respectively as agreed
at the latest triennial valuations. In addition, ongoing employer contributions for 2018 would be €5 million for APS and €187 million
for NAPS if the NAPS scheme is not closed for future accrual. This excludes any additional deficit contribution that may become due
depending on British Airways’ cash balance at March 31, 2018. The Group expects to pay €283 million in 2019, having provided
collateral on certain payments to APS and NAPS, which at December 31, 2017 amounted to €283 million (2016: €296 million). This
amount would be payable in the event that the pension schemes are not fully funded on a conservative basis, with a gilts-based
discount rate on January 1, 2019 as determined by the scheme actuary.
Until September 2019, if British Airways pays a dividend to IAG higher than 35 per cent of profit after tax it will either provide
the scheme with a guarantee for 100 per cent of the amount above 35 per cent or 50 per cent of that amount as an additional
cash contribution.
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
32 Contingent liabilities and guarantees
The Group has certain contingent liabilities which at December 31, 2017 amounted to €93 million (December 31, 2016: €124 million).
No material losses are likely to arise from such contingent liabilities. The Group also has the following claims:
Cargo
The European Commission issued a decision in which it found that British Airways, and 10 other airline groups, had engaged in cartel
activity in the air cargo sector (Original Decision). British Airways was fined €104 million. Following an appeal, the decision was
subsequently partially annulled against British Airways (and annulled in full against the other appealing airlines) (General Counsel
Judgment), and the fine was refunded in full. British Airways appealed the partial annulment to the Court of Justice, but that appeal
was rejected.
In parallel, the European Commission chose not to appeal the General Counsel Judgment, and instead adopted a new decision in
March 2017 (new decision). The new decision re-issued fines against all the participating carriers, which match those contained in the
Original Decision. British Airways has therefore again been fined €104 million. British Airways has appealed the New Decision to the
General Counsel again (as have other carriers).
A large number of claimants have brought proceedings in the English courts to recover damages from British Airways which, relying
on the findings in the Commission decisions, 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.
British Airways 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.
Pensions
The Trustees of the Airways Pension Scheme (APS) have proposed an additional discretionary increase above CPI for pensions in
payment for the year to March 31, 2014. British Airways has challenged the decision, as it considers the Trustees have no power to
grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the
legal proceedings was issued in May 2017, which concluded the Trustees do have the power to grant discretionary increases, whilst
reiterating they must take into consideration all relevant factors, and ignore irrelevant factors. The Group has appealed the judgment
and awaits an appeal hearing, currently expected to be mid-2018. Payment of the 2013/14 discretionary increase is subject to an
injunction as a result of British Airways appeal. The delayed 2015 triennial valuation will be completed once the outcome of the
appeal is known.
Guarantees
British Airways has provided collateral on certain payments to its pension schemes, APS and NAPS, which at December 31, 2017
amounted to €283 million (December 31, 2016: €296 million). This amount would be payable in the event that the pension schemes
are not fully funded on a conservative basis with a gilts-based discount rate on January 1, 2019 and will be determined by the
scheme actuary.
In addition, a guarantee amounting to €260 million (2016: €273 million) was issued by a third party in favour of APS, triggered in the
event of British Airways’ insolvency.
The Group also has other guarantees and indemnities entered into as part of the normal course of business, which at December 31,
2017 are not expected to result in material losses for the Group.
162
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
32 Contingent liabilities and guarantees
The Group has certain contingent liabilities which at December 31, 2017 amounted to €93 million (December 31, 2016: €124 million).
No material losses are likely to arise from such contingent liabilities. The Group also has the following claims:
Cargo
was rejected.
The European Commission issued a decision in which it found that British Airways, and 10 other airline groups, had engaged in cartel
activity in the air cargo sector (Original Decision). British Airways was fined €104 million. Following an appeal, the decision was
subsequently partially annulled against British Airways (and annulled in full against the other appealing airlines) (General Counsel
Judgment), and the fine was refunded in full. British Airways appealed the partial annulment to the Court of Justice, but that appeal
In parallel, the European Commission chose not to appeal the General Counsel Judgment, and instead adopted a new decision in
March 2017 (new decision). The new decision re-issued fines against all the participating carriers, which match those contained in the
Original Decision. British Airways has therefore again been fined €104 million. British Airways has appealed the New Decision to the
General Counsel again (as have other carriers).
A large number of claimants have brought proceedings in the English courts to recover damages from British Airways which, relying
on the findings in the Commission decisions, 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.
British Airways 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.
The Trustees of the Airways Pension Scheme (APS) have proposed an additional discretionary increase above CPI for pensions in
payment for the year to March 31, 2014. British Airways has challenged the decision, as it considers the Trustees have no power to
grant such increases, and initiated legal proceedings to determine the legitimacy of the discretionary increase. The outcome of the
legal proceedings was issued in May 2017, which concluded the Trustees do have the power to grant discretionary increases, whilst
reiterating they must take into consideration all relevant factors, and ignore irrelevant factors. The Group has appealed the judgment
and awaits an appeal hearing, currently expected to be mid-2018. Payment of the 2013/14 discretionary increase is subject to an
injunction as a result of British Airways appeal. The delayed 2015 triennial valuation will be completed once the outcome of the
British Airways has provided collateral on certain payments to its pension schemes, APS and NAPS, which at December 31, 2017
amounted to €283 million (December 31, 2016: €296 million). This amount would be payable in the event that the pension schemes
are not fully funded on a conservative basis with a gilts-based discount rate on January 1, 2019 and will be determined by the
In addition, a guarantee amounting to €260 million (2016: €273 million) was issued by a third party in favour of APS, triggered in the
event of British Airways’ insolvency.
The Group also has other guarantees and indemnities entered into as part of the normal course of business, which at December 31,
2017 are not expected to result in material losses for the Group.
Pensions
appeal is known.
Guarantees
scheme actuary.
33 Related party transactions
The following transactions took place with related parties for the financial years to December 31:
€ million
Sales of goods and services
Sales to associates1
Sales to significant shareholders2
Purchases of goods and services
Purchases from associates3
Purchases from significant shareholders2
Receivables from related parties
Amounts owed by associates4
Amounts owed by significant shareholders5
Payables to related parties
Amounts owed to associates6
Amounts owed to significant shareholders5
2017
2016
7
48
58
109
2
1
3
3
7
39
49
60
2
1
4
–
1 Sales to associates: Consisted primarily of sales for airline related services to Dunwoody Airline Services (Holding) Limited (Dunwoody) of €6 million
(2016: €7 million) and an amount of less than €1 million to Multiservicios Aeroportuarios, S.A. and Serpista, S.A. (2016: less than €1 million to Sociedad
Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A. and Handling Guinea Ecuatorial, S.A.)
2 Sales to and purchases from significant shareholders: Related to interline services and wet leases with Qatar Airways.
3 Purchases from associates: Mainly included €35 million of airport auxiliary services purchased from Multiservicios Aeroportuarios, S.A. (2016: €33 million),
€13 million of handling services provided by Dunwoody (2016: €10 million) and €9 million of maintenance services received from Serpista, S.A. (2016:
€6 million).
4 Amounts owed by associates: For airline related services rendered, and included balances with Dunwoody of €1 million (2016: €1 million) and €1 million of
services provided to Multiservicios Aeroportuarios, S.A., Serpista, S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A. (2016:
€1 million for Handling Guinea Ecuatorial, S.A., Sociedad Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A. and Iber-America
Aerospace, LLC).
5 Amounts owed by and to significant shareholders: Related to Qatar Airways.
6 Amounts owed to associates: Consisted primarily of €1 million due to Dunwoody (2016: €1 million), €2 million to Serpista, S.A. (2016: €1 million) and less
than €1 million to Multiservicios Aeroportuarios, S.A. (2016: €2 million).
During the year to December 31, 2017 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 (2016: €7
million) in relation to the costs of the Pension Protection Fund levy.
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, 2017, the Group has not made any provision for doubtful debts arising relating to amounts owed by
related parties (2016: nil).
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Notes to the consolidated financial statements continued
For the year to December 31, 2017
33 Related party transactions continued
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.
At December 31, 2017 the Group had cash deposit balances with shareholders holding a participation of between 3 to 5 per cent, of
€90 million (2016: €189 million).
Board of Directors and Management Committee remuneration
Compensation received by the Group’s Board of Directors and Management Committee, in 2017 and 2016 is as follows:
€ million
Base salary, fees and benefits
Board of Directors’ remuneration
Management Committee remuneration
December 31,
2017
December 31,
2016
9
17
26
7
10
17
At December 31, 2017 the Board of Directors includes remuneration for two Executive Directors (December 31, 2016: two
Executive Directors). The Management Committee includes remuneration for ten members (December 31, 2016: nine members).
The Company provides life insurance for all executive directors and the Management Committee. For the year to December 31, 2017
the Company's obligation was €38,000 (2016: €44,000).
At December 31, 2017 the transfer value of accrued pensions covered under defined benefit pension obligation schemes, relating to
the current members of the Management Committee totalled €4 million (2016 : €4 million).
No loan or credit transactions were outstanding with Directors or offices of the Group at December 31, 2017 (2016: nil).
164
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INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Group investments
Subsidiaries
Aer Lingus
Name and address
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 DAC*
Dublin Airport, Dublin
Aer Lingus Limited*
Dublin Airport, Dublin
Aer Lingus (NI) Limited
Aer Lingus Base, Belfast City Airport, Sydenham Bypass,
Belfast, BT3 9JH
Aer Lingus (Ireland) Limited
Dublin Airport, Dublin
ALG Trustee Limited
Dublin Airport, Dublin
Dirnan Insurance Company Limited
Canon’s Court, 22 Victoria Street, Hamilton, Bermuda, HM 12
Santain Developments Limited
Dublin Airport, Dublin
Shinagh Limited
Dublin Airport, Dublin
Avios
Name and address
Avios South Africa Proprietary Limited
Block C, 1 Marignane Drive, Bonaero Park, Gauteng, 1619
Remotereport Trading Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways
Name and address
Avios Group (AGL) Limited*
Astral Towers, Betts Way, London Road,
Crawley, West Sussex, RH10 9XY
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
BritAir Holdings Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
Principal activity
Country of
Incorporation
Percentage of
equity owned
Holding company
Airline operations
Republic of
Ireland
Isle of Man
Republic of
Ireland
Republic of
Ireland
Northern
Ireland
Republic of
Ireland
Isle of Man
Bermuda
Republic of
Ireland
Republic of
Ireland
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of
Incorporation
Percentage of
equity owned
South Africa
England
100%
100%
Principal activity
Country of
Incorporation
Percentage of
equity owned
Airline marketing
England
Holding company
England
India
Airline operations
England
England
England
England
Jersey
England
England
Holding company
England
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information www.iairgroup.com Group investments continued
British Airways continued
Name and address
British Airways (BA) Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
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 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
Diamond Insurance Company Limited
1st Floor, Rose House, 51-59 Circular Road, Douglas, IM1 1RE
Flyline Tele Sales & Services GmbH
Hermann Koehl-Strasse 3, Bremen, 28199
Gatwick Ground Services Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
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
Speedbird Insurance Company Limited*
Canon’s Court, 22 Victoria Street, Hamilton, HM 12
Teleflight Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Mediterranean Airways Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
166
Principal activity
Country of
Incorporation
Percentage of
equity owned
England
Aircraft financing
England
England
Aircraft maintenance
England
Jersey
Aircraft financing
Bermuda
Jersey
Netherlands
Holding company
Jersey
Package holidays
England
Aircraft maintenance
England
Aircraft financing
England
Aircraft maintenance
England
England
England
England
Isle of Man
Germany
England
USA
Airline operations
France
England
Insurance
Bermuda
England
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
England
99%
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Iberia
Name and address
Binter Finance B.V.
Prins Bernhardplein 200, Amsterdam, 1097 JB
Compañía Explotación Aviones Cargueros Cargosur, S.A.
Calle Martínez Villergas 49, Madrid, 28027
Compañía Operadora de Corto y Medio Radio 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
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
Auxiliar Logística Aeroportuaria, S.A.*
Centro de Carga Aérea, Parcela 2-5 Nave 6, Madrid, 28042
IAG Cargo Limited
Name and address
Zenda Group Limited
Carrus Cargo Centre, PO Box 99, Sealand Road, London
Heathrow Airport, Hounslow, Middlesex, TW6 2JS
International Consolidated Airlines Group S.A.
Name and address
AERL Holding Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
British Airways Plc*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
FLY LEVEL, S.L.
El Caserío, Iberia Zona Industrial nº 2 (La Muñoza), Camino de
La Muñoza, s/n, 28042 Madrid
FLYLEVEL UK Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG Cargo Limited*
Carrus Cargo Centre, PO Box 99, Sealand Road, London
Heathrow Airport, Hounslow, TW6 2JS
IAG Connect Limited
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG GBS Limited*
Waterside, PO Box 365, Harmondsworth, UB7 0GB
IAG GBS Poland sp z.o.o.*
ul. Opolska 114, Krakow, 31 -323
IB Opco Holding, S.L.
Calle Martínez Villergas 49, Madrid, 28027
Iberia Líneas Aéreas de España, S.A. Operadora*
Calle Martínez Villergas 49, Madrid, 28027
Principal activity
Country of
Incorporation
Percentage of
equity owned
Netherlands
Spain
100%
100%
Airline operations
Spain
100%
Storage and custody services
Mexico
Holding company
Cargo transport
Airport infrastructure
development
Airport logistics
and cargo terminal management
Spain
Spain
Spain
Spain
100%
100%
75%
75%
75%
Country of
Incorporation
Percentage of
equity owned
England
100%
Principal activity
Country of
Incorporation
Percentage of
equity owned
England
100%
Airline operations
England
100%1
Air freight operations
Spain
England
England
Republic of
Ireland
IT, finance
and procurement services
England
and procurement services
Poland
IT, finance
100%
100%
100%
100%
100%
100%
Holding company
Spain
100%2
Airline operations and maintenance
Spain
100%2
167
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information www.iairgroup.com Group investments continued
International Consolidated Airlines Group S.A. continued
Name and address
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
Principal activity
Country of
Incorporation
Percentage of
equity owned
Spain
100%
Airline operations
Spain
99.5%
* Principal subsidiaries
1 The Group holds 49.9% of the total number of voting rights and 99.65% of the total nominal share capital in British Airways Plc, such stake having almost 100% of the economic rights.
The remaining nominal share capital and voting rights, representing 0.35% and 50.1% respectively, correspond to a trust established for the purposes of implementing the British
Airways nationality structure.
2 The Group holds 49.9% of both the total nominal share capital and the total number of voting rights in IB Opco Holding, S.L. (and thus, indirectly, in Iberia Líneas Aéreas de España,
S.A. Operadora), such stake having almost 100% of the economic rights in these companies. The remaining shares, representing 50.1% of the total nominal share capital and the total
number of voting rights belong to a Spanish company incorporated for the purposes of implementing the Iberia nationality structure.
Investments accounted for using the equity method
Name and address
Sociedad Conjunta para la Emisión y Gestión de Medios de Pago EFC, S.A.
José Ortega y Gasset 22, 3rd Floor, 28006, Madrid
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
Multiservicios Aeroportuarios, S.A.
Avenida de Manoteras 46, 2nd Floor, 28050, Madrid
Dunwoody Airline Services Limited
Building 552 Shoreham Road East, London Heathrow Airport, Hounslow, TW6 3UA
Serpista, S.A.
Cardenal Marcelo Spínola 10, 28016, Madrid
Programa Travel Club Agencia de Seguros Exclusiva, S.L.
Avenida de Bruselas 20, Alcobendas, 28108, Madrid
Viajes Ame, S.A.
Avenida de Bruselas 20, Alcobendas, 28108, Madrid
Air Miles España, S.A.
Avenida de Bruselas 20, Alcobendas, 28108, Madrid
Available-for-sale financial assets
The Group’s principal available-for-sale financial assets are as follows:
Country of
Incorporation
Percentage
of equity
owned
Spain
50.5%
Cuba
Cuba
Spain
England
Spain
Spain
Spain
50%
50%
49%
40%
39%
27%
27%
Spain
26.7%
Name and address
Servicios de Instrucción de Vuelo, S.L.
Camino de La Muñoza 2, Madrid, 28042
The Airline Group Limited
Brettenham House South, 5th Floor, Lancaster Place, London,
WC2N 7EN
Comair Limited
1 Marignane Drive, Bonaero Park, 1619, Johannesburg
Adquira España, S.A.
Plaza Cronos, 1 - 4th Floor, Madrid, 28037
Country of
Incorporation
Percentage of
equity owned
Currency
Shareholder’s
funds (million)
Profit/(loss)
before tax
(million)
Spain
19.9%
Euro
46
3
England
South
Africa
Pound
sterling
South
African rand
16.7%
11.5%
Spain
10.0%
Euro
287
1,543
7
22
435
1
168
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Statement of directors’ responsibilities
LIABILITY STATEMENT OF 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 22, 2018, the Directors of International Consolidated Airlines Group, S.A. (the “Company”) state that,
to the best of their knowledge, the individual and consolidated financial statements for the year to December 31, 2017, prepared
in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings included in the consolidation taken as a whole, and that the individual and
consolidated management reports include a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with the description of the principal
risks and uncertainties that they face.
February 22, 2018
Antonio Vázquez Romero
Chairman
William Matthew Walsh
Chief Executive Officer
Marc Jan Bolland
Patrick Jean Pierre Cescau
Enrique Dupuy de Lôme Chávarri
James Arthur Lawrence
María Fernanda Mejía Campuzano
Kieran Charles Poynter
Emilio Saracho Rodríguez de Torres
Marjorie Morris Scardino
Lucy Nicola Shaw
Alberto Terol Esteban
169
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information www.iairgroup.com 170
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 171
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information www.iairgroup.com 172
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 173
Strategic ReportCorporate GovernanceFinancial StatementsAdditional Information www.iairgroup.com 174
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Alternative performance measures
The performance of the Group is assessed using a number of alternative performance measures (APMs), some of which have
been identified as key performance indicators of the Group. The Group’s results are presented both before and after exceptional
items. Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size and incidence.
Exceptional items are disclosed in note 4 of the consolidated financial statements. In addition, the Group’s results are described
using certain measures that are not defined under IFRS and are therefore considered to be APMs. These APMs are used to
measure the outcome of the Group’s strategy based on ‘Unrivalled customer proposition’, ‘Value accretive and sustainable growth’
and ‘Efficiency and innovation’. Further information on why these APMs are used is provided in the Key performance indicators
section. The definition of each APM presented in this report, together with a reconciliation to the nearest measure prepared in
accordance with IFRS is presented below.
Operating profit and lease adjusted operating margin
Operating profit is the Group operating result before exceptional items.
Lease adjusted operating margin is operating profit adjusted for leases as a percentage of revenue. The lease adjustment reduces
the fleet rental charge to 0.67 of the annual reported charge. This is to reflect the embedded interest expense component in leases;
0.67 is a commonly used ratio in the airline industry.
€ million
Operating profit before exceptional items
Aircraft operating lease costs
Aircraft operating lease costs multiplied by 0.67
Revenue
Lease adjusted operating margin
2017
3,015
888
(595)
3,308
2016
2,535
759
(509)
2,785
2015
2,335
659
(442)
2,552
22,972
22,567
22,858
14.4%
12.3%
11.2%
Adjusted earnings per share
Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and
interest on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the
assumed conversion of the bonds and employee share schemes outstanding.
€ million
Earnings attributable to equity holders of the parent
Exceptional items
Earnings attributable to equity holders of the parent before exceptional items
Interest expense on convertible bonds
Adjusted earnings
2017
2,001
222
2,223
17
2,240
2016
1,931
38
1,969
26
1,995
2015
1,495
23
1,518
25
1,543
Weighted average number of shares used for diluted earnings per share
Weighted average number of shares used for basic earnings per share
2,179,353
2,088,489
2,210,990
2,075,568
2,159,937
2,034,197
Adjusted earnings per share (€ cents)
Basic earnings per share before exceptional items (€ cents)
102.8
106.4
90.2
94.9
71.4
74.6
EBITDAR
EBITDAR is calculated as operating profit before exceptional items, depreciation, amortisation and impairment and aircraft
operating lease costs.
€ million
Operating profit before exceptional items
Depreciation, amortisation and impairment
Aircraft operating lease costs
EBITDAR
2017
3,015
1,184
888
5,087
2016
2,535
1,287
759
4,581
2015
2,335
1,307
659
4,301
175
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Alternative performance measures continued
Return on Invested Capital
Return on Invested Capital (RoIC) is defined as EBITDAR, less adjusted aircraft operating lease costs, fleet depreciation charge
adjusted for inflation, and the depreciation charge for other property, plant and equipment, divided by invested capital. It is
expressed as a percentage.
The lease adjustment reduces aircraft operating lease costs to 0.67 of the annual reported charge. The inflation adjustment is
applied to the fleet depreciation charge and is calculated using a 1.5 per cent inflation rate over the weighted average age of the
on balance sheet fleet to allow for inflation and efficiencies of new fleet.
Invested capital is the fleet net book value at the balance sheet date, excluding progress payments for fleet not yet delivered and
adjusted for inflation, plus the net book value of the remaining property, plant and equipment plus annual aircraft operating lease
costs multiplied by 8. Intangible assets are excluded from the calculation.
€ million
EBITDAR
Less: Aircraft operating lease costs multiplied by 0.67
Less: Depreciation charge for fleet assets multiplied by inflation adjustment
Less: Depreciation charge for other property, plant and equipment
Invested capital
Fleet book value excluding progress payments
Inflation adjustment1
Net book value of other property, plant and equipment
Aircraft operating lease costs multiplied by 8
Return on Invested Capital
2017
5,087
(595)
(1,133)
(140)
3,219
9,275
1.23
11,374
1,613
7,104
20,091
16.0%
2016
4,581
(509)
(1,231)
(153)
2,688
9,930
1.21
12,048
1,683
6,072
19,803
13.6%
20152
4,463
(463)
(1,277)
(162)
2,561
11,090
1.16
12,883
1,798
5,520
20,201
12.7%
1 Presented to two decimal places and calculated using a 1.5 per cent inflation rate over the weighted average age of the on balance sheet fleet (2017 13.7 years; 2016 12.9 years). This
calculation was revised in 2016 to reflect the average age of on balance sheet aircraft, weighted based on market reference prices for replacement aircraft in USD. 2015 calculation was
based on the accumulated depreciation and current year fleet depreciation as a proxy for weighted average age but was impacted by the foreign exchange fluctuations in period end
book values and date of acquisition by the airline versus manufacture date.
2 In 2015, the definition of invested capital excluded all progress payments. 2015 comparatives have not been restated. 2015 comparatives include annualised operating profit, rental
charges and depreciation charges for Aer Lingus.
Adjusted net debt to EBITDAR
Adjusted net debt is calculated as long-term borrowings, less cash and cash equivalents and other current interest-bearing
deposits, plus annual aircraft operating lease costs multiplied by 8. This is divided by EBITDAR to arrive at adjusted net debt to
EBITDAR. 2015 has been adjusted to include annualised results for Aer Lingus.
€ million
Interest-bearing long-term borrowings
Cash and cash equivalents
Other current interest-bearing deposits
Net debt
Aircraft operating lease costs multiplied by 8
Adjusted net debt
EBITDAR
Adjusted net debt to EBITDAR
2017
7,331
(3,292)
(3,384)
655
7,104
7,759
2016
8,515
(3,337)
(3,091)
2,087
6,072
8,159
2015
8,630
(2,909)
(2,947)
2,774
5,736
8,510
5,087
4,581
4,463
1.5
1.8
1.9
176
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017
Adjusted gearing
The Group monitors capital on the basis of the adjusted gearing ratio. Adjusted gearing is defined as adjusted net debt divided
by adjusted net debt and adjusted equity and is expressed as a percentage. Adjusted equity is reported equity adjusted for the
cumulative charge to reserves following the amendment to IAS 19 ‘Employee benefits’ accounting standard, up to a maximum of
€2,077 million, representing the adjustment to equity on adoption of the amendment to the standard.
€ million
Adjusted net debt
Equity
IAS 19 cumulative charge to reserves (post-tax)
Adjusted equity
Adjusted net debt plus adjusted equity
Adjusted gearing
2017
7,759
7,396
2,077
9,473
2016
8,159
5,664
2,077
7,741
2015
8,510
5,534
1,794
7,328
17,232
15,900
15,838
45%
51%
54%
Equity free cash flow
Equity free cash flow is EBITDA less cash tax, cash interest paid and received and cash capital expenditure net of proceeds from
sale of property, plant and equipment and intangible assets. EBITDA is calculated as operating profit before exceptional items,
depreciation, amortisation and impairment.
€ million
Operating profit before exceptional items
Depreciation, amortisation and impairment
EBITDA
Interest paid
Interest received
Tax paid
Acquisition of property plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment and intangible assets
Equity free cash flow
2017
3,015
1,184
4,199
(122)
29
(237)
(1,490)
306
2,685
2016
2,535
1,287
3,822
(185)
37
(318)
(3,038)
1,737
2,055
2015
2,335
1,307
3,642
(197)
48
(245)
(2,040)
273
1,481
177
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information
Operating and financial statistics
Total Group operations
Traffic and capacity
Available seat km (ASK)
Revenue passenger km (RPK)
Cargo tonne km (CTK)
Passengers carried
Sold cargo tonnes2
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 revenue per ASK (PASK)
Passenger revenue per RPK
Cargo revenue per CTK
Total revenue per ASK (RASK)
Average fuel price
Fuel cost per ASK
Operating profit before depreciation,
amortisation and rentals (EBITDAR)
Total operating expenditure
excluding fuel per ASK (CASK ex. fuel)
Operating margin
Lease adjusted operating margin
Total operating expenditure per ASK (CASK)
Dividend cover
Interest cover
Net debt
Equity3
Adjusted gearing
Adjusted net debt to EBITDAR
Exchange rates
Translation – weighted average
Transaction
Transaction
Transaction
2017
2016
20151
2014
2013
million
million
million
‘000
‘000
306,185
252,819
5,762
104,829
701
717,325
hours 2,100,089
298,431
243,474
5,454
100,675
680
708,615
2,067,980
272,702
221,996
5,293
88,333
661
660,438
1,867,905
251,931
202,562
5,453
77,334
677
599,624
1,712,506
230,573
186,304
5,653
67,224
711
538,644
1,573,900
63,422
546
63,387
548
60,862
529
59,484
459
60,089
431
13.5
8.9
81.8
99.1
6.61
8.01
18.81
7.50
170.11
1.51
13.5
8.8
77.2
99.3
6.68
8.18
18.74
7.56
133.38
1.63
13.5
9.1
80.2
99.4
7.46
9.16
20.67
8.38
175.86
2.23
13.5
8.8
80.9
99.5
7.08
8.80
18.19
8.01
300.16
2.38
13.3
8.4
79.2
99.0
7.05
8.73
18.98
8.10
314.15
2.58
hours
hours
%
%
€cents
€cents
€cents
€cents
($cents/US gallon)
€cents
€million
5,087
4,581
4,301
3,137
2,258
€cents
%
%
€cents
times
times
€million
€million
%
times
£:€
£:€
€:$
£:$
5.01
13.1
14.4
6.52
4.0
16.5
655
9,473
45
1.5
1.14
1.14
1.14
1.29
5.08
11.2
12.3
6.71
4.0
10.8
2,087
7,741
51
1.8
1.21
1.21
1.11
1.34
5.30
10.2
11.2
7.53
3.8
8.2
2,774
7,328
54
1.9
1.39
1.40
1.11
1.55
5.08
6.9
7.8
7.45
n/a
6.4
1,673
3,793
51
1.9
1.25
1.25
1.34
1.67
5.18
4.1
5.0
7.77
n/a
2.8
1,489
4,216
50
2.5
1.17
1.16
1.32
1.54
1 Aer Lingus Group plc results have been consolidated from the August 18, 2015.
2 Sold cargo tonnes are disclosed in lieu of Tonnes of cargo carried.
3 Restated for amendment to IAS 19 ‘Employee benefits’ accounting standard..
n/a: not available
178
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Glossary
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
Equity free cash flow
Interest cover
Invested capital
Lease adjusted operating margin
Manpower equivalent
Merger effective date
Net debt
Net depreciation rate
Net Promoter Score (NPS)
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 aircraft operating 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 carried that generate revenue (freight and mail) 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
EBITDA before exceptional items less cash tax, cash interest paid and received and cash
capital expenditure net of proceeds from sale of property, plant and equipment and
intangible assets
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 at the balance sheet date, excluding progress payments and
adjusted for inflation, plus the net book value of the remaining property, plant and
equipment plus annual aircraft operating lease costs 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
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
The Net Promoter Score (NPS) is a metric based on survey responses to the “likelihood to
recommend” question and is calculated by subtracting the percentage of customers who
are ‘Detractors’ (score 0-6, unlikely to recommend) from the percentage of customers
who are ‘Promoters’ (score 9-10, likely to recommend)
179
www.iairgroup.comStrategic ReportCorporate GovernanceFinancial StatementsAdditional Information Operating margin
Overall load factor
Operating profit/(loss) as a percentage of total revenue
RTK expressed as a percentage of ATK
Passenger load factor
RPK expressed as a percentage of ASK
Regularity
Punctuality
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
EBITDAR less adjusted aircraft operating lease costs, fleet depreciation charge adjusted
for inflation, and the depreciation charge for other property, plant and equipment, divided
by invested capital. It is expressed as a percentage
Revenue passenger kilometres (RPK) The number of passengers that generate revenue carried multiplied by the distance flown
Return on invested capital (RoIC)
Passenger unit revenue per ASK (PASK) Passenger revenue divided by ASK
Passenger revenue per RPK (yield)
Passenger revenue divided by RPK
Revenue tonne kilometres (RTK)
The revenue load in tonnes multiplied by the distance flown
Sector
Sold cargo tonnes
Total capital
A one-way revenue flight
The number of cargo tonnes sold, including freight, courier, mail and interline
Total equity plus net debt
Total Group revenue per ASK (RASK) Total group revenue divided by ASK
Total operating expenditure excluding
fuel per ASK
Total operating expenditure per ASK
(CASK)
Total traffic revenue per ATK
Total operating expenditure excluding fuel divided by ASK
Total operating expenditure divided by ASK
Revenue from total traffic (passenger and cargo) divided by ATK
180
INTERNATIONAL AIRLINES GROUPAnnual Report and Accounts 2017 Shareholder information
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
Waterside (HAA2),
PO Box 365, Speedbird way
Harmondsworth, UB7 0GB
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, 2017
Q1 results: May 4, 2018
Half year results: August 3, 2018
Q3 results: October 26, 2018
Other key dates can be found on our website:
www.iairgroup.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.
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AIRLINES
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Visit us online at
iairgroup.com