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International Cons Airlines Group IAG Final Results 2020

26/02/2021 7:00am

UK Regulatory (RNS & others)


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TIDMIAG

RNS Number : 4779Q

International Cons Airlines Group

26 February 2021

Full year results announcement

International Consolidated Airlines Group (IAG) today (February 26, 2021) presented Group consolidated results for the year to December 31, 2020.

COVID-19 situation and management actions:

-- Passenger capacity in quarter 4 was 26.6 per cent of 2019 and for the full year was 33.5 per cent of 2019 and continues to be adversely affected by the COVID-19 pandemic, together with government restrictions and quarantine requirements

-- Current passenger capacity plans for quarter 1, 2021 are for around 20 per cent of 2019 capacity, but remain uncertain and subject to review

   --   969 cargo-only flights operated in quarter 4 

-- Additional funding of EUR3.4 billion secured in quarter 4, including GBP2.0 billion commitment from UK Export Finance finalised in February 2021 and $1.0 billion EETC for British Airways, $0.2 billion sales and leaseback transactions for Iberia and EUR150 million for Aer Lingus backed by the Ireland Strategic Investment Fund (ISIF), with EUR0.8 billion bridge financing facilities repaid

-- 2020 capex reduced by EUR2.3 billion, from plans at the start of the year, to EUR1.9 billion, with EUR0.5 billion due to seven aircraft deliveries delayed from Q4-20 into 2021; 2021 capex expected to be lower than 2020

-- British Airways reached agreement to defer EUR495 million of pension contributions due between September 2020 and October 2021

-- British Airways reached agreement in principle over restructuring plans for cargo employees, following agreement with the other main British Airways employee groups earlier in 2020

-- Group continues to focus on cost reduction, increasing the variability of its cost-base and liquidity initiatives

IAG period highlights on results:

-- Fourth quarter operating loss EUR1,471 million (2019: operating profit EUR93 million), and operating loss before exceptional items EUR1,165 million (2019: operating profit before exceptional items EUR765 million)

-- Operating loss for the year to December 31, 2020 EUR7,426 million (2019: operating profit EUR2,613 million), and operating loss before exceptional items EUR4,365 million (2019: operating profit before exceptional items EUR3,285 million)

-- Exceptional charge before tax in the year to December 31, 2020 of EUR3,061 million on discontinuance of fuel and foreign exchange hedge accounting, impairment of fleet and restructuring costs; exceptional charge before tax for quarter 4 EUR306 million

-- Loss after tax and exceptional items for the year to December 31, 2020 EUR6,923 million (2019: profit EUR1,715 million) and loss after tax before exceptional items: EUR4,325 million (2019: profit before exceptional items EUR2,387 million)

-- Cash of EUR5,917 million at December 31, 2020 down EUR766 million on December 31, 2019. Committed and undrawn general and aircraft facilities were EUR2.14 billion, bringing total liquidity to EUR8.1 billion. Including EUR2.2 billion proceeds from the UK Export Finance (UKEF) gives total pro-forma liquidity of EUR10.3 billion.

Performance summary:

 
                                                       Year to December 31 
==================================================  ========================== 
                                                                        Higher 
                                                                             / 
Statutory results (EUR million)                        2020     2019   (lower) 
==================================================  =======  =======  ======== 
Passenger revenue                                     5,512   22,468   (75.5)% 
Total revenue                                         7,806   25,506   (69.4)% 
Operating (loss)/profit                             (7,426)    2,613        nm 
(Loss)/profit after tax                             (6,923)    1,715        nm 
Basic (loss)/earnings per share (EUR cents)(1)      (196.2)     56.1        nm 
==================================================  =======  =======  ======== 
Cash and interest-bearing deposits                    5,917    6,683   (11.5)% 
Interest-bearing borrowings                          15,679   14,254    10.0 % 
 
                                                                        Higher 
                                                                             / 
Alternative performance measures (EUR million)         2020     2019   (lower) 
==================================================  =======  =======  ======== 
Passenger revenue before exceptional items            5,574   22,468   (75.2)% 
Total revenue before exceptional items                7,868   25,506   (69.2)% 
Operating (loss)/profit before exceptional items    (4,365)    3,285        nm 
(Loss)/profit after tax before exceptional items    (4,325)    2,387        nm 
Adjusted (loss)/earnings per share (EUR cents)(1)   (122.6)     76.9        nm 
==================================================  =======  =======  ======== 
Net debt                                              9,762    7,571    28.9 % 
Net debt to EBITDA                                       nm      1.4        nm 
==================================================  =======  =======  ======== 
Available seat kilometres (ASK million)             113,195  337,754   (66.5)% 
Passenger revenue per ASK (EUR cents)                  4.92     6.65   (26.0)% 
Non-fuel costs per ASK (EUR cents)                     9.00     4.80    87.7 % 
==================================================  =======  =======  ======== 
 

For definitions refer to the Alternative performance measures section.

Cash comprises cash, cash equivalents and interest-bearing deposits.

1 The earnings per share information for 2019 has been restated to reflect the impact of the rights issue.

Luis Gallego, IAG's Chief Executive Officer, said:

"In 2020, we're reporting an operating loss of EUR4,365 million before exceptional items compared to an operating profit of EUR3,285 million in 2019. Total operating losses including exceptional items relating to fuel and currency hedges, early fleet retirement plus restructuring costs came to EUR7,426 million.

"Our results reflect the serious impact that COVID-19 has had on our business. We have taken effective action to preserve cash, boost liquidity and reduce our cost base. Despite this crisis, our liquidity remains strong. At 31 December, the Group's liquidity was EUR10.3 billion including a successful EUR2.7 billion capital increase and GBP2 billion loan commitment from UKEF. This is higher than at the start of the pandemic.

"In 2020, our capacity decreased by 66.5 per cent while our non-fuel costs went down 37.1 per cent thanks to the extraordinary effort across our business. The Group continues to reduce its cost base and increase the proportion of variable costs to better match market demand. We're transforming our business to ensure we emerge in a stronger competitive position.

"IAG Cargo's turnover increased by almost EUR200 million to EUR1.3 billion. Cargo helped to make longhaul passenger flights viable. In addition, we operated 4,003 cargo-only flights in the year.

"I would like to thank our employees across the Group for their remarkable commitment, resilience and flexibility through this crisis. They have adapted quickly to new ways of working and made big sacrifices in terms of salary and working time. Our people have played a central role in all we have achieved during these challenging times.

"The aviation industry stands with governments in putting public health at the top of the agenda. Getting people travelling again will require a clear roadmap for unwinding current restrictions when the time is right.

"We know there is pent-up demand for travel and people want to fly. Vaccinations are progressing well and global infections are going in the right direction. We're calling for international common testing standards and the introduction of digital health passes to reopen our skies safely."

Trading outlook

Given the uncertainty on the impact and duration of COVID-19, IAG is not providing profit guidance for 2021.

LEI: 959800TZHQRUSH1ESL13

This announcement contains inside information and is disclosed in accordance with the Company's obligations under the Market Abuse Regulation (EU) No 596/2014.

Steve Gunning, Chief Financial Officer

Forward-looking statements:

Certain statements included in this announcement are forward-looking. These statements can be identified by the fact that they do not relate only to historical or current facts. By their nature, they involve risk and uncertainties because they relate to events and depend on circumstances that will occur in the future. Actual results could differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements often use words such as "expects", "may", "will", "could", "should", "intends", "plans", "predicts", "envisages" or "anticipates" or other words of similar meaning. They include, without limitation, any and all projections relating to the results of operations and financial conditions of International Consolidated Airlines Group, S.A. and its subsidiary undertakings from time to time (the 'Group'), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditure and divestments relating to the Group and discussions of the Group's business plan. All forward-looking statements in this announcement are based upon information known to the Group on the date of this announcement and speak as of the date of this announcement. Other than in accordance with its legal or regulatory obligations, the Group does not undertake to update or revise any forward-looking statement to reflect any changes in events, conditions or circumstances on which any such statement is based.

Actual results may differ from those expressed or implied in the forward-looking statements in this announcement as a result of any number of known and unknown risks, uncertainties and other factors, including, but not limited to, the effects of the COVID-19 pandemic and uncertainties about its impact and duration, many of which are difficult to predict and are generally beyond the control of the Group, and it is not reasonably possible to itemise each item. Accordingly, readers of this announcement are cautioned against relying on forward-looking statements. Further information on the primary risks of the business and the Group's risk management process is set out in the Risk management and principal risk factors section in the Annual Announcement and Accounts 2019; these documents are available on www.iairgroup.com. All forward-looking statements made on or after the date of this announcement and attributable to IAG are expressly qualified in their entirety by the primary risks set out in that section. Many of these risks are, and will be, exacerbated by the COVID-19 pandemic and any further disruption to the global airline industry and economic environment as a result.

IAG Investor Relations

Waterside (HAA2),

PO Box 365,

Harmondsworth,

Middlesex,

UB7 0GB

Tel: +44 (0)208 564 2990

Investor.relations@iairgroup.com

CONSOLIDATED INCOME STATEMENT

 
                                             Year to December         Three months to December 
                                                     31                          31 
                                         =========================  ============================ 
                                                           Higher/                       Higher/ 
EUR million                                 2020    2019   (lower)       2020    2019    (lower) 
=======================================  =======  ======  ========  =========  ======  ========= 
 
Passenger revenue                          5,512  22,468   (75.5)%        684   5,390    (87.3)% 
                                                              16.9 
Cargo revenue                              1,306   1,117         %        389     292     33.2 % 
Other revenue                                988   1,921   (48.6)%        228     532    (57.1)% 
=======================================  =======  ======  ========  =========  ======  ========= 
Total revenue                              7,806  25,506   (69.4)%      1,301   6,214    (79.1)% 
=======================================  =======  ======  ========  =========  ======  ========= 
 
Employee costs                             3,560   5,634   (36.8)%        693   1,921    (63.9)% 
Fuel, oil costs and emissions charges      3,735   6,021   (38.0)%        453   1,452    (68.8)% 
Handling, catering and other operating 
 costs                                     1,340   2,972   (54.9)%        260     736    (64.7)% 
Landing fees and en-route charges            918   2,221   (58.7)%        181     522    (65.3)% 
Engineering and other aircraft 
 costs                                     1,456   2,092   (30.4)%        321     505    (36.4)% 
Property, IT and other costs                 782     811    (3.6)%        185     229    (19.2)% 
Selling costs                                405   1,038   (61.0)%         65     225    (71.1)% 
Depreciation, amortisation and                                40.0 
 impairment                                2,955   2,111         %        620     557     11.3 % 
Currency differences                          81     (7)        nm        (6)    (26)    (76.9)% 
=======================================  =======  ======  ========  =========  ======  ========= 
Total expenditure on operations           15,232  22,893   (33.5)%      2,772   6,121    (54.7)% 
=======================================  =======  ======  ========  =========  ======  ========= 
Operating (loss)/profit                  (7,426)   2,613        nm    (1,471)      93         nm 
 
Finance costs                              (670)   (611)     9.7 %      (167)   (165)      1.2 % 
Finance income                                41      50   (18.0)%         14      17    (17.6)% 
Net financing credit relating to 
 pensions                                      4      26   (84.6)%          -       7         nm 
                                                              21.9 
Net currency retranslation credits           245     201         %         62     108    (42.6)% 
Other non-operating charges                  (4)     (4)         -       (47)    (54)    (13.0)% 
=======================================  =======  ======  ========  =========  ======  ========= 
                                                              13.6 
Total net non-operating costs              (384)   (338)         %      (138)    (87)     58.6 % 
=======================================  =======  ======  ========  =========  ======  ========= 
(Loss)/profit before tax                 (7,810)   2,275        nm    (1,609)       6         nm 
Tax                                          887   (560)        nm        253   (105)         nm 
=======================================  =======  ======  ========  =========  ======  ========= 
(Loss)/profit after tax for the 
 year                                    (6,923)   1,715        nm    (1,356)    (99)         nm 
=======================================  =======  ======  ========  =========  ======  ========= 
 

.

ALTERNATIVE PERFORMANCE MEASURES

All figures in the tables below are before exceptional items. Refer to Alternative performance measures section for more detail.

 
                                         Year to December 31          Three months to December 
                                                                                  31 
                                   ===============================  ============================= 
                                      Before exceptional items        Before exceptional items 
                                   ===============================  ============================= 
                                                           Higher/                        Higher/ 
EUR million                           2020       2019   (lower)(1)     2020     2019   (lower)(1) 
=================================  =======  =========  ===========  =======  =======  =========== 
 
Passenger revenue                    5,574     22,468      (75.2)%      686    5,390      (87.3)% 
                                                              16.9                           33.2 
Cargo revenue                        1,306      1,117            %      389      292            % 
Other revenue                          988      1,921      (48.6)%      228      532      (57.1)% 
=================================  =======  =========  ===========  =======  =======  =========== 
Total revenue before exceptional 
 items                               7,868     25,506      (69.2)%    1,303    6,214      (79.0)% 
=================================  =======  =========  ===========  =======  =======  =========== 
 
Employee costs                       3,247      4,962      (34.6)%      649    1,249      (48.0)% 
Fuel, oil costs and emissions 
 charges                             2,041      6,021      (66.1)%      358    1,452      (75.3)% 
Handling, catering and other 
 operating costs                     1,340      2,972      (54.9)%      260      736      (64.7)% 
Landing fees and en-route 
 charges                               918      2,221      (58.7)%      181      522      (65.3)% 
Engineering and other aircraft 
 costs                               1,348      2,092      (35.6)%      296      505      (41.4)% 
Property, IT and other costs           754        811       (7.0)%      185      229      (19.2)% 
Selling costs                          405      1,038      (61.0)%       65      225      (71.1)% 
Depreciation, amortisation 
 and impairment                      2,099      2,111       (0.6)%      480      557      (13.8)% 
Currency differences                    81        (7)           nm      (6)     (26)      (76.9)% 
=================================  =======  =========  ===========  =======  =======  =========== 
Total expenditure on operations 
 before exceptional items           12,233     22,221      (44.9)%    2,468    5,449      (54.7)% 
=================================  =======  =========  ===========  =======  =======  =========== 
Operating (loss)/profit before 
 exceptional items                 (4,365)      3,285           nm  (1,165)      765           nm 
 
Finance costs                        (670)      (611)        9.7 %    (167)    (165)        1.2 % 
Finance income                          41         50      (18.0)%       14       17      (17.6)% 
Net financing credit relating 
 to pensions                             4         26      (84.6)%        -        7           nm 
Net currency retranslation                                    21.9 
 credits                               245        201            %       62      108      (42.6)% 
Other non-operating charges            (4)        (4)            -     (47)     (54)      (13.0)% 
=================================  =======  =========  ===========  =======  =======  =========== 
                                                              13.6                           58.6 
Total net non-operating costs        (384)      (338)            %    (138)     (87)            % 
=================================  =======  =========  ===========  =======  =======  =========== 
(Loss)/profit before tax before 
 exceptional items                 (4,749)      2,947           nm  (1,303)      678           nm 
Tax                                    424      (560)           nm      154    (105)           nm 
=================================  =======  =========  ===========  =======  =======  =========== 
(Loss)/profit after tax for 
 the year before exceptional 
 items                             (4,325)      2,387           nm  (1,149)      573           nm 
=================================  =======  =========  ===========  =======  =======  =========== 
 
                                                           Higher/                        Higher/ 
Operating figures                  2020(1)    2019(1)      (lower)  2020(1)  2019(1)      (lower) 
=================================  =======  =========  ===========  =======  =======  =========== 
Available seat kilometres 
 (ASK million)                     113,195    337,754      (66.5)%   21,801   82,005      (73.4)% 
Revenue passenger kilometres 
 (RPK million)                      72,262    285,745      (74.7)%    9,817   69,138      (85.8)% 
Seat factor (per cent)                63.8       84.6    (20.8)pts     45.0     84.3    (39.3)pts 
Passenger numbers (thousands)       31,275    118,253      (73.6)%    4,298   27,805      (84.5)% 
Cargo tonne kilometres (CTK 
 million)                            3,399      5,580      (39.1)%      928    1,432      (35.2)% 
Sold cargo tonnes (thousands)          444        682      (34.9)%      118      175      (32.6)% 
Sectors                            267,748    775,486      (65.5)%   48,195  183,490      (73.7)% 
Block hours (hours)                820,983  2,272,904      (63.9)%  160,230  541,874      (70.4)% 
=================================  =======  =========  ===========  =======  =======  =========== 
Average manpower equivalent(2)      60,612     66,034       (8.2)%   53,553   65,293      (18.0)% 
Aircraft in service                    533        598      (10.9)% 
=================================  =======  =========  ===========  =======  =======  =========== 
Passenger revenue per RPK 
 (EUR cents)                          7.71       7.86       (1.9)%     6.99     7.80      (10.4)% 
Passenger revenue per ASK 
 (EUR cents)                          4.92       6.65      (26.0)%     3.15     6.57      (52.1)% 
Cargo revenue per CTK (EUR                                    91.9 
 cents)                              38.42      20.02            %    41.92    20.39           nm 
Fuel cost per ASK (EUR cents)         1.80       1.78        1.1 %     1.64     1.77       (7.3)% 
Non-fuel costs per ASK (EUR                                   87.7 
 cents)                               9.00       4.80            %     9.68     4.87           nm 
                                                              64.3                           70.4 
Total cost per ASK (EUR cents)       10.81       6.58            %    11.32     6.64            % 
=================================  =======  =========  ===========  =======  =======  =========== 
 

1 Financial ratios are before exceptional items. Refer to Alternative performance measures section for detail.

2 Included in the average manpower equivalent are staff on furlough, wage support and equivalent schemes, including the Temporary Redundancy Plan arrangements in Spain.

FINANCIAL REVIEW

Structure of Financial Review

Due to the unprecedented impact of COVID-19 and governments' responses, many of the usual variance analysis and measures are significantly less meaningful than in previous years and in some cases measures used previously no longer provide relevant insight into understanding the performance of the Group. As a consequence, unlike in prior years, in this review there is no detail on industry growth rates and GDP by market, as in 2020 the main drivers of capacity and revenue were COVID-19 and the related governmental travel bans and restrictions, rather than broader economic factors. This review, therefore, is structured to provide detail about the impact of COVID-19 on the Group, including the measures the Group has taken to mitigate the financial impact of the pandemic. Where variances exceed 100 per cent they have been substituted with 'nm' for 'not meaningful' and the absolute values are shown.

COVID-19 impact and IAG's response

The main impact of COVID-19 materialised as a significant drop in the demand for passenger flights, linked to both the pandemic itself and the travel restrictions introduced by national governments, which changed many times through the year, normally with no or very short notice, thereby creating uncertainty for customers.

As a result of the significantly reduced flying programme, aircraft had to be temporarily grounded, with some retired early. Jet fuel consumption was significantly lower than that on which the Group's hedging programme was based, leading to the discontinuation of hedge accounting for the related derivative financial instruments. In addition, the commodity price of jet fuel fell sharply, leading to significant losses related to the hedging programme.

The Group acted quickly to mitigate the impact of COVID-19 on its liquidity and results, through reductions in operating and capital expenditure, together with working capital initiatives and additional funding. The success of these measures was recognised by all three credit rating agencies, however, the severity of the deterioration in operating conditions resulted in successive downgrading of both IAG's and British Airways' credit ratings to below investment grade. The main measures taken to mitigate the impact of COVID-19 on the Group are shown opposite and reviewed in further detail below.

Key COVID-19 mitigations

 
Demand and           Passenger capacity 66.5% lower than 2019 
 capacity             Additional cargo flights, including for essential equipment 
                      and supplies 
===================  =================================================================== 
Fleet reductions     Temporary grounding and parking of aircraft 
                      Early retirement of aircraft, including British Airways Boeing 
                      747-400s and Iberia Airbus A340-600s, plus lease returns 
===================  =================================================================== 
Operating            Pay cuts, wage support, furlough and temporary reductions in 
 costs                hours worked and employee numbers 
                      Restructuring in British Airways and Aer Lingus, with increased 
                      flexibility 
                      Non-essential discretionary spend reduced 
                      Negotiated price reductions for supplier costs 
===================  =================================================================== 
Capital expenditure  Deferral of delivery of 68 aircraft 
                      Reduction in other capital expenditure; cyber spend retained 
===================  =================================================================== 
Working capital      2019 final dividend proposal withdrawn and no 2020 dividend 
                      Reduction in trade receivables 
                      Impact of reduction in bookings for future travel mitigated 
                      by customers opting to take vouchers in lieu of cash refunds 
                      With agreement, deferred supplier payments treasury settlements 
                      and lease payments 
                      American Express loyalty contract renewal, with significant 
                      pre-payment 
                      Accelerated tax refunds from 2021 to 2020 and deferral of UK 
                      HMRC payments 
                      Deferred UK and US pension contributions 
===================  =================================================================== 
Funding              Aircraft financed throughout year (sale and leaseback and new 
                      EUR1 billion EETC facility) 
                      British Airways Revolving Credit Facility extended by one year; 
                      other credit lines secured 
                      EUR328 million commercial paper issued under UK's CCFF 
                      EUR1 billion debt through ICO-backed loans in Spain 
                      EUR75 million debt through ISIF-backed loans in Ireland, potential 
                      for further EUR75 million 
                      GBP2 billion UK Export Finance loan agreed 
                      EUR2.7 billion equity increase 
===================  =================================================================== 
 

Demand and capacity

IAG capacity

In 2020, all of IAG's airlines significantly reduced passenger capacity, with total Group capacity, measured in Available seat kilometres (ASKs), down 66.5 per cent versus 2019. The early months of the year started in line with the Group's plans approved by the Board in December 2019, aside from a limited COVID-19 impact mainly in the Asia Pacific region with suspension of services to China at the end of January and other capacity reductions across the region. Passenger capacity was 1.4 per cent higher than 2019 in January and 2.9 per cent higher in February. From late February, as the virus spread across the globe, many governments placed significant restrictions on the movement of people and on travel across international borders. This led to the cancellation of all flights to, from and within Italy and extensive reductions across the whole network, with capacity in the first quarter down 10.5 per cent on 2019.

In the second quarter, due to the impact of the virus worldwide and the associated travel and border restrictions applying in most countries, the Group was only able to operate a skeleton passenger schedule, with capacity operated only 5 per cent of that operated in the same quarter 2019. The third quarter showed improvement and additional capacity was introduced, mainly driven by leisure demand and for those visiting friends and relatives (VFR); however, capacity was still down 78.6 per cent on the previous year. Where travel restrictions were removed the Group saw a strong level of travel demand from customers. Plans to increase capacity steadily during the fourth quarter had to be revised, as a second wave of infections swept across Europe and governments re-imposed lockdowns and travel restrictions. Capacity for the fourth quarter was down 73.4 per cent.

The IAG passenger load factor was down 20.8 points from 2019 to 63.8 points, also impacted by travel restrictions, which changed frequently, together with low demand and a higher than normal level of passengers not checking in for flights that were still operating ('no-shows'). One consequence of the reduction in passenger capacity across the industry was a reduction in hold space available for cargo purposes, leading to reduced overall cargo supply and a more favourable cargo yield environment than in the previous year.

IAG capacity

 
                                                ASKs  Passenger 
                                      higher/(lower)       load   Higher/ 
Year to December 31, 2020                        vly     factor   (lower) 
===================================  ===============  =========  ======== 
                                                                   (16.2) 
Domestic                                     (49.8)%       71.0       pts 
                                                                   (19.0) 
Europe                                       (70.5)%       64.6       pts 
                                                                   (30.9) 
North America                                (69.3)%       53.2       pts 
                                                                   (13.7) 
Latin America and Caribbean                  (64.3)%       72.7       pts 
                                                                   (15.8) 
Africa, Middle East and South Asia           (61.4)%       67.2       pts 
                                                                   (24.5) 
Asia Pacific                                 (70.7)%       61.3       pts 
===================================  ===============  =========  ======== 
                                                                   (20.8) 
Total network                                (66.5)%       63.8       pts 
===================================  ===============  =========  ======== 
 

Domestic and Europe

Together, IAG's Domestic and European markets continue to represent the Group's largest region. However, capacity across both was, and continues to be, significantly impacted by the travel restrictions and quarantines imposed by European governments.

Capacity in IAG's Domestic markets decreased by 49.8 per cent versus 2019. British Airways' capacity reflected demand from UK holidaymakers avoiding overseas destinations subject to quarantine restrictions, Scottish routes re-opened in quarter 2 and a new route to Newquay launched in the summer. Vueling focused its operations on connecting the Spanish peninsula with the Canary and Balearic Islands and Iberia maintained similar Domestic routes for connectivity. Aer Lingus' route between London and Belfast benefitted from UK citizens opting for domestic holidays, with load factors reaching 70 per cent in August. Passenger load factor in the region remained above 70 per cent as Spanish and UK government travel restrictions and quarantine rules prompted an increase in travellers opting for holidays in their home country.

The Group's capacity in Europe decreased 70.5 per cent year on year. As the COVID-19 outbreak started to spread, Vueling limited its operations outside of Spain as demand remained weak throughout 2020. Iberia maintained minimum operations to keep major European cities, including London, Paris and Madrid, connected in quarter 2 and expanded operations in quarter 3 to meet summer leisure demand. In quarter 3 British Airways had a good performance throughout the summer on the limited number of routes operated to destinations included on the UK Government's 'Travel Corridor' list. Aer Lingus' European operations were limited by the Irish government's 'Green List', which severely restricted travel and discouraged Irish citizens from non-essential travel. LEVEL's operations in Vienna and Amsterdam ceased on June 19, 2020.

North America

IAG's North American market accounts for almost 30 per cent of the Group's ASKs. The region's capacity increase at the beginning of 2020 reflected the full-year impact of routes launched during 2019, including British Airways' route to Pittsburgh, Aer Lingus' route to Minneapolis and LEVEL's route to New York, JFK. Following the outbreak of COVID-19, a much-reduced flight schedule to North America operated, primarily for cargo purposes, with British Airways and Aer Lingus operating regular flights to New York, Boston, Washington and Chicago. Iberia resumed operations to Chicago in quarter 3 and LEVEL Spain restarted its route to JFK in September. Quarter 4 benefited from increased leisure and VFR travel around the Thanksgiving and Christmas holidays, with routes to second-home markets such as Miami performing well. LEVEL France ceased operations on July 8, leading to the cancellation of its routes to Newark and Las Vegas. Passenger load factor for the region was the lowest for the Group as the United States government's COVID-19 restrictions allowed only residents and nationals to enter the country.

Latin America and Caribbean (LACAR)

IAG's capacity in LACAR increased in January and February driven by Iberia's new route to Guayaquil, Ecuador launched in 2019 and additional frequencies on routes to Colombia, Peru and Brazil. LEVEL's growth reflected the annualisation of new routes launched in 2019 to Santiago de Chile and additional frequencies on routes to the French Caribbean. However, following the initial outbreak of COVID-19, LACAR operations were extremely limited, due to strict government restrictions and high COVID-19 case numbers impacting the region, with regular operations only starting to resume in quarter 3. British Airways operated a number of charter flights to the Caribbean in quarter 2 and restarted regular service to a number of destinations in quarter 3. In quarter 4 flights operated regularly to São Paulo, Antigua and Saint Lucia, benefiting from leisure travel over the holiday period. In quarter 2, Iberia's operations were mainly for repatriation and cargo purposes and routes to Panama City, Santo Domingo and Quito resumed in quarter 3. Quarter 4 benefited from significant VFR travel to the region with load factors to routes in Ecuador and Dominican Republic reaching over 80 per cent. LEVEL France operations to the French Caribbean ceased in July, however LEVEL Spain continues to operate and resumed limited operations to Buenos Aires in September and Santiago de Chile in December. Passenger load factor in this region was the highest for the Group, down only 13.7 points on 2019 to 72.7 per cent.

Africa, Middle East and South Asia (AMESA)

AMESA capacity increased in January and February primarily due to new routes launched in 2019 by British Airways, including to Dammam via Bahrain and Islamabad. Following the outbreak of COVID-19 and initial lockdowns, regular operations did not restart until quarter 3 with British Airways returning to Dubai, Kenya, Israel, India and Pakistan. Iberia restarted its regular service to Dakar, Senegal in July but did not reopen regular operations to Morocco and Israel in 2020. Vueling did not restart any regular operations to the region in 2020. Passenger load factor for the region was down 15.8 points versus 2019 to 67.2 per cent.

Asia Pacific

In the Asia Pacific region, the Group's capacity was down significantly on 2019 and it was the first region to see cancellations as a result of the COVID-19 outbreak in late January. British Airways, Iberia and Aer Lingus all operated government charter flights to the region, carrying back Personal Protective Equipment (PPE) during the first wave of the pandemic. Since then, there has been a steady return to flying with British Airways reopening routes to China, Hong Kong and Tokyo, although strict travel restrictions remain in place limiting capacity, with China only allowing international carriers to operate one flight per week on a single route. Passenger load factor was down 24.5 points to 61.3 per cent on a capacity decrease of 70.7 per cent.

Basis of preparation

Based on the extensive modelling the Group has undertaken in light of the COVID-19 pandemic, the Directors have a reasonable expectation that the Group has sufficient liquidity for the going concern assessment period to March 31, 2022, and accordingly the Directors have adopted the going concern basis in preparing the consolidated financial statements.

There are a number of significant factors related to COVID-19 that are outside of the control of the Group, including the status and impact of the pandemic worldwide, including the emergence of new variants of the virus and potential resurgence of existing strains of the virus; the availability of vaccines worldwide, together with the speed at which they are deployed; the efficacy of those vaccines; and the restrictions imposed by national governments in respect of the freedom of movement and travel. Due to the uncertainty that these factors create, the Group is not able to provide certainty that there could not be more severe downside scenarios than those it has considered, including the sensitivities it has considered in relation to factors such as the impact on yield, capacity operated, cost mitigations achieved and the availability of aircraft financing to offset capital expenditure. In the event that such a scenario were to occur, the Group would need to implement additional mitigation measures and would likely need to secure additional funding over and above that which is contractually committed at February 25, 2021. The Group has been successful in raising financing since the outbreak of COVID-19, having financed all aircraft deliveries in 2020, secured an additional EUR3.6 billion of non-aircraft debt and having completed an equity increase of EUR2.7 billion in September 2020, which was fully subscribed. However, the Group cannot provide certainty that it will be able to secure additional funding, if required, in the event that a more severe downside scenario than those it has considered were to occur. Refer to note 2 of the consolidated

financial statements for further information.

Summary

In light of the significant reduction in the Group's passenger capacity linked to the impact of COVID-19, the year saw a significant reduction in passenger revenue. The Group took action to mitigate the impact through exploiting cargo opportunities and by reducing costs. The Group also recognised exceptional charges for restructuring costs, the discontinuance of hedge accounting in relation to fuel and foreign currency derivatives and the impairment of aircraft and related assets either retired or stood down early. The net result was an operating loss for the year of EUR7,426 million, versus an operating profit in 2019 of EUR2,613 million. The reported loss after tax for the year was EUR6,923 million, versus a profit of EUR1,715 million in 2019.

(Loss)/profit for the year

 
Statutory results                           Higher/ 
 EUR million                                (lower) 
                              2020   2019       vly 
=========================  =======  =====  ======== 
Operating (loss)/profit    (7,426)  2,613  (10,039) 
(Loss)/profit before tax   (7,810)  2,275  (10,085) 
(Loss)/profit after tax    (6,923)  1,715   (8,638) 
=========================  =======  =====  ======== 
 

The Group uses Alternative Performance Measures (APMs) to analyse the underlying results of the business excluding exceptional items, which are those that in management's view need to be separately disclosed by virtue of their size or incidence in understanding the entity's financial performance. A summary of the exceptional items relating to 2019 and 2020 is given below, with more detail in the Alternative Performance Measures section, including the exceptional items by operating company.

Summary of exceptional items

 
                                                                                                       (Charge)/credit 
                                                                                                                to the 
Income statement                                                                        Exceptional   Income statement 
 line                                                                              item description        EUR million 
===========================  ===================================================  =================  ================= 
                                                                                             2020 1               2019 
===========================  ===================================================  =================  ================= 
                             Discontinuation of hedge accounting for foreign 
Passenger revenue             currency derivatives for revenue                                 (62)                  - 
===========================  ===================================================  =================  ================= 
                             Non-cash increase in liabilities in association 
Employee costs                with pension scheme settlement                                      -              (672) 
===========================  ===================================================  =================  ================= 
Employee costs               Restructuring costs                                              (313)                  - 
===========================  ===================================================  =================  ================= 
Fuel, oil and emissions      Discontinuation of hedge accounting for fuel 
 costs                        and associated foreign exchange derivatives                   (1,694)                  - 
===========================  ===================================================  =================  ================= 
Engineering and other        Inventory write-down and charge in relation to 
 aircraft costs               contractual lease provisions                                    (108)                  - 
===========================  ===================================================  =================  ================= 
Property, IT and             Legal costs associated with employee restructuring 
 other costs                  programmes                                                        (6)                  - 
===========================  ===================================================  =================  ================= 
Property, IT and             Settlement provision in relation to the theft 
 other costs                  of customer data at British Airways in 2018                      (22)                  - 
===========================  ===================================================  =================  ================= 
Depreciation, amortisation   Impairment of fleet 
 and impairment               and associated assets                                           (856)                  - 
===========================  ===================================================  =================  ================= 
Tax                          Tax on exceptional items                                           463                  - 
===========================  ===================================================  =================  ================= 
 

1 In 2020 all items were associated with the impact of COVID-19, except the settlement provision in relation to the theft of customer data at British Airways in 2018.

Excluding the impact of the exceptional items shown above, the operating loss for 2020 was EUR4,365 million, down EUR7,650 million from the operating profit of EUR3,285 million generated in 2019. The loss after tax and before exceptional items was EUR4,325 million, versus a profit after tax and before exceptional items of EUR2,387 million in 2019.

 
                                                            Higher/ 
Alternative Performance Measures                            (lower) 
 (before exceptional items), EUR million      2020   2019       vly 
=========================================  =======  =====  ======== 
Operating (loss)/profit                    (4,365)  3,285   (7,650) 
(Loss)/profit before tax                   (4,749)  2,947   (7,696) 
(Loss)/profit after tax                    (4,325)  2,387   (6,712) 
=========================================  =======  =====  ======== 
 

Revenue

 
                              Higher/   Higher/ 
                              (lower)   (lower) 
EUR million            2020       vly       vly 
====================  =====  ========  ======== 
Passenger revenue 1   5,512  (16,956)   (75.5)% 
Cargo revenue         1,306       189     16.9% 
Other revenue           988     (933)   (48.6)% 
====================  =====  ========  ======== 
Total revenue         7,806  (17,700)   (69.4)% 
====================  =====  ========  ======== 
 

1 Includes an exceptional charge of EUR62 million (2019: nil) related to discontinued hedge accounting of revenue foreign currency derivatives. Further information is given in the Alternative Performance Measures section.

Passenger revenue

The overall impact of the significantly reduced schedule and lower passenger load factors described above was a decrease in passenger revenue of EUR16,956 million, or 75.5 per cent versus 2019.

Cargo revenue

2020 was a record year for cargo revenue, as additional flights were operated to transport essential equipment and supplies, assisted by a dedicated charter team to develop solutions for customers and governments, recognising that IAG Cargo does not operate a dedicated freighter fleet. The cargo business identified markets most impacted by the reduction in air cargo supply, where demand would not be met by traditional freighter services and that could support the yields required to fly cargo-only services using passenger aircraft. The focus of cargo-only flying was to ensure a cash-positive contribution was achieved for the airlines and the Group. Cargo opportunities were increased by removing seats from five passenger aircraft and obtaining regulatory approvals to load cargo in the passenger cabins. During the year 4,003 additional cargo-driven flights were operated; these additional flights are not included in the passenger capacity figures for ASKs, as seats were not offered for general sale to passengers.

The overall impact of the cargo operation, including the additional cargo-driven flights linked to the COVID-19 response, was an increase in Cargo revenue of EUR189 million, or 16.9 per cent versus 2019.

Other revenue

The largest Other revenue streams for the Group in normal times are Iberia's Maintenance, Repair and Overhaul (MRO) and Handling businesses, together with BA Holidays. Revenue from these activities was also significantly reduced versus the previous year, linked to lower activity levels associated with COVID-19. In the case of MRO and Handling, these revenues were affected by reduced demand following lower flight schedules and significant fleet reductions across the airline industry and hence lower maintenance requirements, although the reductions were less than the reduction in the level of passenger capacity. The BA Holidays business is closely linked to the passenger business and was therefore impacted by the significantly reduced passenger operation. Loyalty revenues were also down on 2019, as the lower flying programme led to a reduced number of redemptions of Avios and a reduced volume of the sale of Avios to third parties, linked to the reduced level of expenditure on travel. Other ancillary revenue streams were also affected by the impact of the pandemic, including handling recoveries in Terminal 7 at New York, JFK. In total Other revenue was down EUR933 million, or 48.6 per cent versus 2019.

Fleet reductions

The Group anticipates that as a result of COVID-19, demand will continue to be supressed for several years and will not reach levels seen in 2019 until at least 2023. The Group, therefore, took steps to reduce its aircraft fleet and the associated cost of maintenance.

During 2020, a significant number of aircraft were temporarily grounded and parked, with the limited operations focused on flying the more fuel-efficient new-generation aircraft, where possible. The Group also decided to accelerate the retirement of its older, four-engined longhaul fleet. British Airways retired its fleet of 32 Boeing 747-400 aircraft, and Iberia retired its fleet of 15 Airbus A340-600 aircraft. In addition to these retirements, 37 aircraft were stood down earlier than planned, either pending disposal or return to lessors, bringing the reductions in fleet numbers to 84 aircraft. However, the Group also took delivery of 34 aircraft during the year, detailed in the Capital expenditure section below.

The early retirement and stand-down of these aircraft led to an exceptional impairment charge of EUR837 million; there was also a EUR108 million exceptional charge related to a write-down of inventory and recognition of contractual end-of-lease provisions.

Number of fleet

 
                                          Higher/ 
                                          (lower) 
Number of fleet in-service   2020  2019       vly 
===========================  ====  ====  ======== 
Shorthaul                     367   394    (6.9)% 
Longhaul                      166   204   (18.6)% 
===========================  ====  ====  ======== 
                              533   598   (10.9)% 
===========================  ====  ====  ======== 
 

241 of the 533 "in-service" fleet at the end of the year were temporarily grounded. In addition to the in-service fleet, there were a further 71 aircraft held by the Group pending disposal or lease return and 1 new aircraft that had been delivered to the Group and paid for but had not yet entered service.

Operating costs

Due to the reduced flying programme and significantly reduced revenues, the Group took action to offset the financial impact by reducing costs, together with measures to increase the variability and flexibility in its cost base. Total expenditure on operations before exceptional items fell from EUR22,221 million in 2019 to EUR12,233 million in 2020, a 44.9 per cent reduction, compared to the reduction in passenger capacity, measured in ASKs, of 66.5 per cent. The reduction in operating costs before exceptional items and excluding depreciation, amortisation and impairment was 49.6 per cent.

Employee costs

 
                           Higher/   Higher/ 
                           (lower)   (lower) 
EUR million         2020       vly       vly 
=================  =====  ========  ======== 
Employee costs 1   3,560   (2,074)   (36.8)% 
=================  =====  ========  ======== 
 

1 Includes an exceptional charge of EUR313 million related to the restructuring programmes in British Airways, Aer Lingus, Iberia and LEVEL, undertaken to resize the Group as a consequence of COVID-19. A non-cash exceptional charge of EUR672 million in 2019 related to the impact of a settlement between British Airways and its oldest pension scheme, APS. Further information is given in the Alternative Performance Measures section.

National governments provided wage or job support mechanisms in each of IAG's main home markets and the operating companies used these facilities to reduce employee numbers and costs, with the direct impact of these mechanisms reducing employee costs by approximately EUR730 million. Other arrangements were agreed for staff not directly covered by such schemes and so costs were reduced at all levels in the organisation, with the Management Committee and Board members also seeing reductions as outlined in the Report of the Remuneration Committee.

In addition to temporary measures, both British Airways and Aer Lingus implemented longer-term restructuring, consistent with the expected multi-year impact of COVID-19 on demand. The restructuring measures will result in reductions at British Airways of approximately 10,000 employees (or one quarter of the workforce at June 2020) and 500 at Aer Lingus (or approximately 10 per cent of the workforce at June 2020); the substantial majority of employees affected had left the Group by the end of 2020. British Airways has also introduced more flexibility in certain operational areas, in order to be able to better adjust employee numbers and cost to the level of capacity operated. Iberia also made reductions in management numbers, together with restructuring related to staff outside of Spain. Iberia and Vueling made use of the temporary redundancy arrangements in Spain under an Expedientes de Regulación Temporal de Empleo ('ERTE') arrangement and hence did not incur restructuring costs in respect of non-managerial employees in Spain. The closure of LEVEL France led to an exceptional provision of EUR28 million for the associated employee restructuring costs. The total exceptional employee restructuring charges for the year included within Employee costs were EUR313 million.

In addition to the wage and pay support schemes and restructuring programmes outlined above, other measures were taken to further reduce employee costs, such as offering unpaid leave, the removal of bonuses and reduced non-mandatory training. Measures were taken at all levels across the Group.

Employee costs for the year decreased by EUR2,074 million, or 36.8 per cent compared with 2019; excluding exceptional items, employee costs reduced by EUR1,715 million, or 34.6 per cent.

Fuel, oil and emissions costs

 
                                                  Higher/   Higher/ 
                                                  (lower)   (lower) 
EUR million                                2020       vly       vly 
========================================  =====  ========  ======== 
Fuel, oil costs and emissions charges 1   3,735   (2,286)   (38.0)% 
========================================  =====  ========  ======== 
 

1 Includes an exceptional charge of EUR1,694 million (2019: nil) related to discontinuation of hedge accounting for fuel derivatives and fuel foreign currency derivatives as a result of the impact of COVID-19. Further information is given in the Alternative Performance Measures section.

Commodity fuel prices fell dramatically following the spread of COVID-19 globally in March, with prices down approximately 75 per cent on levels experienced immediately beforehand. Although there was a partial recovery during the remainder of the year, prices were still at levels much lower than 2019.

The Group seeks to reduce the impact of volatile commodity prices by hedging prices up to three years in advance. The hedging programme is based on expected levels of activity, with the proportion hedged in line with treasury policies agreed with the Board.

In 2020, due to the rapid fall in the commodity fuel price, the Group has experienced losses on its fuel hedging derivatives. These hedging losses would have normally been offset against the reduced cost of physical fuel purchased. However, the impact of COVID-19 has led to a significant reduction in the requirement to purchase jet fuel, due to the significantly reduced flying programme. As a consequence, the Group had derivative contracts for which there was no corresponding purchase of jet fuel, leading to discontinuance of hedge accounting for these derivatives, with the mark-to-market loss of EUR1,781 million recognised as an exceptional charge in the Income statement. There was also a related mark-to-market gain recognised in the Income statement related to foreign exchange hedging of EUR87 million, bringing the net exceptional charge to EUR1,694 million for the year. These values are calculated based on the fuel curve and foreign exchange rates as at December 31, 2020 and the anticipated capacity to be operated for 2021 and 2022.

The Group continued to benefit from reduced fuel consumption associated with the investment in new fleet, together with the early retirement of older aircraft. Overall fuel, oil and emissions charges were down EUR2,286 million, or 38.0 per cent versus 2019; excluding the exceptional net overhedging charge fuel, oil and emissions charges were down EUR3,980 million, or 66.1 per cent.

Supplier costs

 
                                                       Higher/   Higher/ 
                                                       (lower)   (lower) 
EUR million                                     2020       vly       vly 
=============================================  =====  ========  ======== 
Handling, catering and other operating costs   1,340   (1,632)   (54.9)% 
Landing fees and en-route charges                918   (1,303)   (58.7)% 
Engineering and other aircraft costs 1         1,456     (636)   (30.4)% 
Property, IT and other costs 2                   782      (29)    (3.6)% 
Selling costs                                    405     (633)   (61.0)% 
Currency differences                              81        88        nm 
=============================================  =====  ========  ======== 
 

1 Includes an exceptional charge of EUR108 million (2019: nil) related to an inventory write-down and a charge relating to contractual lease provisions. Further information is given in the Alternative Performance Measures section.

2 Includes an exceptional charge of EUR28 million (2019: nil) related to the penalty notice issued by the UK Information Commissioner's Office for the theft of customer data at British Airways in 2018 (EUR22 million) and to the legal costs of the Group-wide restructuring programme undertaken in the year (EUR6 million). Further information is given in the Alternative Performance Measures section.

Handling, catering and other operating costs were down EUR1,632 million on 2019, or 54.9 per cent. In addition to volume-linked savings, including the reduced product costs associated with lower BA Holidays revenues, costs were reduced by management actions, such as the closure of airport lounges and by the necessary reduction in catering, linked to measures to reduce the risk of transmission of COVID-19 to customers and staff.

Landing fees and en-route charges were down EUR1,303 million on 2019, or 58.7 per cent. Costs reduced in line with the lower flying programme, although there was some adverse impact from lost volume rebates and equivalent arrangements, including at London Heathrow, together with price increases from Eurocontrol.

Engineering and other aircraft costs reduced due to the reduction in flights operated, together with the reduction in Iberia's external MRO business and other savings in the wake of COVID-19. Engineering and other aircraft costs were down EUR636 million, or 30.4 per cent; excluding the exceptional charge, due to the write-down of inventory and provision for lease return costs, Engineering and other aircraft costs were down EUR744 million, or 35.6 per cent.

Property, IT and other costs were down EUR29 million, or 3.6 per cent, on 2019, including the final penalty notice issued by the UK Information Commissioner's Office regarding the theft of customer data at British Airways in 2018; excluding the cost of this final penalty notice Property, IT and other costs were down EUR57 million or 7.0 per cent. Cost savings associated with the lower volume of IT transactions and reduced energy usage and rates were partly offset by the costs associated with IT infrastructure investment. The 2019 base included income from a settlement in respect of a British Airways data centre issue in 2017.

Selling costs reduced with the significant drop in passenger revenue and lower forward bookings, together with a reduction in marketing and other discretionary expenditure in light of COVID-19. Selling costs were EUR633 million lower than the previous year, or 61.0 per cent.

Ownership costs

Ownership costs include depreciation, amortisation and impairment of tangible and intangible assets. The Group adopted IFRS 16 'Leases' from January 1, 2019, meaning right of use assets in respect of leases are included with the Balance sheet and associated depreciation of those right of use assets is included within depreciation.

 
                            Higher/   Higher/ 
                            (lower)   (lower) 
EUR million          2020       vly       vly 
==================  =====  ========  ======== 
Ownership costs 1   2,955       844     40.0% 
==================  =====  ========  ======== 
 

1 Includes an exceptional charge of EUR856 million (2019: nil) related to the impairment of fleet assets and other assets. Further information is given in the Alternative Performance Measures section.

The increase in ownership costs of EUR844 million, or 40.0 per cent, is driven by the EUR856 million impairment charge in respect of the retirement of the British Airways Boeing 747-400 and Iberia Airbus A340-600 fleets, and related other assets, together with the early stand down or lease return of 37 other aircraft. Excluding these items, ownership costs would have been at a similar level to 2019.

Exchange rate impact

Exchange rate impacts are calculated by retranslating current year results at prior year exchange rates. The reported revenues and expenditures are impacted by the translation of currencies other than euro to the Group's reporting currency of euro, primarily British Airways and IAG Loyalty. 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 typically generates a surplus in most currencies in which it does business, except the US dollar, for which capital expenditure, debt repayments and fuel purchases typically create a deficit which is managed and partially hedged. The Group hedges its economic exposure from transacting in foreign currencies but does not hedge the translation impact of reporting in euro.

Overall, in 2020 the Group operating loss before exceptional items was increased by EUR5 million due to adverse exchange rate impacts.

Exchange impact before exceptional items

 
                                                                 2020 
================================================  =================================== 
                                                                                Total 
EUR million                                       Translation  Transaction   exchange 
 Favourable/(adverse)                                  impact       impact     impact 
================================================  ===========  ===========  ========= 
Total exchange impact on revenue                           84           33        117 
Total exchange impact on operating expenditures          (31)         (91)      (122) 
================================================  ===========  ===========  ========= 
Total exchange impact on operating loss                    53         (58)        (5) 
================================================  ===========  ===========  ========= 
 
 
                                                                 2019 
================================================  =================================== 
                                                                                Total 
EUR million                                       Translation  Transaction   exchange 
 Favourable/(adverse)                                  impact       impact     impact 
================================================  ===========  ===========  ========= 
Total exchange impact on revenue                           68          325        393 
Total exchange impact on operating expenditures          (58)        (268)      (326) 
================================================  ===========  ===========  ========= 
Total exchange impact on operating profit                  10           57         67 
================================================  ===========  ===========  ========= 
 

The exchange rates for the Group were as follows:

 
                                                                 Higher/ 
                                                                 (lower) 
                                                    2020  2019       vly 
==================================================  ====  ====  ======== 
Translation - Balance sheet 
GBP to EUR                                          1.10  1.18    (6.8%) 
==================================================  ====  ====  ======== 
Translation - Income statement (weighted average) 
GBP to EUR                                          1.13  1.13      0.0% 
==================================================  ====  ====  ======== 
Transaction (weighted average) 
GBP to EUR                                          1.13  1.13      0.0% 
EUR to $                                            1.13  1.12      0.9% 
GBP to $                                            1.27  1.27      0.0% 
==================================================  ====  ====  ======== 
 

Total net non operating costs

Total net non-operating costs for the year were EUR384 million, versus EUR338 million in 2019. The main driver of the increase was finance costs up EUR59 million (9.7 per cent), related to interest on new debt and arrangement costs. In both years the finance costs were partially offset by net currency retranslation credits, mainly related to the retranslation of US dollar balances and related derivate financial instruments.

Tax

The tax credit for the period was EUR887 million (2019: tax charge of EUR560 million), with an effective tax rate (credit) for the Group of 11 per cent (2019: 25 per cent charge). The substantial majority of the Group's activities are taxed where the main operations are based, in the UK, Spain and Ireland, with corporation tax rates during 2020 of 19 per cent, 25 per cent and 12.5 per cent respectively, which results in an expected effective tax rate of 21 per cent. The difference between the expected effective tax rate of 21 per cent and the actual effective tax rate of 11 per cent was firstly due to not recognising tax credits in respect of certain current and prior period losses and deductible temporary differences; those losses and deductible temporary differences relate principally to Iberia, Openskies and Vueling. In addition, the UK Government retained its rate of corporation tax rate at 19 per cent from April 1, 2020, in place of the reduction to 17 per cent that had previously been enacted into law.

Operating profit and loss performance of operating companies

 
                              British Airways                   Aer Lingus                     Iberia                      Vueling 
                                  GBP million                  EUR million                EUR million                  EUR million 
=================  ==========================  ===========================  =========================  =========================== 
Post-exceptional             Higher/  Higher/             Higher/  Higher/           Higher/  Higher/             Higher/  Higher/ 
 items 1              2020   (lower)  (lower)      2020   (lower)  (lower)     2020  (lower)  (lower)      2020   (lower)  (lower) 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Passenger 
 revenue             2,840   (9,059)    (76)%       379   (1,681)    (82)%    1,160  (2,893)    (71)%       569   (1,868)    (77)% 
Cargo revenue          890       179      25%        88        34      63%      240     (51)    (18)%         -         -        - 
Other revenue          217     (463)    (68)%         -      (11)        -      859    (442)    (34)%         5      (13)    (72)% 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Total revenue        3,947   (9,343)    (70)%       467   (1,658)    (78)%    2,259  (3,386)    (60)%       574   (1,881)    (77)% 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Fuel, oil 
 costs and 
 emissions 
 charges             1,996   (1,241)    (38)%       286     (174)    (38)%      716    (486)    (40)%       314     (234)    (43)% 
Employee 
 costs               1,916   (1,196)    (38)%       217     (188)    (46)%      798    (366)    (31)%       196     (105)    (35)% 
Supplier 
 costs               2,440   (2,057)    (46)%       370     (484)    (57)%    1,544    (848)    (35)%       594     (522)    (47)% 
Ownership 
 costs 2             1,475       369      33%       157        27      21%      612      222      57%       345        95      38% 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Operating 
 loss              (3,880)   (5,218)       nm     (563)     (839)       nm  (1,411)  (1,908)       nm     (875)   (1,115)       nm 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Operating                    (108.4)                      (133.4)                     (71.3)                      (162.1) 
 margin            (98.3)%       pts           (120.4)%       pts           (62.5)%      pts           (152.3)%       pts 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
 
Alternative Performance Measures 1 
================================================================================================================================== 
Passenger 
 revenue             2,894   (9,005)    (76)%       382   (1,678)    (81)%    1,160  (2,893)    (71)%       569   (1,868)    (77)% 
Cargo revenue          890       179      25%        88        34      63%      240     (51)    (18)%         -         -        - 
Other revenue          217     (463)    (68)%         -      (11)        -      859    (442)    (34)%         5      (13)    (72)% 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Total revenue 
 before 
 exceptional 
 items               4,001   (9,289)    (70)%       470   (1,655)    (78)%    2,259  (3,386)    (60)%       574   (1,881)    (77)% 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Fuel, oil 
 costs and 
 emissions 
 charges             1,159   (2,078)    (64)%       142     (318)    (69)%      372    (830)    (69)%       160     (388)    (71)% 
Employee 
 costs               1,695     (834)    (33)%       193     (212)    (52)%      784    (380)    (33)%       196     (105)    (35)% 
Supplier 
 costs               2,398   (2,099)    (47)%       363     (491)    (57)%    1,492    (900)    (38)%       564     (552)    (49)% 
Ownership 
 costs 2             1,076      (30)     (3)%       133         3       2%      370     (20)     (5)%       277        27      11% 
-----------------  -------  --------  -------  --------  --------  -------  -------  -------  -------  --------  --------  ------- 
Operating 
 loss before 
 exceptional 
 items             (2,327)   (4,248)       nm     (361)     (637)       nm    (759)  (1,256)       nm     (623)     (863)       nm 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
Operating 
 margin 
 before 
 exceptional                  (72.7)                       (89.8)                     (42.4)                      (118.3) 
 items             (58.2)%       pts            (76.8)%       pts           (33.6)%      pts           (108.5)%       pts 
=================  =======  ========  =======  ========  ========  =======  =======  =======  =======  ========  ========  ======= 
 
   1   Further detail is provided in the Alternative Performance Measures section. 
   2   Ownership costs reflects Depreciation, amortisation and impairment. 

Review by operating company

The results after exceptional items for each operating company are shown previously, along with the Alternative Performance Measures, which exclude exceptional items, as detailed in the Alternative Performance Measures section.

The results for all operating companies were significantly impacted by COVID-19 in 2020 and the main items driving the results of the four main operating companies are therefore common, many of which have been covered above. All four of the operating companies saw significant reductions in passenger revenue and took measures to reduce operating costs and preserve liquidity. British Airways, Iberia and Aer Lingus benefited from additional cargo flights and higher cargo yields, with both British Airways and Aer Lingus generating higher cargo revenue than in 2019.

Employee costs fell due to the use of wage support or similar schemes, particularly in the UK and Ireland, with temporary redundancy programmes under the ERTE arrangement operating in Spain. British Airways and Aer Lingus undertook restructuring programmes during the year, with Iberia also making reductions in management numbers and reductions outside of Spain.

The operating companies all operate similar hedging programmes, under a centrally agreed Group policy, which resulted in overhedging of jet fuel purchases and related currency transactions. Excluding the impact of overhedging, fuel costs fell in line with the capacity reductions, with a small benefit from the efficiency of new-generation aircraft and a reduced effective price net of hedging.

Supplier costs also fell significantly at each of the operating companies, reflecting the impact of volume-related savings, linked to the significantly lower flying programmes, together with the negotiated cost-reduction initiatives and reductions in discretionary expenditure.

Ownership costs were impacted by the impairment of aircraft and related assets in each operating company, including the early retirement of the Boeing 747-400 fleet at British Airways and the Airbus A340-600 fleet at Iberia, together with other aircraft permanently stood down pending disposal or return to lessors.

Operating margins are much less meaningful than in previous years, given the significant impact of COVID-19, but are included for completeness; each main operating company saw a substantial operating loss in 2020, with cost reductions only able to mitigate part of the fall in revenues.

Capital expenditure

In response to COVID-19, the Group has agreed to defer 68 aircraft scheduled for delivery over the period 2020 to 2022 and to re-schedule certain pre-delivery payments to aircraft manufacturers. In November 2019, as announced at the IAG Capital Markets Day, it was anticipated capital expenditure would total EUR14.2 billion for the period 2020 to 2022. With aircraft deferrals and savings in other capital expenditure, linked to the response to COVID-19, the Group now expects capital expenditure over that period to be below EUR7 billion. Further deferrals are under discussion with the aircraft manufacturers.

The Group did not enter into any new agreements to acquire additional aircraft in 2020, either from aircraft manufacturers or lessors.

In 2020 the Group took delivery of 34 aircraft, with 19 for British Airways, eight for Iberia, three for Vueling and four for Aer Lingus. As at December 31, 2020 one of these aircraft had yet to enter service and is therefore not included in the 'in service' fleet shown elsewhere in this report. The liquidity impact of the aircraft deliveries in the year was cash-positive, as the value of financing raised exceeded the final delivery payments made to the aircraft manufacturers, due to pre-delivery payments for those aircraft made in previous years, with total aircraft financing proceeds in the year of EUR2.2 billion.

 
Aircraft deliveries   2020  2019 
====================  ====  ==== 
Airbus A320 family      15    32 
Airbus A330              2     3 
Airbus A350              7     8 
Boeing 777-300           4     - 
Boeing 787-10            2     - 
Embraer E190             4     2 
====================  ====  ==== 
Total                   34    45 
====================  ====  ==== 
 

Capital expenditure for the year was reduced to EUR1.9 billion, more than 50 per cent down on the EUR4.2 billion anticipated for 2020 in November 2019. Capital expenditure was also lower than the revised projection of EUR2.7 billion for the year given in July 2020, mainly due to further aircraft delays, moving approximately EUR0.5 billion of aircraft delivery payments and associated financing into 2021.

Despite the reductions made to discretionary capital projects, the Group maintained its programme of cyber-related investments.

Capital commitments

Capital expenditure authorised and contracted for at December 31, 2020 amounted to EUR10,545 million (2019: EUR12,830 million). Most of this commitment is denominated in US dollars and includes commitments until 2027 for 121 aircraft including 64 aircraft from the Airbus A320 family, 10 Boeing 787s, 18 Boeing 777s, one Airbus A330, 26 Airbus A350s and two Embraer E190.

The Group has certain rights to cancel commitments in the event of significant delays to aircraft deliveries caused by the aircraft manufacturers. No such rights had been exercised as at December 31, 2020.

 
Aircraft future deliveries at December 31   2020  2019 
==========================================  ====  ==== 
Airbus A320 family                            64    79 
Airbus A330                                    1     1 
Airbus A350                                   26    33 
Boeing 777-300                                 -     4 
Boeing 777-9                                  18    18 
Boeing 787-10                                 10    12 
Embraer E190                                   2     - 
==========================================  ====  ==== 
Total                                        121   147 
==========================================  ====  ==== 
 

Working capital and other initiatives

The Group negotiated deferrals to supplier payments and lease payments. The Group rolled over fuel derivatives, monetised EU Emissions Trading Scheme credits and foreign currency derivatives that resulted in reduced cash outflow in 2020 of approximately EUR625 million; deferrals to future years account for approximately 60 per cent of this amount, with the majority due in 2021. Relief was given during the year in respect of the timing of VAT and other payments to the UK's HMRC and to Eurocontrol for regulated overlying charges, although both had reverted to normal terms by the end of the year.

In quarter 3 a multi-year renewal was signed with American Express, including an upfront payment of approximately EUR830 million (GBP754 million), with a significant amount being for the pre-purchase of Avios.

Trade receivables were reduced significantly, falling from EUR2,255 million (net of the provision for expected credit losses) at December 31, 2019 to EUR557 million at the end of 2020. Part of the reduction was due to the contraction in activity, with lower passenger and other revenue yet to be received by the Group, but the reduction was also achieved by ensuring outstanding amounts due from customers and government agencies were paid.

Deferred revenue on ticket sales , which includes loyalty points (Avios), fell EUR356 million to EUR5,130 million at December 31, 2020; EUR4,657 million is included in current liabilities and EUR473 million within non-current liabilities, associated with the renewal of the IAG Loyalty contract with American Express. The value of loyalty points (Avios) issued and yet to be recognised in revenue was up EUR0.8 billion versus 2019 at EUR2.7 billion, reflecting the American Express contract renewal and associated pre-payment, but sales in advance of carriage, related to passenger ticket sales, were down EUR1.2 billion versus 2019 at EUR2.4 billion. The cash impact of cancelled flights was partially mitigated by customers accepting vouchers for future travel in lieu of a cash refund, with the outstanding value of vouchers as at December 31, 2020 accounting for approximately half of the sales in advance of carriage balance.

Due to COVID-19 British Airways was eligible for refund of tax payments made to HMRC in 2019 and the Group was able to accelerate receipt into 2020, rather than 2021. Together with refunds in Ireland, the impact was to improve cash by approximately EUR175 million in 2020.

British Airways deferred monthly UK pension contributions that would otherwise have been due in quarter 4, 2020 to the value of EUR125 million, together with contributions of EUR375 million relating to the first three quarters of 2021. These payments are due to be added to the end of the schedule of deficit recovery contributions, which currently ends in March 2023. British Airways granted to the Trustee of NAPS security over certain property assets in respect of these deferred payments. British Airways has also agreed that it will not make dividend payments to IAG before the end of 2023 and that from 2024 dividends will be matched by a contribution to NAPS of 50 per cent of the dividend paid until the deferred contributions have been paid.

Funding and debt

IAG's long-term 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. In November 2018, S+P and Moody's assigned IAG with a long-term investment grade credit rating with stable outlook. Ratings (as at February 25, 2021) are: S&P: BB (3 notch decline), Moody's: Ba2 (2 notch decline), based on the status of COVID-19 and related travel restrictions, together with the expected timing of the recovery of global air traffic.

Debt and capital

The Group monitors leverage using net debt to EBITDA.

The Group has a target of net debt to EBITDA below 1.8 times.

In 2020, due to the significant impact of COVID-19, EBITDA turned negative, rendering the net debt to EBITDA ratio much less meaningful than in normal times; the calculation for 2020 results in minus 4.3 times.

Net debt

 
                                                                                Higher 
EUR million                                                  2020     2019   / (lower) 
========================================================  =======  =======  ========== 
Debt                                                       14,254   12,704       1,550 
Cash and cash equivalents and interest-bearing deposits   (6,683)  (6,274)       (409) 
========================================================  =======  =======  ========== 
Net debt at January 1                                       7,571    6,430       1,141 
========================================================  =======  =======  ========== 
Decrease/(increase) in cash net of exchange                   766    (409)       1,175 
========================================================  =======  =======  ========== 
Net cash outflow from repayments of borrowings and 
 lease liabilities                                        (2,514)  (2,237)       (277) 
Net cash inflow from new borrowings                         3,567    2,286       1,281 
Non-cash impact from new leases                             1,179    1,199        (20) 
========================================================  =======  =======  ========== 
Increase in net debt from financing                         2,232    1,248         984 
========================================================  =======  =======  ========== 
Exchange and other non-cash movements                       (807)      302     (1,109) 
========================================================  =======  =======  ========== 
Net debt at December 31                                     9,762    7,571       2,191 
========================================================  =======  =======  ========== 
 

Gross debt increased by EUR1,425 million, principally driven by the non-aircraft debt raised by British Airways under the UK's CCFF mechanism (EUR328 million), loans backed by Spain's ICO of EUR750 million for Iberia and EUR260 million for Vueling, together with EUR75 million of debt backed by the Irish ISIF (see below). Cash fell by EUR766 million, leading to net debt EUR2,191 million higher at EUR9,762 million. Since the adoption of IFRS 16 from January 1, 2019 net debt includes leases for aircraft with financing arrangements formerly accounted for as operating leases.

Cash and interest-bearing deposits

The 2020 cash balance in IAG and other Group companies includes the balance of the proceeds from the capital increase retained in IAG and the net proceeds of the American Express renewal payment in IAG Loyalty.

 
                                               Higher/ 
EUR million                      2020   2019   (lower) 
==============================  =====  =====  ======== 
British Airways                 1,389  3,055   (1,666) 
Iberia                            822  1,121     (299) 
Aer Lingus                        266    580     (314) 
Vueling                           590    820     (230) 
IAG and other Group companies   2,850  1,107     1,743 
==============================  =====  =====  ======== 
Cash and deposits               5,917  6,683     (766) 
==============================  =====  =====  ======== 
 

Cash and interest-bearing deposits reduced by EUR766 million to EUR5,917 million, with the significant impact of COVID-19 on profitability offset by the mitigation measures taken by the Group, including additional borrowing and the EUR2.7 billion capital increase.

Debt

Despite some disruption to financial markets in respect of the aviation sector, linked to the COVID-19 pandemic, the Group has been able to continue to obtain efficient funding secured against aircraft deliveries. In total 36 aircraft were financed in the year, 4 of which were delivered in 2019, and with 13 involving sale and leaseback transactions, a further 11 direct leases from lessors and 12 on finance lease arrangements. Just two of the aircraft delivered in 2020 had not been financed as at the end of the year, although sale and leaseback transactions for these were agreed and executed in February 2021.

Proceeds from sale and leaseback transactions continue to cover substantially all of the Group's aircraft purchase price. An Enhanced Equipment Trust Certificates (EETC) funding for $1,005 million (EUR823 million) was successfully issued and closed for British Airways in November 2020, with $577 million (EUR472 million) drawn down in December in the form of finance leases, with the remainder expected to be drawn in 2021, in line with aircraft deliveries. The issuance comprised a dual-tranche structure achieving a loan-to-value of 75 per cent against an independently appraised value of the aircraft.

In addition to long-term regular aircraft financing, the Group took steps to boost available liquidity through other lending and facilities. Short-term aircraft-backed financing facilities for British Airways ($750 million, or EUR667 million) and Iberia ($228 million, or EUR194 million) were secured in the second quarter. These facilities were fully drawn during the year but had been repaid in full by the end of the year, due to the Group's success in securing more efficient long-term financing.

The Group agreed new non-aircraft debt for each of its main operating companies. In March, British Airways completed its inaugural commercial paper issuance raising net proceeds of EUR328 million (GBP298 million) using the UK's Coronavirus Corporate Finance Facility (CCFF) with a maturity of 12 months. In April, Iberia and Vueling entered into floating rate syndicated financing agreements for EUR750 million and EUR260 million respectively, with the funds received in May. These loans are secured by a guarantee of 70 per cent of the amount borrowed from the Instituto de Crédito Oficial ('ICO') in Spain. There is no amortisation for the first three years and the loans mature in 2025; the loans do not include financial covenants but place some restrictions on the transfer of cash to the rest of the IAG companies. In December, the Irish Strategic Investment Fund (ISIF) approved a EUR150 million facility for Aer Lingus with EUR75 million drawn down as a loan as at December 31, 2020; this loan also has restrictions regarding transfers of cash, from Aer Lingus to IAG and other Group companies. At the end of 2020 British Airways announced that it had received commitments for a 5-year Export Development Guaranteed term loan for GBP2.0 billion underwritten by a syndicate of banks, partially guaranteed (80 per cent) by UK Export Finance (UKEF) and containing some non-financial covenants, including restrictions on cash transfers to IAG. The facility was fully drawn down as a loan in February 2021.

The debt actions above resulted in total 'Proceeds from borrowings' for the year of EUR3,567 million. This includes the drawing down of the short-term aircraft financing facilities above, with the repayment of those facilities during the year shown in 'Repayments of borrowings and lease liabilities'.

Equity

During quarter 3 the Group launched a capital increase by rights issue, which was fully subscribed, with the Group's largest shareholder, Qatar Airways Group subscribing for its pro rated entitlement in full. The capital increase was successfully completed at the start of quarter 4, with gross proceeds of EUR2.7 billion received in October. As at December 31, 2020 none of the proceeds from the EUR2.7 billion capital increase had been allocated permanently to any of the Group's operating companies. British Airways received a loan from IAG of EUR1,645 million and Aer Lingus a loan of EUR50 million.

Liquidity facilities

In March, British Airways' revolving credit facility (RCF) was extended to June 2021, with a committed amount of $1.38 billion. The Group has secured other credit facilities during the year. At the end of the year committed general credit facilities, including the undrawn amount of the British Airways RCF, were EUR0.9 billion. In addition, the Group had committed aircraft financing facilities of EUR1.2 billion, which provide guaranteed financing against certain future aircraft deliveries, including the committed proceeds still to be drawn as part of the British Airways EETC issued in November 2020. In total, the Group had EUR2.1 billion of committed and undrawn general and aircraft facilities as at December 31, 2020.

Dividends

As a result of the impact of COVID-19, on April 2, 2020, the Board of Directors of the Group resolved to withdraw the proposal to the subsequent Shareholders' Meeting to pay a final dividend for 2019 of 17 EUR cents per share, which would have resulted in a total payment of EUR337 million.

Liquidity and cashflow

Total liquidity, measured as cash and interest-bearing deposits of EUR5,917 million and committed and undrawn general and aircraft facilities of EUR2,142 million, was EUR8,059 million at December 31, 2020. Including the EUR2.2 billion UKEF debt agreed in December 2020 results in pro forma liquidity of EUR10.3 billion.

Cash flow

 
EUR million                                                     2020     2019  Movement 
===========================================================  =======  =======  ======== 
Operating (loss)/profit                                      (7,426)    2,613  (10,039) 
Depreciation, amortisation and impairment                      2,955    2,111       844 
Movement in working capital                                    1,227     (70)     1,297 
Payment related to restructuring                               (383)    (180)     (203) 
Pension contributions net of service costs                     (313)    (865)       552 
Provisions and other non-cash movements                          556      951     (395) 
Unrealised loss on discontinuance of fuel and foreign 
 exchange hedge accounting                                       569        -       569 
Interest paid                                                  (548)    (481)      (67) 
Interest received                                                 22       42      (20) 
Tax received/(paid)                                               45    (119)       164 
===========================================================  =======  =======  ======== 
Net cash (outflows)/inflows from operating activities        (3,296)    4,002   (7,298) 
===========================================================  =======  =======  ======== 
  Acquisition of PPE and intangible assets                   (1,939)  (3,465)     1,526 
  Sale of PPE and intangible assets                            1,133      911       222 
  Decrease/(increase) in current interest-bearing deposits     2,366    (103)     2,469 
Other investing movements                                          2      (1)         3 
===========================================================  =======  =======  ======== 
Net cash flows from investing activities                       1,562  (2,658)     4,220 
===========================================================  =======  =======  ======== 
Proceeds from borrowings                                       3,567    2,286     1,281 
Repayments of borrowings                                       (978)    (730)     (248) 
Repayment of lease liabilities                               (1,536)  (1,507)      (29) 
Dividend paid                                                   (53)  (1,308)     1,255 
Proceeds from rights issue                                     2,674        -     2,674 
===========================================================  =======  =======  ======== 
Net cash flows from financing activities                       3,674  (1,259)     4,933 
===========================================================  =======  =======  ======== 
 
Net increase in cash and cash equivalents                      1,940       85     1,855 
Net foreign exchange differences                               (228)      140     (368) 
Cash and cash equivalents at January 1                         4,062    3,837       225 
===========================================================  =======  =======  ======== 
Cash and cash equivalents at year end                          5,774    4,062     1,712 
===========================================================  =======  =======  ======== 
 
Interest-bearing deposits maturing after more than 
 three months                                                    143    2,621   (2,478) 
===========================================================  =======  =======  ======== 
Cash, cash equivalents and interest-bearing deposits           5,917    6,683     (766) 
===========================================================  =======  =======  ======== 
 

Many of the significant cashflow items are already explained above, including in the sections on operating costs (fuel), capital expenditure, working capital and other initiatives and funding.

Restructuring payments include payments in Spain relating to redundancy programmes agreed in prior years, together with the cash paid in 2020 relating to the exceptional restructuring charge of EUR313 million (see Alternative Performance Measures section).

Pension payments in 2019 included an additional one-off payment of GBP250 million (EUR283 million) to the British Airways NAPS fund; 2020 benefited from the deferral of deficit contributions in quarter 4.

Of the exceptional charges for discontinuance of hedge accounting in respect of passenger revenue of EUR62 million and fuel, oil and emissions costs of EUR1,694 million in 2020, EUR1,187 million had been paid, leaving EUR569 million to be paid in future years, with the majority due in 2021.

Sale of property, plant and equipment and intangibles, in addition to the aircraft 13 sale and leaseback transactions discussed under 'Funding' above, includes the disposal of surplus engines and other equipment and property at London Heathrow.

Repayments of borrowings and lease liabilities includes the principal element of ongoing lease payments, together with short-term aircraft financing of EUR833 million, which was drawn and fully repaid during the year. There are no IAG bond payments falling due in 2021; based on the share price at December 31, 2020, the remaining EUR500 million IAG convertible bond will be due for repayment in November 2022.

The EUR53 million of cash outflow for dividends relates to the Spanish withholding tax in respect of the 2019 interim dividend, as the dividend was paid to shareholders in December 2019 and the related withholding tax was paid to the Spanish tax authorities in January 2020.

Strategic framework

IAG's vision is to be the leading international airline group.

This means we strive to:

   --   Win the customer through service and value across our global network; 

-- Deliver higher returns to our shareholders through leveraging cost and revenue opportunities across the Group;

   --   Attract and develop the best people in the industry; 

-- Provide a platform for quality international airlines, leaders in their markets, to participate in consolidation;

   --   Retain the distinct cultures and brands of our individual airlines; and 
   --   Lead the industry in sustainability. 

By driving toward our vision, IAG will help to shape the future of the industry and set standards of excellence, with a view to maximising sustainable value creation for our shareholders and customers..

IAG's strategic priorities are as follows:

   --   Strengthening a portfolio of world-class brands and operations; 
   --   Growing global leadership positions; and 
   --   Enhancing the common integrated platform. 

Principal risks and uncertainties

The Group has continued to maintain its framework and processes to identify, assess and manage risks. The principal risks and uncertainties affecting the Group, detailed on pages 62 to 69 of the 2019 Annual Report and Accounts, remain relevant and included the risk of pandemic within "Event causing significant network disruption".

This year, in response to the pandemic crisis, the risk management framework has further evolved to develop the Group's assessment of the interdependencies of risks; built on scenario planning to quantify impacts under different assumptions; and considers the risks that have increased either as a result of the external environment or as a result of decisions made by the business in response to the external environment. The process adopted this year has helped the Board and management to respond quickly to the rapidly changing environment, enabling clear understanding and identification of emerging risks arising from the impact of the pandemic. No new principal risks were identified through the risk management assessment discussions across the business, although the severity or likelihood of occurrence of certain risks has increased as a result of the pandemic and its consequences.

Where additional mitigating actions have been identified they have been implemented and embedded to minimise the continued impact to the Group and protect its businesses and people. These actions have been discussed with the Board through regular updates and include frequent and ongoing consideration of potential scenarios, outlining the impact of further stress on the Group driven by the wider political and economic environment and local government responses to the pandemic.

From the risks identified in the 2019 Annual Report and Accounts, the main risks impacted by the COVID-19 pandemic are highlighted below, with business responses implemented by management and reflected in the Group's latest business plan and scenarios.

-- Airports, infrastructure and critical third parties. Restrictions at hubs and airports have required ongoing capacity adjustments, including fleet adjustments, operational flexibility and new operating procedures. The Group has pro-actively worked with suppliers to ensure operations are maintained and the impact to their businesses understood, with mitigations implemented where necessary.

-- Competition, consolidation and government regulation. The scale of governmental support and aviation specific state-aid measures have varied in different countries and the potential impact to the competitive landscape is under continuous assessment. Governmental restrictions continue to be fragmented and volatile and have required significant agility within our networks to manage the impact on our customers and business. The Group has restructured its businesses and operations to meet the challenge of the current environment.

-- Cyber attack and data security. The Group has continued with its planned investment in cyber security and has taken steps to mitigate IT and other risks as a result of remote working. The IAG Chief Information Security Office supports the Group businesses providing assurance and expertise around strategy, policy, training and information security operations for the Group. Threat Intelligence is used to analyse cyber risks to the Group.

-- Event causing operational disruption. The COVID-19 pandemic is likely to continue to have an adverse effect on the Group, as would any future pandemic outbreak or other material event that results in the imposition of governments' restrictions on travel and the movement of people. Disruptive events impact the Group airlines' customers and can have an adverse effect on the Group's brands. The Group is focussed on operational and financial resilience and customer and colleague safety and recovery.

-- IT systems and IT infrastructure. The dependency on IT systems for key business and customer processes is high. The transformational change at pace required by the Group's airlines may result in disruption to operations as the legacy IT environment is addressed.

-- People, culture and employee relations. Additional safety procedures have been introduced to protect the Group's staff and customers, in line with industry recommendations. Where possible, the Group's staff worked from home and in line with governments' recommendations. The resilience and engagement of the Group's people and leaders has been critical through the pandemic period to ensuring the Group is best positioned to resume operations and adapt as needed to the uncertain external environment. As the Group rapidly transforms all its operations to adjust for the new environment, the engagement and support of the Group's employees is going to be a critical enabler. Employee consultations have been undertaken as required and appropriate in relation to restructuring necessitated by COVID-19.

-- Political and economic environment. National governments are imposing a range of travel and quarantine restrictions, which will continue to impact Group operations. These are being actively monitored and near-term capacity plans are refreshed dynamically, according to the latest status. If the economic impact of COVID-19 continues, the Group will adjust its future capacity plans accordingly, retaining flexibility to adapt as required.

-- Debt funding and financial risk. Despite disruption in the financial markets since the spread of the pandemic, the Group has focused on protecting liquidity by renewing and extending credit facilities and agreeing new aircraft leases, together with agreeing additional one-year funding facilities in advance of an improvement in market conditions. Aircraft were successfully financed on long-term arrangements during the year and the additional one-year facilities were repaid. The Group also raised additional equity, with net proceeds of EUR2.7 billion received in early October. On 22nd February 2021, British Airways announced that it had finalised the agreement for a 5-year Export Development Guaranteed term loan for GBP2.0 billion underwritten by a syndicate of banks, substantially guaranteed (80 per cent) by UK Export Finance (UKEF).

The Board and its sub committees have been appraised of regulatory, competitor and governmental responses on an ongoing basis.

 
 
    International Consolidated Airlines Group S.A. 
 Unaudited full year Consolidated Financial Statements 
          January 1, 2020 - December 31, 2020 
 
 

CONSOLIDATED INCOME STATEMENT

 
                                                          Year to December 
                                                                 31 
                                                         ================== 
EUR million                                        Note      2020   2019(1) 
=================================================  ====  ========  ======== 
Passenger revenue                                           5,512    22,468 
Cargo revenue                                               1,306     1,117 
Other revenue                                                 988     1,921 
=================================================  ====  ========  ======== 
Total revenue                                         4     7,806    25,506 
=================================================  ====  ========  ======== 
 
Employee costs                                        7     3,560     5,634 
Fuel, oil costs and emissions charges                       3,735     6,021 
Handling, catering and other operating costs                1,340     2,972 
Landing fees and en-route charges                             918     2,221 
Engineering and other aircraft costs                        1,456     2,092 
Property, IT and other costs                                  782       811 
Selling costs                                                 405     1,038 
Depreciation, amortisation and impairment             5     2,955     2,111 
Currency differences                                           81       (7) 
=================================================  ====  ========  ======== 
Total expenditure on operations                            15,232    22,893 
=================================================  ====  ========  ======== 
Operating (loss)/profit                                   (7,426)     2,613 
 
Finance costs                                         8     (670)     (611) 
Finance income                                        8        41        50 
Net financing credit relating to pensions             8         4        26 
Net currency retranslation credits                            245       201 
Other non-operating charges                           8       (4)       (4) 
=================================================  ====  ========  ======== 
Total net non-operating costs                               (384)     (338) 
=================================================  ====  ========  ======== 
(Loss)/profit before tax                                  (7,810)     2,275 
Tax                                                   9       887     (560) 
=================================================  ====  ========  ======== 
(Loss)/profit after tax for the year                      (6,923)     1,715 
=================================================  ====  ========  ======== 
 
 
Attributable to: 
Equity holders of the parent                              (6,923)     1,715 
Non-controlling interest                                        -         - 
=================================================  ====  ========  ======== 
                                                          (6,923)     1,715 
=================================================  ====  ========  ======== 
 
 
Basic (loss)/earnings per share (EUR cents)(2)       10   (196.2)      56.1 
=================================================  ====  ========  ======== 
Diluted (loss)/earnings per share (EUR cents)(2)     10   (196.2)      55.5 
=================================================  ====  ========  ======== 
 

1 In 2020 the Group has presented the Income statement using a single column approach whereas in prior years the Group presented the Income statement using a three-column approach. The 2019 comparative figures have also been re-presented. Further information is given in the basis of preparation in note 2.

2 The earnings per share information for 2019 has been restated to reflect the impact of the rights issue. Further information is given in note 10.

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

 
                                                               Year to December 
                                                                      31 
                                                              ================== 
EUR million                                             Note        2020    2019 
======================================================  ====  ==========  ====== 
Items that may be reclassified subsequently to net 
 profit 
Cash flow hedges: 
  Fair value movements in equity                                 (2,171)     610 
  Reclassified and reported in net profit                          1,871     141 
Fair value movements on cost of hedging                             (16)      36 
Cost of hedging reclassified and reported in net 
 profit                                                             (19)    (10) 
Currency translation differences                          29       (192)     296 
 
 
Items that will not be reclassified to net profit 
Fair value movements on other equity investments                    (53)     (8) 
Fair value movements on cash flow hedges                            (45)    (70) 
Fair value movements on cost of hedging                               26      32 
Remeasurements of post-employment benefit obligations              (632)   (788) 
======================================================  ====  ==========  ====== 
Total other comprehensive (loss)/income for the year, 
 net of tax                                                      (1,231)     239 
======================================================  ====  ==========  ====== 
(Loss)/profit after tax for the year                             (6,923)   1,715 
 
Total comprehensive (loss)/income for the year                   (8,154)   1,954 
======================================================  ====  ==========  ====== 
 
Total comprehensive (loss)/income is attributable 
 to: 
  Equity holders of the parent                                   (8,154)   1,954 
  Non-controlling interest                                29           -       - 
======================================================  ====  ==========  ====== 
                                                                 (8,154)   1,954 
======================================================  ====  ==========  ====== 
 

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

CONSOLIDATED BALANCE SHEET

 
                                                          December  December 
                                                               31,       31, 
EUR million                                         Note      2020   2019(1) 
==================================================  ====  ========  ======== 
Non-current assets 
Property, plant and equipment                         12    17,531    19,168 
Intangible assets                                     15     3,208     3,442 
Investments accounted for using the equity method     16        29        31 
Other equity investments                              17        29        82 
Employee benefit assets                               30       282       314 
Derivative financial instruments                      26        42       268 
Deferred tax assets                                    9     1,075       546 
Other non-current assets                              18       228       273 
==================================================  ====  ========  ======== 
                                                            22,424    24,124 
==================================================  ====  ========  ======== 
Current assets 
Inventories                                                    351       565 
Trade receivables                                     18       557     2,255 
Other current assets                                  18       792     1,314 
Current tax receivable                                 9       101       186 
Derivative financial instruments                      26       122       324 
Current interest-bearing deposits                     19       143     2,621 
Cash and cash equivalents                             19     5,774     4,062 
==================================================  ====  ========  ======== 
                                                             7,840    11,327 
==================================================  ====  ========  ======== 
Total assets                                                30,264    35,451 
==================================================  ====  ========  ======== 
 
Shareholders' equity 
Issued share capital                                  27       497       996 
Share premium                                         27     7,770     5,327 
Treasury shares                                               (40)      (60) 
Other reserves                                             (6,917)       560 
==================================================  ====  ========  ======== 
Total shareholders' equity                                   1,310     6,823 
==================================================  ====  ========  ======== 
Non-controlling interest                              29         6         6 
==================================================  ====  ========  ======== 
Total equity                                                 1,316     6,829 
==================================================  ====  ========  ======== 
Non-current liabilities 
Borrowings                                            23    13,464    12,411 
Employee benefit obligations                          30       719       400 
Deferred tax liability                                 9        40       290 
Provisions                                            24     2,286     2,416 
Deferred revenue on ticket sales                      21       473         - 
Derivative financial instruments                      26       310       286 
Other long-term liabilities                           22       140        71 
==================================================  ====  ========  ======== 
                                                            17,432    15,874 
==================================================  ====  ========  ======== 
Current liabilities 
Borrowings                                            23     2,215     1,843 
Trade and other payables                              20     2,810     4,344 
Deferred revenue on ticket sales                      21     4,657     5,486 
Derivative financial instruments                      26     1,160       252 
Current tax payable                                    9        48       192 
Provisions                                            24       626       631 
==================================================  ====  ========  ======== 
                                                            11,516    12,748 
==================================================  ====  ========  ======== 
Total liabilities                                           28,948    28,622 
==================================================  ====  ========  ======== 
Total equity and liabilities                                30,264    35,451 
==================================================  ====  ========  ======== 
 

1 The 2019 Balance sheet includes a reclassification in the presentation of assets and liabilities for employee benefits and deferred tax. Refer to note 2 for further information.

CONSOLIDATED CASH FLOW STATEMENT

 
                                                                  Year to December 
                                                                         31 
                                                                 ================== 
EUR million                                                Note      2020      2019 
=========================================================  ====  ========  ======== 
Cash flows from operating activities 
Operating (loss)/profit                                           (7,426)     2,613 
Depreciation, amortisation and impairment                     5     2,955     2,111 
Movement in working capital                                         1,227      (70) 
  Decrease/(increase) in trade receivables, inventories 
   and other current assets                                         2,347     (935) 
  (Decrease)/increase in trade and other payables and 
   deferred revenue on ticket sales                               (1,120)       865 
Payments related to restructuring                            24     (383)     (180) 
Employer contributions to pension schemes                           (318)     (870) 
Pension scheme service costs                                 30         5         5 
Provisions and other non-cash movements                               556       951 
Unrealised loss on discontinuance of fuel and foreign 
 exchange hedge accounting                                            569         - 
Interest paid                                                       (548)     (481) 
Interest received                                                      22        42 
Tax received/(paid)                                                    45     (119) 
=========================================================  ====  ========  ======== 
Net cash (outflows)/inflows from operating activities             (3,296)     4,002 
=========================================================  ====  ========  ======== 
 
Cash flows from investing activities 
Acquisition of property, plant and equipment and 
 intangible assets                                                (1,939)   (3,465) 
Sale of property, plant and equipment and intangible 
 assets                                                             1,133       911 
Decrease/(increase) in current interest-bearing deposits            2,366     (103) 
Other investing movements                                               2       (1) 
=========================================================  ====  ========  ======== 
Net cash inflows/(outflows) from investing activities               1,562   (2,658) 
=========================================================  ====  ========  ======== 
 
Cash flows from financing activities 
Proceeds from borrowings                                            3,567     2,286 
Repayment of borrowings                                             (978)     (730) 
Repayment of lease liabilities                                    (1,536)   (1,507) 
Dividend paid                                                11      (53)   (1,308) 
Proceeds from rights issue                                          2,674         - 
=========================================================  ====  ========  ======== 
Net cash inflows/(outflows) from financing activities               3,674   (1,259) 
=========================================================  ====  ========  ======== 
 
Net increase in cash and cash equivalents                           1,940        85 
Net foreign exchange differences                                    (228)       140 
Cash and cash equivalents at 1 January                              4,062     3,837 
=========================================================  ====  ========  ======== 
Cash and cash equivalents at year end                        19     5,774     4,062 
=========================================================  ====  ========  ======== 
 
Interest-bearing deposits maturing after more than 
 three months                                                19       143     2,621 
=========================================================  ====  ========  ======== 
 
Cash, cash equivalents and interest-bearing deposits         19     5,917     6,683 
=========================================================  ====  ========  ======== 
 

For details on restricted cash balances refer to note 19 Cash, cash equivalents and current interest-bearing deposits .

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year to December 31, 2020

 
                            Issued 
                             share     Share  Treasury      Other                             Non-controlling 
                           capital   premium    shares   reserves                      Total         interest 
                             (note     (note     (note      (note   Retained   shareholders'            (note    Total 
EUR million                    27)       27)       27)        29)   earnings          equity              29)   equity 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
January 1, 2020                996     5,327      (60)    (2,579)      3,139           6,823                6    6,829 
 
Loss for the year                -         -         -          -    (6,923)         (6,923)                -  (6,923) 
 
Other comprehensive loss 
 for the year 
Cash flow hedges 
reclassified 
and reported in net 
profit: 
  Passenger revenue              -         -         -         50          -              50                -       50 
  Fuel and oil costs             -         -         -        356          -             356                -      356 
  Currency differences           -         -         -         18          -              18                -       18 
  Finance costs                  -         -         -         12          -              12                -       12 
  Discontinuance of 
   hedge 
   accounting                    -         -         -      1,435          -           1,435                -    1,435 
Net change in fair value 
 of cash flow hedges             -         -         -    (2,216)          -         (2,216)                -  (2,216) 
Net change in fair value 
 of equity investments           -         -         -       (53)          -            (53)                -     (53) 
Net change in fair value 
 of cost of hedging              -         -         -         10          -              10                -       10 
Cost of hedging 
 reclassified 
 and reported in the net 
 profit                          -         -         -       (19)          -            (19)                -     (19) 
Currency translation 
 differences                     -         -         -      (192)          -           (192)                -    (192) 
Remeasurements of 
 post-employment 
 benefit obligations             -         -         -          -      (632)           (632)                -    (632) 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
Total comprehensive loss 
 for the year                    -         -         -      (599)    (7,555)         (8,154)                -  (8,154) 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
Hedges reclassified and 
 reported in property, 
 plant 
 and equipment                   -         -         -       (18)          -            (18)                -     (18) 
Cost of share-based 
 payments                        -         -         -          -       (10)            (10)                -     (10) 
Vesting of share-based 
 payment 
 schemes                         -         -        20          -       (22)             (2)                -      (2) 
Share capital reduction      (797)         -         -        797          -               -                -        - 
Rights issue                   298     2,443         -          -       (70)           2,671                -    2,671 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
December 31, 2020              497     7,770      (40)    (2,399)    (4,518)           1,310                6    1,316 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year to December 31, 2019

 
                            Issued 
                             share     Share  Treasury      Other                             Non-controlling 
                           capital   premium    shares   reserves                      Total         interest 
                             (note     (note     (note      (note   Retained   shareholders'            (note    Total 
EUR million                    27)       27)       27)        29)   earnings          equity              29)   equity 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
January 1, 2019                996     6,022      (68)    (3,556)      2,770           6,164                6    6,170 
 
Profit for the year              -         -         -          -      1,715           1,715                -    1,715 
 
Other comprehensive 
income 
for the year 
Cash flow hedges 
reclassified 
and reported in net 
profit: 
  Passenger revenue              -         -         -         55          -              55                -       55 
  Fuel and oil costs             -         -         -        106          -             106                -      106 
  Currency differences           -         -         -       (26)          -            (26)                -     (26) 
  Finance costs                  -         -         -          6          -               6                -        6 
Net change in fair value 
 of cash flow hedges             -         -         -        540          -             540                -      540 
Net change in fair value 
 of equity investments           -         -         -        (8)          -             (8)                -      (8) 
Net change in fair value 
 of cost of hedging              -         -         -         68          -              68                -       68 
Cost of hedging 
 reclassified 
 and reported in net 
 profit                          -         -         -       (10)          -            (10)                -     (10) 
Currency translation 
 differences                     -         -         -        296          -             296                -      296 
Remeasurements of 
 post-employment 
 benefit obligations             -         -         -          -      (788)           (788)                -    (788) 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
Total comprehensive 
 income 
 for the year                    -         -         -      1,027        927           1,954                -    1,954 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
Hedges reclassified and 
 reported in property, 
 plant 
 and equipment                   -         -         -       (11)          -            (11)                -     (11) 
Cost of share-based 
 payments                        -         -         -          -         33              33                -       33 
Vesting of share-based 
 payment 
 schemes                         -         -         8          -       (14)             (6)                -      (6) 
Dividend                         -     (695)         -          -      (615)         (1,310)                -  (1,310) 
Redemption of 
 convertible 
 bond                            -         -         -       (39)         38             (1)                -      (1) 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
December 31, 2019              996     5,327      (60)    (2,579)      3,139           6,823                6    6,829 
========================  ========  ========  ========  =========  =========  ==============  ===============  ======= 
 

NOTES TO THE ACCOUNTS

For the year to December 31, 2020

1 B ackground 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 December 17, 2009. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora (hereinafter 'British Airways' and 'Iberia' respectively) completed a merger transaction becoming the first two airlines of the Group. Vueling Airlines S.A. ('Vueling') was acquired on April 26, 2013, and Aer Lingus Group Plc ('Aer Lingus') on August 18, 2015. 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 herein are not the Group's statutory accounts and are unaudited. 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 other equity investments that are measured at fair value. The carrying value of recognised assets and liabilities that are subject to fair value hedges are adjusted to record changes in the fair values attributable to the risks that are being hedged. The financial statements for the prior year include reclassifications that were made to conform to the current year presentation.

The Group's financial statements for the year to December 31, 2020 were authorised for issue, and approved by the Board of Directors on February 25, 2021.

Reclassification

Deferred tax assets arising on the restriction of surpluses to reflect minimum funding requirements of the British Airways Airways Pension Scheme (APS) and New Airways Pension Scheme (NAPS) defined benefit schemes, previously recognised within Employee benefit assets in the Balance sheet at December 31, 2019, have been reclassified to be presented net within Deferred tax liabilities at both December 31, 2019 and January 1, 2019 to conform to the current period presentation. The reclassification had the effect of reducing Deferred tax liabilities, reducing the Employee benefit assets and increasing the Employee benefit obligations at both balance sheet dates.

There is no impact to Profit after tax for the year, Other comprehensive income for the year, Net assets or the Statement of changes in equity in any year presented. The following table summarises the impact of the reclassification on the Consolidated balance sheet line items at December 31, 2019 and January 1, 2019:

Consolidated balance sheet (at December 31, 2019)

 
                               Previously 
EUR million                      reported  Reclassification  Adjusted 
=============================  ==========  ================  ======== 
Non-current assets 
Employee benefit assets               524             (210)       314 
Non-current liabilities 
Employee benefit obligations          328                72       400 
Deferred tax liability                572             (282)       290 
=============================  ==========  ================  ======== 
 

Consolidated balance sheet (at January 1, 2019)

 
                               Previously 
EUR million                      reported  Reclassification  Adjusted 
=============================  ==========  ================  ======== 
Non-current assets 
Employee benefit assets             1,129             (365)       764 
Deferred tax assets                   536               131       667 
Non-current liabilities 
Employee benefit obligations          289               138       427 
Deferred tax liability                453             (372)        81 
=============================  ==========  ================  ======== 
 

Presentation of results

Following consideration of regulatory publications, the Group has re-presented its results in the Income statement from using a three-column approach to a single column approach. The comparative figures have also been re-presented. The impact of exceptional items on the performance of the Group is detailed in the Alternative performance measures section.

Going concern

The economic uncertainty of the COVID-19 pandemic and the fragmented and varied responses from governments have had a significant impact on the Group's results and cash flows. At December 31, 2020, the Group had cash and interest-bearing deposits of EUR5.9 billion, EUR0.9 billion of committed and undrawn general facilities and a further EUR1.2 billion of committed and undrawn aircraft specific facilities. Liquidity has been enhanced through to the date of this report by a further EUR2.2 billion arising from the Group finalising the terms of a UK Export Credit Facility.

The reduction in liquidity during 2020 was partially mitigated by, amongst other actions, accessing Spain's Instituto de Crédito Oficial (ICO) facility, the UK's Coronavirus Corporate Finance Facility (CCFF) and Ireland's Strategy Investment Fund (ISIF). These actions raised an additional EUR1.4 billion, of which EUR0.3 billion matures within 12 months from the date of this report. The Group's facilities have limited financial covenants, but there are a number of non-financial covenants to protect the position of the banks, including restrictions on the upstreaming of cash to IAG or lending to other Group companies.

Despite the uncertainty of the COVID-19 pandemic, the Group has continued to successfully secure financing arrangements for all aircraft delivered in 2020. This includes the one-year aircraft-backed financing facilities for old and new aircraft which were secured in the second quarter of 2020 and subsequently repaid prior to year-end and the aircraft-specific facility achieved as part of the Enhanced Equipment Trust Certificate (EETC) financing structure. In total the Group raised proceeds of EUR2.2 billion through aircraft specific financing.

In its assessment of going concern over the period to March 31, 2022 (the 'going concern period'), the Group has modelled two scenarios referred to below as the Base Case and the Downside Case. The Group's three-year Business plan, prepared and approved by the Board in December 2020, was subsequently refreshed with the latest available internal and external information in February 2021. This refreshed Business plan supports the Base Case, which takes into account the Board's and management's views on the anticipated impact and recovery from the COVID-19 pandemic on the Group across the going concern period. The key inputs and assumptions underlying the Base Case include:

-- As part of the recovery, the Group has assumed a gradual easing of travel restrictions, by geographical region, based on deployment of vaccines during the year. Travel corridors between countries are assumed to be introduced from quarter 3 2021, first in Europe then North America, with other regions following in the first half of 2022;

-- Capacity recovery modelled by geographical region (and in certain regions, by key destinations) with capacity gradually increasing from a reduction of 79 per cent in quarter 1 2021 (compared to the equivalent period in 2019) to 18 per cent in quarter 1 2022 (again compared to quarter 1 2019), with the average over the going concern period being 43 per cent down;

-- Passenger unit revenue per ASK, although forecast to continue recovering, is expected to still remain below levels of 2019 by the end of the going concern period, which is based on, amongst other assumptions, a greater weighting of shorthaul versus longhaul, leisure versus business and economy versus premium compared to 2019. Specifically, the Group's expectation is that traffic related to domestic and leisure will recover faster than longhaul and business;

-- The Group has assumed that the committed and undrawn general facilities of EUR0.9 billion will not be drawn over the going concern period. The availability of certain of these facilities reduces over time, with EUR0.1 billion being available to the Group at the end of the going concern period;

-- The Group has assumed that of the committed and undrawn aircraft specific facilities of EUR1.2 billion, EUR0.4 billion will be drawn to fund specific aircraft scheduled for delivery during 2021 and of the remaining EUR0.8 billion, EUR0.3 billion would be available to be drawn over the going concern period if required; and

-- Of the capital commitments detailed in note 14, EUR1.6 billion is due to be paid over the going concern period and the Group has forecast securing 80 per cent, or EUR1.0 billion, of the aircraft financing required that is currently uncommitted, to align with the timing and payments for these aircraft deliveries. This loan to value assumption is below the level of financing the Group has been able to achieve recently, including over the course of the COVID-19 pandemic to date.

The Downside Case applies further stress to the Base Case to model a more prolonged downturn, with a more gradual recovery relative to the Base Case. The Downside Case is representative of a slower roll out of the vaccination programme on a regional basis, with travel restrictions remaining in place and the gradual recovery of capacity being delayed longer than in the Base Case. The Downside Case also models a more acute impact on the longhaul sector, with the domestic sector and European shorthaul sectors recovering faster than longhaul. The result of which is that the levels of capacity assumed under the Base Case for the third quarter of 2021 are not achieved under the Downside Case until the first quarter of 2022. In the Downside Case, over the going concern period capacity would be 60 per cent down on 2019. The Directors consider the Downside Case to be a severe but plausible scenario.

The Group has modelled the impact of further deteriorations in capacity operated and yield, including mitigating actions to reduce operating and capital expenditure. The Group expects to be able to continue to secure financing for future aircraft deliveries and in addition has further potential mitigating actions, including asset disposals, it would pursue in the event of adverse liquidity experience.

Furthermore, to add resilience to the liquidity position of the Group, the Directors are actively pursuing a range of financing options, including the renegotiation of existing financing arrangements and securing additional long term financial facilities, but these have not been included in the Base or Downside Cases.

Having reviewed the Base Case, Downside Case and additional sensitivities, the Directors have a reasonable expectation that the Group has sufficient liquidity to continue in operational existence for the foreseeable future and hence continue to adopt the going concern basis in preparing the financial statements.

However, due to the uncertainty created by COVID-19, there are a number of significant factors that are outside of the control of the Group, including: the status and impact of the pandemic worldwide; the emergence of new variants of the virus and potential resurgence of existing strains of the virus; the availability of vaccines worldwide, together with the speed at which they are deployed; the efficacy of those vaccines; and the restrictions imposed by national governments in respect of the freedom of movement and travel. The Group, therefore, is not able to provide certainty that there could not be a more severe downside scenario than those it has considered, including the sensitivities in relation to the timing of recovery from the COVID-19 pandemic, capacity operated, impact on yield, cost mitigations achieved and the availability of aircraft financing to offset capital expenditure. In the event that a more severe scenario were to occur, the Group will need to secure sufficient additional funding. As set out above, sources of additional funding are expected to include the renegotiation of existing financing arrangements and securing additional long term financial facilities. However, the Group's ability to obtain this additional funding in the event of a more severe downside scenario represents a material uncertainty at February 25, 2021 that could cast significant doubt upon the Group's ability to continue as a going concern.

The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

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 intragroup account balances, including intragroup profits, are eliminated in preparing the consolidated financial statements.

Unconsolidated structured entities

The Group regularly uses sale and leaseback transactions to finance the acquisition of aircraft. In certain instances the Group will finance several such transactions at once through Enhanced Equipment Trust Certificates (EETCs). Under each of these financing structures, a company (the EETC Issuer) is established to facilitate such financing on behalf of a number of unrelated investors. The proceeds from the issuance of the EETCs by the EETC Issuer are then used to purchase aircraft solely from the Group. Payments by the Group (under the asset financed liabilities) to the EETC Issuer are distributed, through a trust, to the aforementioned unrelated investors. The main purpose of the trust structure is to enhance the credit worthiness of the Group's debt obligations through certain bankruptcy protection provisions and liquidity facilities, and also to lower the Group's total borrowing cost.

The EETC Issuer is established solely with the purpose of providing the asset-backed financing and upon maturity of such financing is expected to have no further activity. The relevant activities of the EETC Issuer are restricted to pre-established financing agreements and the retention of the title of the associated financed aircraft. Accordingly, the Group has determined that each EETC Issuer is a structured entity. Under the contractual terms of the EETC structure, the Group does not own any of the share capital of the EETC Issuer, does not have any representation on the respective boards and has no ability to influence decision making.

In considering the aforementioned facts, management has concluded that the Group does not have access to variable returns from the EETC Issuers because its involvement is limited to the payment of principal and interest under the arrangement and, therefore, it does not control the EETC Issuers and as such does not consolidate them.

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.

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 (charges)/credits 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 (Currency translation reserve) 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 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 right of use ('ROU') assets are disaggregated into separate components and depreciated at rates calculated to write down the cost of each component 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 up to 5 per cent residual value for shorthaul aircraft and between 25 and 29 years (depending on aircraft) and up to 5 per cent residual value for longhaul aircraft. Right of use assets are depreciated over the shorter of the lease term and the aforementioned depreciation rates.

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 Leases

The Group leases various aircraft, properties and equipment. The lease terms of these assets are consistent with the determined useful economic life of similar assets within property, plant and equipment.

At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Leases are recognised as a ROU asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group.

Right of use assets

At the lease commencement date a ROU asset is measured at cost comprising the following: the amount of the initial measurement of the lease liability; any lease payments made at or before the commencement date less any lease incentives received; any initial direct costs; and restoration costs to return the asset to its original condition. (with a corresponding amount recognised within Provisions).

The ROU asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If ownership of the ROU asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

Lease liabilities

Lease liabilities are initially measured at their present value, which includes the following lease payments: fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate; amounts expected to be payable by the Group under residual value guarantees; the exercise price of a purchase option if the Group is reasonably certain to exercise that option; payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option; and payments to be made under reasonably certain extension options.

The lease payments are discounted using the interest rate implicit in the lease. The interest rate implicit in the lease is the discount rate that, at the inception of the lease, causes the aggregate present value of the minimum lease payments and the unguaranteed residual value to be equal to the fair value of the leased asset and any initial indirect costs of the lessor. For aircraft leases these inputs are either observable in the contract or readily available from external market data. The initial direct costs of the lessor are considered to be immaterial. If the interest rate implicit in the lease cannot be determined, the Group entity's incremental borrowing rate is used.

Each lease payment is allocated between the principal and finance cost. The finance cost is charged to the Income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.

The carrying amount of lease liabilities is remeasured if there is a modification of the lease contract, a re-assessment of the lease term (specifically in regard to assumptions regarding extension and termination options) and changes in variable lease payments that are based on an index or a rate.

The Group has elected not to recognise ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less and those leases of low-value assets. Payments associated with short-term leases and leases of low-value assets are recognised on a straight line basis as an expense in the Income statement. Short-term leases are leases with a lease term of 12 months or less, that do not contain a purchase option. Low-value assets comprise IT equipment and small items of office furniture.

The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the ROU asset. Extension options are included in a number of aircraft, property and equipment leases across the Group and are reflected in the lease payments where the Group is reasonably certain that it will exercise the option. The Group is also exposed to variable lease payments based on usage or revenue generated over a defined period. Such variable lease payments are expensed to the Income statement as incurred.

The Group regularly uses sale and lease transactions to finance the acquisition of aircraft. Each transaction is assessed as to whether it meets the criteria within IFRS 15 'Revenue from contracts with customers' for a sale to have occurred. If a sale has occurred, then the associated asset is de-recognised and a ROU asset and lease liability is recognised. The ROU asset recognised is based on the proportion of the previous carrying amount of the asset that is retained. Any gain or loss is restricted to the amount that relates to the rights that have been transferred to the counter-party to the transaction. Where a sale has not occurred, the asset is retained on the balance sheet within Property, plant and equipment and an asset financed liability recognised equal to the financing proceeds.

Financing arrangements with the following features that do not meet the recognition criteria as a sale under IFRS 15 are therefore not eligible for recognition under IFRS 16: the lessor has legal ownership retention as security against repayment and interest obligations; the Group initially acquired the aircraft or took a major share in the acquisition process from the manufacturer; in view of the contractual conditions, it is virtually certain that the aircraft will be purchased at the end of the lease term.

Cash flow presentation

Lease payments are presented as follows in the Consolidated cash flow statement: the repayments of the principal element of lease liabilities are presented within cash flows from financing activities; the payments of the interest element of lease liabilities are included within cash flows from operating activities, and; the payments arising from variable elements of a lease, short-term leases and low-value assets are presented within cash flows from operating activities.

COVID-19 related rent concessions

On May 28, 2020, the IASB issued 'COVID-19 Related Rent Concessions - amendments to IFRS 16 Leases'. The EU subsequently adopted the amendment on October 9, 2020. The amendment provides a practical expedient for lessees not to assess whether a COVID-19 related rent concession is a lease modification. The amendment is effective for annual reporting periods commencing on or after June 1, 2020 and the Group has elected to adopt this amendment for the year to December 31, 2020.

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 of the United Kingdom and 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.

From time to time the Group enters into sale and repurchase transactions for specified emission allowances. Such transactions do not meet the recognition criteria of a sale under IFRS 15 and accordingly the asset is retained on the balance sheet within Intangible assets and an other financing liability recognised equal to the proceeds received.

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, including Right of use assets

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.

Financial instruments

a Other equity investments

Other equity investments are non-derivative financial assets including listed and unlisted investments, excluding interests in associates and joint ventures. On initial recognition, these equity investments are irrevocably designated as measured at fair value through Other comprehensive income. They are subsequently measured at fair value, with changes in fair value recognised in Other comprehensive income with no recycling of these gains and losses to the Income statement when the investment is sold. Dividends received on other equity investments are 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.

b Interest-bearing deposits

Interest-bearing deposits, principally comprising funds held with banks and other financial institutions with contractual cash flows that are solely payments of principal and interest, and held in order to collect contractual cash flows, 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. They are classified as financial instruments through the Income statement. 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 time value of options is excluded from the designated hedging instrument and accounted for as a cost of hedging. Movements in the time value of options are recognised in Other comprehensive income until the underlying transaction affects the Income statement.

When a derivative is designated as a hedging instrument and that instrument expires, is sold or is restructured, any cumulative gain or loss remains in the cash flow hedge reserve until such time as the hedging instrument was due to mature at inception of the relationship. Where a forecast transaction which was previously determined to be highly probable and hedge accounting applied, is no longer expected to occur, the cumulative gain or loss in the cash flow hedge reserve is immediately reclassified to 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.

d Cash flow hedges

Changes in the fair value of derivative financial instruments designated as a hedge of a highly probable expected future cash flow and assessed as effective are recorded in equity. Gains and losses on derivative instruments not designated as a cash flow hedge are reported in the Income statement. 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 Long-term borrowings

Long-term borrowings are recorded at amortised cost, including lease liabilities which contain interest rate swaps that are closely related to the underlying financing and as such are not accounted for as an embedded derivative.

f Convertible debt

Convertible bonds are classified as compound instruments, consisting of a liability and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt, and is subsequently recorded at an amortised cost basis using the effective interest method until extinguished on conversion or maturity of the bonds, and is recognised within Interest-bearing borrowings. The difference between the proceeds of issue of the convertible bond and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in Equity portion of convertible bond in Other reserves and is not subsequently remeasured.

Issue costs are apportioned between the liability and equity components of the convertible bonds where appropriate based on their relative carrying values at the date of issue. The portion relating to the equity component is charged directly against equity.

The interest expense on the liability component is calculated by applying the effective interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this value and the interest paid is added to the carrying amount of the liability.

g Impairment of financial assets

At each balance sheet date, the Group recognises provisions for expected credit losses on financial assets measured at amortised cost, based on 12-month or lifetime losses depending on whether there has been a significant increase in credit risk since initial recognition. The simplified approach, based on the calculation and recognition of lifetime expected credit losses, is applied to contracts that have a maturity of one year or less, including trade receivables.

When determining whether there has been a significant increase in credit risk since initial recognition and when estimating the expected credit loss, the Group considers reasonable and supportable information that is relevant and available. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment, including forward-looking information. Such forward-looking information takes into consideration the forecast economic conditions expected to impact the outstanding balances at the balance sheet date. A financial asset is written off when there is no reasonable expectation of recovery, such as the customer having filed for liquidation.

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.

Inventories

Inventories 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.

Restoration and handback provisions arising on the commencement of a lease are recognised as a provision with a corresponding amount recognised as part of the ROU asset. Any change in estimation relating to such costs are reflected in the ROU asset. Maintenance and handback provisions that occur through usage or through the passage of time are recognised with a corresponding amount recorded over time in the Income statement.

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

The Group's revenue primarily derives from transportation services for both passengers and cargo. Revenue is recognised when the transportation service has been provided. Passenger tickets are generally paid for in advance of transportation and are recognised, net of discounts, as deferred revenue on ticket sales in current liabilities until the customer has flown. Prior to the impact of COVID-19 on the ability of passengers to utilise the Group's transportation services, unused tickets were recognised as revenue after the contracted date of departure using estimates regarding the timing of recognition based on the terms and conditions of the ticket and statistical analysis of historical trends. If as a result of the impact of COVID-19 a flight is cancelled, the passenger is entitled to either a refund, changing to an alternative flight or the receipt of a voucher. Where a voucher is issued, given the relative short period of historical data, no revenue is recognised until either the voucher is redeemed through transportation services or it expires. Revenue is stated net of compensation for flight delays and cancellations, taking into consideration the level of expected claims.

The Group considers whether it is an agent or a principal in relation to transportation services by considering whether it has a performance obligation to provide services to the customer or whether the obligation is to arrange for the services to be provided by a third party. The Group acts as an agent where (i) it collects various taxes and fees assessed on the sale of tickets to passengers and remits these to the relevant taxing authorities; and (ii) where it provides interline services to airline partners outside of the Group.

Other revenue including maintenance; handling; hotel and holiday and commissions is recognised as the related performance obligations are satisfied (over time), being where the control of the goods or services are transferred to the customer.

Customer loyalty programmes

The Group operates four loyalty programmes: the British Airways Executive Club, Iberia Plus, Vueling Club and the Aer Lingus Aer Club. The customer loyalty programmes award travellers Avios to redeem for various rewards, primarily redemption travel, including flights, hotels and car hire. Avios are also sold to commercial partners to use in loyalty activity.

The Group has identified several performance obligations associated with the sale of Avios. Revenue associated with brand and marketing services and revenue associated with Avios has been determined based on the relative stand-alone selling price of each of the performance obligations. Revenue associated with brand and marketing services is recognised as the points are issued. Revenue allocated to the Avios is deferred on the balance sheet as a current liability, and recognised when the points are redeemed. When the points are redeemed for products provided by suppliers outside the Group, revenue is recognised in the Income statement net of related costs, as the Group is considered to be an agent in these redemption transactions.

The Group estimates the stand-alone selling price of the brand and marketing performance obligations by reference to the amount that a third party would be prepared to pay in an arm's length transaction for access to comparable brands for the period over which they have access. The stand-alone selling price of Avios is based on the value of the awards for which the points could be redeemed. The Group also recognises revenue associated with the proportion of Avios which are not expected to be redeemed, based on the results of statistical modelling.

Exceptional items

Exceptional items are those that in management's view need to be separately disclosed by virtue of their size or nature and where such presentation is relevant to an understanding of the entity's financial performance. The exceptional items recorded in the Income statement include items such as significant settlement agreements with the Group's pension schemes; significant restructuring; the impact of business combination transactions that do not contribute to the ongoing results of the Group; significant discontinuance of hedge accounting; legal settlements; and the impact of the sale, disposal or impairment of an asset or 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.

Government grants

Government grants are recognised where there is reasonable assurance that the grant will be received. Loans provided and/or guaranteed by governments that represent market rates of interest are recorded at the amount of the proceeds received and recognised within Borrowings. Those loans provided and/or guaranteed by governments that represent below market rates of interest are measured at inception at their fair value and recognised within Borrowings, with the differential to the proceeds received recorded within Deferred income and released to the relevant financial statement caption in the Income statement on a systematic basis. Grants that compensate the Group for expenses incurred are recognised in the Income statement in the relevant financial statement caption on a systematic basis in the periods in which the expenses are recognised.

Critical accounting estimates, assumptions and judgements

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 prospectively.

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

At December 31, 2020 the Group recognised EUR282 million in respect of employee benefit assets (2019: EUR314 million) and EUR719 million in respect of employee benefit obligations (2019: EUR400 million). Further information on employee benefit obligations is disclosed in note 30.

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 note 30. The Group determines the assumptions to be adopted in discussion with qualified actuaries. Any difference between these assumptions and the actual outcome will impact future net assets and total comprehensive income. The sensitivity to changes in pension assumptions is disclosed in note 30.

Under the Group's APS and NAPS defined benefit schemes, increases to pensions are based on the annual Government Pension Increase (Review) Orders, which since 2011 have been based on the Consumer Prices Index (CPI). Additionally, in APS there is provision for the Trustee to pay increases up to the level of the Retail Prices Index (RPI), subject to certain affordability tests. Historically market expectations for RPI could be derived by comparing the prices of UK Government fixed-interest and index-linked gilts, with CPI assessed by considering the Bank of England's inflation target and comparison of the construction of the two inflation indices.

In February 2019, following the UK House of Lords Economic Affairs Committee report on measuring inflation, the National Statistician concluded that the existing methodology was unsatisfactory and proposed a number of options to the UK Statistics Authority (UKSA). In March 2019, the UKSA recommended to the UK Chancellor of the Exchequer that the publication of the RPI cease at a point to be determined in the future and in the intervening period, the RPI be addressed by bringing in the methods of the CPIH (a proposed variant to CPI). In September 2019, the UK Chancellor of the Exchequer announced his intention to consult with the Bank of England and the UKSA on whether to implement these proposed changes to RPI in the period of 2025 to 2030. Following consultation during 2020, on November 25, 2020 the UK Chancellor of the Exchequer and the UKSA confirmed that from February 2030 onwards CPIH will replace RPI with no compensation to holders of index-linked gilts.

Following the Chancellor of the Exchequer's announcement in September 2019 and through to December 31, 2020, market-implied break-even RPI inflation forward rates for periods after 2030 have reduced in the investment market. Therefore, in assessing RPI and CPI from investment market data, allowance has been made for partial alignment between RPI and CPI from 2030 onwards.

On October 26, 2018 the High Court of Justice of England and Wales issued a judgment in a claim between Lloyds Banking Group Pension Trustees Limited as claimant and Lloyds Banking Group plc and others as defendants (collectively referred to as the 'Lloyds Bank case') regarding the rights of female members of certain pension schemes to equality of treatment in relation to pension benefits. The judgment in the Lloyd's Bank case confirmed that all pension schemes were required to equalise, with immediate application, for the effects of unequal Guaranteed Minimum Pension ('GMP') benefits accrued over the period since May 17, 1990 ('GMP equalisation'). On November 20, 2020 the High Court of Justice of England and Wales issued a further judgment requiring all pension schemes, if requested by their individual members, to revisit individual transfer payments made between May 17, 1990 and April 5, 1997 to assess the shortfall, if any, between the original transfer payments and the impact of GMP equalisation. Where a shortfall exists, the pension scheme is required to make an additional payment to the individual member, including interest accrued at 1.0 per cent above the base rate per annum. The APS and NAPS estimated Defined benefit obligations as at December 31, 2020 and December 31, 2019 includes allowance for the estimated effect of GMP equalisation based on the assessments made by the respective APS and NAPS Scheme Actuaries.

Restructuring provisions are estimates of future obligations. The Group exercises judgement in determining the expected direct expenditures of reorganisation based on plans which are sufficiently detailed and advanced.

b Revenue recognition

At December 31, 2020 the Group recognised EUR5,130 million (2019: EUR5,486 million) in respect of deferred revenue on ticket sales of which EUR2,725 million (2019: EUR1,917 million) related to customer loyalty programmes.

Passenger revenue is recognised when the transportation is provided. At the time of transportation, revenue is also recognised in respect of tickets that are not expected to be used ('unused tickets'). Revenue associated with unused tickets is estimated based on the terms and conditions of the tickets and historical trends.

Revenue associated with the issuance of points under customer loyalty programmes is based on the relative stand-alone selling prices of the related performance obligations (brand, marketing and points), determined using estimation techniques. The transaction price of brand and marketing services is determined using specific brand valuation methodologies. The transaction price of the points is based on the value of the awards for which the points can be redeemed and is reduced to take account of the proportion of the award credits that are not expected to be redeemed by customers. The Group estimates the number of points not expected to be redeemed (using statistical modelling and historical trends) and the mix and fair value of the award credits. A five percentage point change in the assumption of points outstanding and not expected to be redeemed would result in an adjustment to deferred revenue of EUR100 million, with an offsetting adjustment to revenue and operating profit recognised in the year.

In August 2020, the Group received an upfront payment of EUR830 million (GBP754 million) related to the fulfilment of future performance obligations under the renewal of the multi-year commercial partnership with American Express. The Group estimates the number of points expected to issued over the life of the contract and allocates the upfront payment to the relevant performance obligations. At each reporting date, the Group updates its estimate of the number of points expected to be issued over the total contract term and recognises a cumulative catch-up adjustment where necessary. The Group considers that these upfront payments include a significant financing component considering the length of time between the payment and the expected allocation to performance obligations. Accordingly, the transaction price for the contract is discounted using the prevailing market interest rate.

The following three accounting estimates involve a higher degree of judgement or complexity, or are areas where assumptions are significant to the financial statements however these accounting estimates are not major sources of estimation uncertainty that have a significant risk of resulting in material adjustment to the carrying amounts of assets and liabilities within the next year.

c Income taxes

At December 31, 2020 the Group recognised EUR1,075 million in respect of deferred tax assets (2019: EUR546 million). Further information on current and deferred tax liabilities is disclosed in note 9.

The Group is subject to income taxes in numerous jurisdictions. Estimates are required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain because it may be unclear how tax law applies to a particular transaction or circumstance. Where the Group determines that it is more likely than not that the tax authorities would accept the position taken in the tax return, amounts are recognised in the financial statements on that basis. Where the amount of tax payable or recoverable is uncertain, the Group recognises a liability based on either: the Group's judgement of the most likely outcome; or, when there is a wide range of possible outcomes, uses a probability weighted average approach.

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 considers past and current operating performance 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.

d Impairment of non-financial assets

At December 31, 2020 the Group recognised EUR2,390 million (2019: EUR2,460 million) in respect of intangible assets with an indefinite life, including goodwill. Further information on these assets is included in note 15.

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, which use a weighted average multi-scenario discounted cash flow model. The Group has applied judgement in the weighting of each scenario in the discounted cash flow model and these calculations require the use of estimates in the determination of key assumptions and sensitivities 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

At December 31, 2020 the Group recognised EUR17,531 million (2019: EUR19,168 million) in respect of property, plant and equipment, including the ROU assets recognised in the year. Further information on these assets is included in note 12 and note 13.

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.

Judgements

a Engineering and other aircraft costs

At December 31, 2020, the Group recognised EUR1,588 million in respect of maintenance, restoration and handback provisions (2019: EUR1,675 million). Information on movements on the provision is disclosed in note 24.

The Group has a number of contracts with service providers to replace or repair engine parts and for other maintenance checks. These agreements are complex and generally cover a number of years. 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.

b Determining the lease term of contracts with renewal and termination options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. Such judgement includes consideration of fleet plans which underpin approved business plans and historical experience regarding the extension of leases. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances and affects the Group's ability to exercise or not to exercise the option to renew or to terminate. Further information is given in note 13.

New standards, amendments and interpretations

The following amendments and interpretations apply for the first time in 2020, but do not have a material impact on the consolidated financial statements of the Group:

   --   COVID-19 Related Rent Concessions - amendments to IFRS 16 Leases; 
   --   Amendments to references to the conceptual framework in IFRS standards; 
   --   Definition of a business (amendments to IFRS 3 'Business combinations'); 

-- Definition of material (amendments to IAS 1 'Presentation of financial statements' and IAS 8 'Accounting policies, Changes in accounting estimates and errors'); and

-- Interest Rate Benchmark Reform - Amendments to IFRS 9 'Financial instruments', IAS 39 'Financial instruments: Recognition and measurement' and IFRS 7 'Financial instruments: Disclosures', which conclude on phase one of the IASB's work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate.

The IASB and IFRIC have 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:

-- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 effective for periods beginning on or after January 1, 2021;

-- Property, Plant and Equipment: Proceeds before intended use - Amendments to IAS 16 effective for periods beginning on or after January 1, 2022;

-- Reference to the Conceptual Framework - Amendments to IFRS 3 effective for periods beginning on or after January 1, 2022;

-- Onerous Contracts - Cost of Fulfilling a Contract Amendments to IAS 37 effective for periods beginning on or after January 1, 2022;

-- Annual Improvements to IFRS Standards 2018-2020 effective for periods beginning on or after January 1, 2022; and

-- Classification of Liabilities as Current or Non-current Amendments to IAS 1 effective for periods beginning on or after January 1, 2023.

3 Impact of COVID-19 on financial reporting

Significant transactions and critical accounting estimates, assumptions and judgements in the determination of the impact of COVID-19

As a result of COVID-19 the Group has experienced a significant decline in the level of flight activity and does not expect to return to the level of 2019 activity until at least 2023. Accordingly, the Group has applied critical estimation and judgement in the evaluation of the impact of COVID-19 regarding the recognition and measurement of assets and liabilities within the Consolidated financial statements.

Critical accounting estimates, assumptions and judgements - cash flow forecast estimation

The Group has applied estimation and judgement in the evaluation of the impact of COVID-19 on the estimation uncertainty of determining cash flow forecasts as part of the approved Business plans. The details regarding the inputs and assumptions used in the determination of these cash flow forecasts are given in the going concern basis of preparation.

The following critical accounting estimates, assumptions and judgements utilise these cash flow forecasts consistently, which are in some instances significantly different from judgements applied in previous years:

a Discontinuance of hedge accounting

In determining whether hedge accounting is required to be discontinued or to remain in a hedge relationship, judgement is required as to whether a forecast transaction that was previously highly probable continues to be expected to occur or is no longer expected to occur. The Group applied the capacity output from the cash flow forecasts as part of the approved Business plans in order to determine the forecast level of revenue generation and fuel consumption over the periods in which hedge accounting has been applied.

In 2020 the Group recognised a charge arising from such discontinuance of EUR1,756 million represented by an expense of EUR62 million relating to revenue foreign currency derivatives, an expense of EUR1,781 million relating to fuel derivatives and a credit of EUR87 million related to the associated fuel foreign currency derivatives. These amounts relate to the discontinuance of hedge accounting of the associated foreign currency and fuel derivatives on forecast revenue and fuel consumption. These losses have arisen from the substantial deterioration in demand for air travel caused by COVID-19, which has caused a significant level of hedged passenger revenue transactions and fuel purchases in US dollars to no longer be expected to occur based on the Group's operating forecasts prevailing at the Balance sheet date. The Group's risk management strategy has been to build up these hedges gradually over a three-year period when the level of forecast passenger revenue and fuel consumption were higher than current expectations. Accordingly, the hedge accounting for these transactions has been discontinued and the losses recognised in the Income statement. The exceptional charge relating to revenue derivatives and fuel derivatives has been recorded in the Income statement within Passenger revenue and Fuel, oil and emission charges, respectively.

b Long-term fleet plans and associated impairment

The Group derives long-term fleet plans from the cash flow forecasts arising from the approved business plans. In deriving the long-term fleet plans, the Group applies judgement with respect to consideration of the period of temporary and permanent grounding of fleet assets, the deferral of the delivery of certain aircraft and the assumptions around specific provisions relating to leased fleet assets.

In 2020 the Group recognised an impairment charge of EUR856 million, represented by an impairment of fleet assets of EUR837 million and an impairment of other assets of EUR19 million. The fleet impairment relates to 82 aircraft, their associated engines and rotable inventories that have been stood down permanently and 2 further aircraft which have been impaired down to their recoverable value at December 31, 2020, which includes 32 Boeing 747 aircraft, 23 Airbus A320 aircraft, 15 Airbus A340 aircraft, 4 Airbus A330-200 aircraft, 2 Airbus A318 aircraft, 1 Airbus A321 aircraft, 1 Airbus A319 aircraft, 2 Boeing 777-200 aircraft and 4 Embraer E170 aircraft. Of the fleet impairment, EUR676 million is recorded within Property, plant and equipment relating to owned aircraft and EUR161 million is recorded within Right of use assets relating to leased aircraft.

Further, the Group has recognised additional inventory write downs of EUR71 million and additional specific provisions relating to leased fleet assets of EUR37 million. The inventory write down expense represents those expendable inventories that, given the asset impairments, are no longer expected to be utilised. The charge relating to the recognition of contractual lease provisions represents the estimation of the additional cost to fulfil the hand back conditions associated with the leased aircraft that have been permanently stood down and impaired.

Further information is given in the Alternative performance measures section, note 12, note 13 and note 24.

c Impairment testing of the Group's cash generating units

Due to the estimation uncertainty of the timing and duration of the recovery from COVID-19, the Group has adopted a weighted average multi-scenario discounted cash flow model derived from the cash flow forecasts from the approved business plans. The Group exercises judgement in determining the weighting between these scenarios in the value-in-use model.

Having undertaken this impairment testing, the Group has not recognised any impairment charge. While no impairment charge is arising, the headroom in the impairment test of the British Airways, Iberia and Aer Lingus cash generating units are particularly sensitive to changes in key assumptions. Further information is given in note 15.

d Recoverability of deferred tax assets

In determining the recoverable amounts of the Group's deferred tax assets, the Group applied the future cash flow projections from the approved business plans. Given the estimation uncertainty of the timing and duration of the recovery from COVID-19, the Group exercises judgement in the determination of cash flows during this recovery and subsequent periods.

As at December 31, 2020, the Group had unrecognised deferred tax assets of EUR1,337 million relating to tax losses the Group does not reasonably expect to utilise. Further information is given in note 9.

Critical accounting estimates, assumptions and judgements - other transactions

In addition to the estimation uncertainty relating to cash flow forecasts, the Group has applied the following critical accounting estimates, assumptions and judgements that impact the consolidated financial statements:

e Revenue recognition

Historically, where a voucher has been issued to a customer in the event of a flight cancellation, the Group estimated, based on historical evidence, the level of such vouchers that would not be used prior to expiry and recognised revenue accordingly. Due to the significant level of flight cancellations arising from COVID-19 there remains insufficient historical data by which to reliably estimate the amount of these vouchers that will not be used prior to expiry. Accordingly, the Group has not recognised revenue arising from those vouchers issued due to COVID-19 related cancellations until either the voucher is redeemed or it expires.

Significant transactions as a result of COVID-19

The Group has recorded the following additional significant transactions as a result of management actions in response to COVID-19:

f Restructuring costs

As a result of the structural changes to the airline sector, the Group has undertaken significant restructuring activities during 2020 to align the size of the workforce with the expected level of capacity. This has led to the recognition of severance pay of EUR313 million arising in British Airways, Aer Lingus, Iberia, and LEVEL and relating to a forecast reduction of employee numbers of approximately 10,500 as at December 31, 2020. This amount excludes those payments associated with restructuring programmes that were approved prior to COVID-19. These restructuring costs have been recorded as a charge to Employee costs. Further information is given in note 24 and the Alternative performance measures section.

g Rights issue

To enhance the liquidity of the Group as a direct result of the impact of COVID-19, on October 2, 2020, the Group raised EUR2,741 million through a rights issue of 2,979,443 thousand new ordinary shares at a price of 92 EUR cents per share on the basis of 3 shares for every 2 existing shares. The transaction resulted in an increase of Share capital of EUR298 million and an increase in Share premium of EUR2,443 million. Further information is given in note 27.

h Loans and borrowings

To enhance liquidity due to the impact of COVID-19, the Group has entered into a number of financing arrangements during 2020, which have been fully drawn unless otherwise stated, including:

-- On March 30, 2020, British Airways extended its US dollar secured Revolving Credit Facility for one year from June 23, 2020 to June 23, 2021. The amount available under the extended facility was EUR1.18 billion ($1.38 billion) at the time of exercising the extension and as at December 31, 2020 EUR0.64 billion ($0.79 billion) was available to be drawn;

-- On April 12, 2020, British Airways availed itself of the Coronavirus Corporate Finance Facility, issuing commercial paper to the Government of the United Kingdom of EUR328 million (GBP298 million) and repayable in April 2021;

-- On May 1, 2020, Iberia and Vueling entered into floating rate syndicated financing agreements backed by Spain's ICO for EUR750 million and EUR260 million, respectively. The facilities are amortising from April 30, 2023 with maturity in 2025;

-- On December 23, 2020 Aer Lingus entered into a floating rate financing agreement with the Ireland Strategic Investment Fund for EUR75 million. The facility has a three-year term;

-- On February 22, 2021, British Airways entered into a 5 year term loan Export Development Guarantee Facility of EUR2.2 billion (GBP2.0 billion) underwritten by a syndicate of banks, with 80 per cent of the principal guaranteed by UKEF.

Further information is given in note 23.

i Renewal of the American Express commercial partnership

Under the renewal of the multi-year commercial partnership with American Express, the Group took into account the liquidity requirements in the light of COVID-19 in negotiating an upfront payment of EUR830 million (GBP754 million) related to the fulfilment of future performance obligations, which included the pre-purchase of Avios. This upfront payment has been recorded within Deferred revenue from ticket sales until such time as the fulfilment of the associated performance obligations. Further information is given in note 21.

j Government assistance

Given the significant reduction in operations that have occurred during 2020, the Group has availed itself of the various employee support mechanisms in the jurisdictions in which it operates. This has led to an amount of EUR344 million being received directly from governments (classified as government grants) and savings of EUR214 million (classified as government assistance) where employees have been paid directly by their respective governments. Those amounts received in the form of government assistance have been recorded net within Employee costs. Further information is given in note 32.

k Defined benefit pension scheme contributions

On December 18, 2020 British Airways reached agreement with the Trustee of NAPS to defer deficit contributions on an interim basis for the period between October 1, 2020 and January 31, 2021. The deferral of such contributions amounted to EUR165 million. On February 19, 2021 British Airways reached further agreement with the Trustee of NAPS to defer deficit contributions through to September 30, 2021. The deferral of such contributions will amount to EUR330 million. Further information is given in note 30 on the deferral of contributions in 2020 and note 34 on the deferral of contributions in 2021.

l Sale and repurchase agreements for emission allowances

The Group typically is either issued with or acquires emissions allowances in advance of the associated flight activity. Due to the unprecedented decline in capacity during 2020, the Group has entered into a number of sale and repurchase agreements for emission allowances, where the Group has sold the excess allowances with a commitment to repurchase them in 2021. As at December 31, 2020, the value of such emission sale and repurchase agreements was EUR97 million. These sale and repurchase transactions give rise to a liability for the repurchase, which is classified as an other financing liability. Further information is given in note 23a.

m Renegotiation of Air Europa acquisition

On November 4, 2019, the Group entered into an agreement to acquire the entire share capital of Air Europa for EUR1 billion, subject to receipt of the approval by the European Commission. During the course of 2020 and as a result of the impact COVID-19 has had on both the Group and Air Europa, the Group had been negotiating with the current shareholder of Air Europa regarding amending the agreement to better reflect the current economic environment. On January 19, 2021, the Group announced the successful completion of these negotiations, which has resulted in the reduction of the purchase price to EUR500 million and deferred this payment until the sixth anniversary of the date of completion of the acquisition conditional on the satisfactory negotiation between Iberia and SEPI regarding the non-financial terms associated with the financial support provided by SEPI to Iberia. The transaction is still subject to approval by the European Commission. Further information is given in note 34.

4 Segment information

a Business segments

The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments, and has been identified as the IAG Management Committee (IAG MC).

The Group has a number of entities which are managed as individual operating companies including airline and platform functions. Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results.

The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as reportable operating segments. IAG Loyalty and LEVEL are also operating segments but do not exceed the quantitative thresholds to be reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.

The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made based on the passenger business or are not reviewed regularly by the IAG MC and are included within Other Group companies.

For the year to December 31, 2020

 
                                                                2020 
                                    ============================================================ 
                                                                                 Other 
                                     British                        Aer          Group 
EUR million                          Airways   Iberia  Vueling   Lingus   companies(1)     Total 
==================================  ========  =======  =======  =======  =============  ======== 
Revenue 
Passenger revenue                      3,242    1,148      577      376            169     5,512 
Cargo revenue                            994      224        -       88              -     1,306 
Other revenue                            232      605        5        -            146       988 
==================================  ========  =======  =======  =======  =============  ======== 
External revenue                       4,468    1,977      582      464            315     7,806 
Inter-segment revenue                     90      282      (8)        3            343       710 
==================================  ========  =======  =======  =======  =============  ======== 
Segment revenue                        4,558    2,259      574      467            658     8,516 
==================================  ========  =======  =======  =======  =============  ======== 
 
Depreciation and amortisation 
 charge                              (1,214)    (370)    (277)    (133)           (84)   (2,078) 
Impairment charge                      (445)    (242)     (68)     (24)           (98)     (877) 
 
Operating loss                       (4,378)  (1,411)    (875)    (563)          (199)   (7,426) 
==================================  ========  =======  =======  =======  =============  ======== 
 
Exceptional items(2)                 (1,778)    (652)    (252)    (202)          (177)   (3,061) 
 
Operating loss before exceptional 
 items                               (2,600)    (759)    (623)    (361)           (22)   (4,365) 
==================================  ========  =======  =======  =======  =============  ======== 
 
Net non-operating costs                                                                    (384) 
==================================  ========  =======  =======  =======  =============  ======== 
Loss before tax                                                                          (7,810) 
==================================  ========  =======  =======  =======  =============  ======== 
Total assets                          17,707    7,009    2,850    1,814            884    30,264 
Total liabilities                   (15,979)  (7,014)  (3,299)  (1,495)        (1,161)  (28,948) 
==================================  ========  =======  =======  =======  =============  ======== 
 

1 Includes eliminations on total assets of EUR14,998 million and total liabilities of EUR5,100 million.

   2   For details on exceptional items refer to the Alternative performance measures section. 

For the year to December 31, 2019

 
                                                                  2019 
                                      ============================================================ 
                                                                                   Other 
                                       British                        Aer          Group 
EUR million                            Airways   Iberia  Vueling   Lingus   companies(1)     Total 
====================================  ========  =======  =======  =======  =============  ======== 
Revenue 
Passenger revenue                       13,307    4,020    2,437    2,060            644    22,468 
Cargo revenue                              805      255        -       54              3     1,117 
Other revenue                              752      912       18        2            237     1,921 
====================================  ========  =======  =======  =======  =============  ======== 
External revenue                        14,864    5,187    2,455    2,116            884    25,506 
Inter-segment revenue                      242      458        -        9            575     1,284 
====================================  ========  =======  =======  =======  =============  ======== 
Segment revenue                         15,106    5,645    2,455    2,125          1,459    26,790 
====================================  ========  =======  =======  =======  =============  ======== 
 
Depreciation, amortisation and 
 impairment                            (1,258)    (390)    (250)    (130)           (83)   (2,111) 
 
Operating profit                         1,510      497      240      276             90     2,613 
====================================  ========  =======  =======  =======  =============  ======== 
 
Exceptional items(2)                     (672)                                               (672) 
 
Operating profit before exceptional 
 items                                   2,182      497      240      276             90     3,285 
====================================  ========  =======  =======  =======  =============  ======== 
 
Net non-operating costs                                                                      (338) 
====================================  ========  =======  =======  =======  =============  ======== 
Profit before tax                                                                            2,275 
====================================  ========  =======  =======  =======  =============  ======== 
Total assets(3)                         22,102    8,733    3,756    2,131        (1,271)    35,451 
Total liabilities(3)                  (15,235)  (6,940)  (3,354)  (1,320)        (1,773)  (28,622) 
====================================  ========  =======  =======  =======  =============  ======== 
 

1 Includes eliminations on total assets of EUR14,982 million and total liabilities of EUR4,603 million.

   2   For details on exceptional items refer to the Alternative performance measures section. 

3 Total assets and total liabilities at December 31, 2019 have been reclassified for the effects given in note 2.

b Geographical analysis

Revenue by area of original sale

 
                 Year to December 
                        31 
                ================== 
EUR million         2020      2019 
==============  ========  ======== 
UK                 2,390     8,362 
Spain              1,845     4,399 
USA                  933     4,379 
Rest of world      2,638     8,366 
==============  ========  ======== 
                   7,806    25,506 
==============  ========  ======== 
 

Assets by area

December 31, 2020

 
                     Property, 
                         plant  Intangible 
EUR million      and equipment      assets 
==============  ==============  ========== 
UK                      11,313       1,251 
Spain                    4,850       1,353 
USA                        122          15 
Rest of world            1,246         589 
==============  ==============  ========== 
                        17,531       3,208 
==============  ==============  ========== 
 

December 31, 2019

 
                     Property, 
                         plant  Intangible 
EUR million      and equipment      assets 
==============  ==============  ========== 
UK                      12,214       1,401 
Spain                    5,324       1,402 
USA                        188          19 
Rest of world            1,442         620 
==============  ==============  ========== 
                        19,168       3,442 
==============  ==============  ========== 
 

5 Expenses by nature

Operating result is arrived at after charging

Depreciation, amortisation and impairment of non-current assets:

 
EUR million                                                 2020   2019 
=========================================================  =====  ===== 
Depreciation charge on right of use assets                 1,153  1,153 
Depreciation charge on owned assets                          720    776 
Impairment charge on owned property, plant and equipment     681      - 
Amortisation and impairment of intangible assets             196    142 
Impairment charge on right of use assets                     161      - 
Depreciation charge on other leasehold interests              44     40 
=========================================================  =====  ===== 
                                                           2,955  2,111 
=========================================================  =====  ===== 
 

Cost of inventories:

 
EUR million                                                  2020   2019 
==========================================================  =====  ===== 
Cost of inventories recognised as an expense, mainly fuel   1,405  3,242 
Impairment charge on inventories(1)                            71      - 
==========================================================  =====  ===== 
                                                            1,476  3,242 
==========================================================  =====  ===== 
 
   1   For details regarding the impairment charge on inventories refer to note 3. 

6 Auditor's 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:

 
EUR'000                                                           2020   2019 
===============================================================  =====  ===== 
Fees payable for the audit of the Group and individual 
 accounts                                                        4,180  3,916 
Fees payable for other services: 
     Audit of the Group's subsidiaries pursuant to legislation     696    632 
     Other services pursuant to legislation                        532    496 
     Other services relating to taxation                            30      3 
     Other assurance services                                      350    727 
     Services relating to working capital review                 1,036  1,218 
     Services relating to corporate finance transactions           370    175 
     All other services                                             55      3 
===============================================================  =====  ===== 
                                                                 7,249  7,170 
===============================================================  =====  ===== 
 

7 Employee costs and numbers

 
EUR million                                 2020   2019 
=========================================  =====  ===== 
Wages and salaries                         2,236  3,334 
Social security costs                        385    561 
Costs related to pension scheme benefits     247    932 
Share-based payment (credit)/charge          (8)     34 
Other employee costs(1)                      700    773 
=========================================  =====  ===== 
Total employee costs                       3,560  5,634 
=========================================  =====  ===== 
 
   1   Other employee costs include allowances and accommodation for crew. 

The number of employees during the year and at December 31 was as follows:

 
                                             2020                                        2019 
                          ===========================================  ======================================== 
                                                  December 31,                              December 31, 
                                                       2020                                      2019 
                          ================  =========================  =============  ========================= 
                                   Average                                   Average 
                                    number         Number  Percentage         number         Number  Percentage 
                           of employees(1)   of employees    of women   of employees   of employees    of women 
========================  ================  =============  ==========  =============  =============  ========== 
In the air: 
   Cabin crew                        7,689         17,946         71%         25,774         25,342         71% 
   Pilots                            4,787          7,794          6%          8,217          8,310          6% 
On the ground: 
   Airports                          8,841         14,339         39%         19,689         18,970         39% 
   Corporate                         7,954         11,246         48%         11,798         11,855         48% 
   Maintenance                       5,153          6,410          7%          7,620          7,593          8% 
      Senior executives                196            193         30%            201            198         30% 
========================  ================  =============  ==========  =============  =============  ========== 
                                    34,620         57,928                     73,299         72,268 
========================  ================  =============  ==========  =============  =============  ========== 
 

1 The average number of employees excludes those employees on furlough, wage support and equivalent schemes, including the Temporary Redundancy Plan arrangements in Spain. For further details see note 32. The total average number of employees including those in these schemes is 65,481.

The number of employees is based on actual headcount. The 2019 figures have been updated to represent actual headcount (rather than manpower equivalent as disclosed in the prior year), and classified according to the updated categories (rather in the categories of senior executives, ground employees and technical crew as disclosed in the prior year), to align with the categories used in the Non-Financial Information Statement.

The average manpower equivalent for 2020 was 60,612 (2019: 66,034), which includes employees on furlough, wage support and equivalent schemes, including Temporary Redundancy Plan arrangements in Spain.

8 Finance costs, income and other non-operating (charges)/credits

a Finance costs

 
EUR million                                  2020   2019 
==========================================  =====  ===== 
Interest expense on: 
     Bank borrowings                         (45)   (12) 
     Asset financed liabilities              (41)    (9) 
     Lease liabilities                      (442)  (489) 
     Provisions unwinding of discount        (14)   (37) 
     Other borrowings                       (103)   (77) 
Capitalised interest on progress payments       8     17 
Other finance costs                          (33)    (4) 
==========================================  =====  ===== 
                                            (670)  (611) 
==========================================  =====  ===== 
 

b Finance income

 
EUR million                             2020  2019 
======================================  ====  ==== 
Interest on interest-bearing deposits     21    47 
Other finance income                      20     3 
======================================  ====  ==== 
                                          41    50 
======================================  ====  ==== 
 

c Net financing credit relating to pensions

 
EUR million                                 2020  2019 
==========================================  ====  ==== 
Net financing credit relating to pensions      4    26 
==========================================  ====  ==== 
 

d Other non-operating charges

 
EUR million                                                 2020  2019 
==========================================================  ====  ==== 
Gains/(losses) on sale of property, plant and equipment 
 and investments                                              38  (22) 
Credit related to equity investments (note 17)                 1     3 
Share of profits in investments accounted for using the 
 equity method (note 16)                                       1     6 
Realised (losses)/gains on derivatives not qualifying for 
 hedge accounting                                           (13)     8 
Unrealised (losses)/gains on derivatives not qualifying 
 for hedge accounting                                       (31)     1 
==========================================================  ====  ==== 
                                                             (4)   (4) 
==========================================================  ====  ==== 
 

9 Tax

a Tax charges

Tax (charge)/credit in the Income statement, Other comprehensive income and Statement of changes in equity:

 
                                           2020                                            2019 
                      ==============================================  ============================================== 
                                           Other    Statement                              Other    Statement 
                          Income   comprehensive   of changes             Income   comprehensive   of changes 
EUR million            statement          income    in equity  Total   statement          income    in equity  Total 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
Current tax 
Movement in respect 
 of prior years                6               -            -      6          26             (8)            -     18 
Movement in respect 
 of current year             273            (17)            -    256       (494)             146            -  (348) 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
Total current tax            279            (17)            -    262       (468)             138            -  (330) 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
 
Deferred tax 
Movement in respect 
 of prior years              (8)               -            -    (8)        (14)               -            -   (14) 
Movement in respect 
 of current year             690             129          (2)    817        (79)           (403)          (1)  (483) 
Rate change/rate 
 differences                (74)              44            -   (30)           1               3            -      4 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
Total deferred tax           608             173          (2)    779        (92)           (400)          (1)  (493) 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
 
Total tax                    887             156          (2)  1,041       (560)           (262)          (1)  (823) 
====================  ==========  ==============  ===========  =====  ==========  ==============  ===========  ===== 
 

The current tax credit in Other comprehensive income relates to cash flow hedges of EUR17 million (2019: EUR16 million) and employee retirement benefit plans of EURnil (2019: EUR154 million).

Tax in the Statement of changes in equity relates to share-based payment schemes of EUR2 million (2019: EUR1 million).

Within tax in Other comprehensive income is a tax credit of EUR92 million (2019: tax credit of EUR184 million) that may be reclassified to the Income statement and a tax credit of EUR64 million (2019: tax credit of EUR165 million) that will not.

b Current tax (liability)/asset

 
EUR million                     2020   2019 
=============================  =====  ===== 
Balance at January 1             (6)    218 
Income statement                 279  (468) 
Other comprehensive income      (17)    138 
Cash                            (45)    119 
Offset against other taxes     (152)      - 
Exchange movements and other     (6)   (13) 
=============================  =====  ===== 
Balance at December 31            53    (6) 
=============================  =====  ===== 
 
Current tax asset                101    186 
Current tax liability           (48)  (192) 
=============================  =====  ===== 
Balance at December 31            53    (6) 
=============================  =====  ===== 
 

A tax repayment of EUR152 million arising from losses carried back to an earlier period was offset, by HMRC, against liabilities arising in relation to other taxes.

c Deferred tax asset/(liability)

 
                                                                                          Tax loss 
                                                                                           carried 
                                                                                           forward 
                                 Borrowings     Employee               Fair                    and 
                                   on right      leaving  Employee    value  Share-based     other        Other 
                  Fixed              of use  indemnities   benefit    gain/      payment       tax    temporary 
EUR million      assets  Leases      assets   and others     plans   losses      schemes   credits  differences  Total 
==============  =======  ======  ==========  ===========  ========  =======  ===========  ========  ===========  ===== 
Balance at 
 January 
 1, 2020(1)       (732)   (195)          24          312       323       70           19       401           34    256 
Income 
 statement          116    (76)         (2)        (120)         3        -          (6)       643           50    608 
Other 
 comprehensive 
 income               -       -           -            3       (4)      118            -        56            -    173 
Statement of 
 changes 
 in equity            -       -           -            -         -        -          (2)         -            -    (2) 
Exchange 
 movements 
 and other           27      23         (1)          (1)      (24)        7          (1)      (10)         (20)      - 
==============  =======  ======  ==========  ===========  ========  =======  ===========  ========  ===========  ===== 
Balance at 
 December 
 31, 2020         (589)   (248)          21          194       298      195           10     1,090           64  1,035 
==============  =======  ======  ==========  ===========  ========  =======  ===========  ========  ===========  ===== 
 
Balance at 
 January 
 1, 2019(1)       (712)   (148)          31          348       545      234           16       411           31    756 
Income 
 statement            4    (26)         (7)         (52)       (7)        -            5      (10)            1   (92) 
Other 
 comprehensive 
 income               -       -           -           13     (240)    (173)            -         -            -  (400) 
Statement of 
 changes 
 in equity            -       -           -            -         -        -          (1)         -            -    (1) 
Exchange 
 movements 
 and other         (24)    (21)           -            3        25        9          (1)         -            2    (7) 
==============  =======  ======  ==========  ===========  ========  =======  ===========  ========  ===========  ===== 
Balance at 
 December 
 31, 2019(1)      (732)   (195)          24          312       323       70           19       401           34    256 
==============  =======  ======  ==========  ===========  ========  =======  ===========  ========  ===========  ===== 
 
 
EUR million               2020  2019(1) 
=======================  =====  ======= 
Deferred tax asset       1,075      546 
Deferred tax liability    (40)    (290) 
=======================  =====  ======= 
Balance at December 31   1,035      256 
=======================  =====  ======= 
 

1 Deferred taxes arising on Employee benefit plans at December 31, 2019 and January 1, 2019 have been reclassified for the effects given in note 2.

The deferred tax assets mainly arise in Spain and the UK and are expected to reverse beyond one year. Recognition of the deferred tax assets is supported by the expected reversal of deferred tax liabilities in corresponding periods, and projections of operating performance laid out in the Management approved business plans.

d Reconciliation of the total tax charge in the income statement

The tax credit/(charge) is calculated at the domestic rates applicable to (losses)/pro ts in the country in which the (losses)/profits arise. The tax credit (2019: charge) on the loss for the year to December 31, 2020 (2019: profit) is lower (2019: higher) than the notional tax credit (2019: charge). The differences are explained below:

 
EUR million                                                   2020   2019 
=========================================================  =======  ===== 
Accounting (loss)/profit before tax                        (7,810)  2,275 
=========================================================  =======  ===== 
 
Weighted average tax credit/(charge) of the Group(1)         1,615  (440) 
Unrecognised losses and deductible temporary differences 
 arising in the year                                         (342)   (11) 
Disposal and write down of investments                        (83)      - 
Effect of tax rate changes                                    (74)      1 
Employee benefit plans accounted for net of withholding 
 tax - recurring                                                 2      7 
Employee benefit plans accounted for net of withholding 
 tax - non-recurring                                             -  (128) 
Prior year assets derecognised                               (176)      - 
Investment incentives                                            2     11 
Effect of lower tax rate in the Canary Islands                (40)    (3) 
Movement in respect of prior years                             (2)     12 
Non-deductible expenses - recurring items                     (22)   (14) 
Other items                                                      7      5 
=========================================================  =======  ===== 
Tax credit/(charge) in the income statement                    887  (560) 
=========================================================  =======  ===== 
 

1 The expected tax credit/(charge) is calculated by aggregating the expected tax charges arising in each company in the Group and changes each year as tax rates and profit mix change. The corporate tax rates for the Group's main countries of operation are Spain 25% (2019: 25%), the UK 19% (2019: 19%) and Ireland 12.5% (2019: 12.5%).

e Payroll related taxes and UK Air Passenger Duty

The Group was also subject to other taxes paid during the year which are as follows:

 
EUR million             2020   2019 
======================  ====  ===== 
Payroll related taxes    400    555 
UK Air Passenger Duty    307    967 
======================  ====  ===== 
                         707  1,522 
======================  ====  ===== 
 

f Factors that may affect future tax charges

Unrecognised deductible temporary differences and losses

 
EUR million                                 2020  2019 
=========================================  =====  ==== 
Income tax losses 
Spanish corporate income tax losses          848    11 
Openskies SASU trading losses                450   249 
UK trading losses                             39    25 
-----------------------------------------  -----  ---- 
                                           1,337   285 
 
Other losses and temporary differences 
UK capital losses                            350   335 
Spanish deductible temporary differences   1,287    36 
Irish capital losses                          25    25 
-----------------------------------------  -----  ---- 
                                           1,662   396 
=========================================  =====  ==== 
 

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 EUR547 million (2019: EUR2,959 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 to a material extent.

Tax rate changes

A reduction in the UK corporation tax rate to 17 per cent (effective April 1, 2020) was substantively enacted on September 6, 2016. This reduction from 19 per cent to 17 per cent was reversed in Finance Act 2020, which has led to the remeasurement of deferred tax balances and will increase the Group's future current tax charge accordingly.

g Tax related contingent liabilities

The Group has certain contingent liabilities, across all taxes, which at December 31, 2020 amounted to EUR166 million (December 31, 2019: EUR165 million). No material losses are likely to arise from such contingent liabilities. The tax related contingent liabilities include the following:

Merger gain

Following tax audits covering the period 2011 to 2014, the Spanish Tax Authorities issued a corporate income tax assessment to the Company regarding the merger in 2011 between British Airways and Iberia. The maximum exposure in this case is EUR92 million (2019: EUR90 million), being the amount in the tax assessment with an estimate of the interest accrued on that assessment through to December 31, 2020.

The Company appealed the assessment to the Tribunal Económico-Administrativo Central or 'TEAC' (Central Administrative Tax Tribunal). On October 23, 2019 the TEAC ruled in favour of the Spanish Tax Authorities. The Company subsequently appealed this ruling to the Audiencia Nacional (National High Court) on December 20, 2019, and on July 24, 2020 filed submissions in support of its case. The Company does not expect a hearing at the National High Court until 2022 at the earliest.

The Company disputes the technical merits of the assessment and ruling of the TEAC, both in terms of whether a gain arose and in terms of the quantum of any gain. The Company believes that it has strong arguments to support its appeals. The Company does not consider it appropriate to make a provision for these amounts and accordingly has recognised this matter as a contingent liability.

10 Earnings per share

 
EUR million                                                   2020   2019 
=========================================================  =======  ===== 
(Losses)/earnings attributable to equity holders of the 
 parent for basic (losses)/earnings                        (6,923)  1,715 
Interest expense on convertible bonds                            -     26 
=========================================================  =======  ===== 
Diluted (losses)/earnings attributable to equity holders 
 of the parent and diluted (losses)/earnings per share     (6,923)  1,741 
=========================================================  =======  ===== 
 
 
                                                              2020       2019 
                                                            Number     Number 
                                                              '000    '000(1) 
=======================================================  =========  ========= 
Weighted average number of ordinary shares in issue(2)   3,528,052  3,055,638 
Assumed conversion on convertible bonds                          -     59,398 
Dilutive employee share schemes outstanding                      -     22,305 
=======================================================  =========  ========= 
Weighted average number for diluted earnings per share   3,528,052  3,137,341 
=======================================================  =========  ========= 
 
 
EUR cents                       2020  2019(1) 
===========================  =======  ======= 
Basic earnings per share     (196.2)     56.1 
===========================  =======  ======= 
Diluted earnings per share   (196.2)     55.5 
===========================  =======  ======= 
 

1 Earnings per share information has been restated for the comparative period presented, by adjusting the weighted average number of shares to include the impact of the rights issue (note 27). The discount element inherent in the rights issue has been accounted for as a bonus issue of 1,071,565 thousand shares in 2019.

2 In 2020, includes 734,657 thousand shares as the weighted average impact for 2,979,443 thousand new ordinary shares issued through the rights issue (note 27).

The effect of the assumed conversion of the IAG EUR500 million convertible bond 2022 and outstanding employee share schemes is antidilutive for the year to December 31, 2020, and therefore has not been included in the diluted earnings per share calculation.

The calculation of basic and diluted earnings per share before exceptional items is included in the Alternative performance measures section.

11 Dividends

 
EUR million                                             2020  2019 
======================================================  ====  ==== 
Cash dividend declared 
Interim dividend for 2019 of 14.5 EUR cents per share      -   288 
Final dividend for 2019 of 17.0 EUR cents per share        -   337 
Special dividend for 2018 of 35.0 EUR cents per share      -   695 
======================================================  ====  ==== 
 

Proposed dividends on ordinary shares are subject to approval at the Annual Shareholders' Meeting and, subject to approval, are recognised as a liability on that date.

As a result of the impact of COVID-19, on April 2, 2020, the Board of Directors of the Group resolved to withdraw the proposal to the subsequent Annual Shareholders' Meeting to pay a final dividend for 2019 of 17.0 EUR cents per share.

The dividend paid in the year to December 31, 2020 of EUR53 million relates to the withholding tax on the 2019 interim dividend, which was proposed in October 2019.

12 Property, plant and equipment

 
EUR million                           Fleet  Property  Equipment    Total 
==================================  =======  ========  =========  ======= 
Cost 
Balance at January 1, 2019           25,296     2,923      1,505   29,724 
Additions                             3,946        67        147    4,160 
Modification of leases                  128        94          -      222 
Disposals                           (1,319)      (85)       (71)  (1,475) 
Reclassifications                        44         -       (44)        - 
Exchange movements                    1,287       163         68    1,518 
==================================  =======  ========  =========  ======= 
Balance at December 31, 2019         29,382     3,162      1,605   34,149 
Additions                             2,854        84         32    2,970 
Modification of leases                   21        16        (1)       36 
Disposals                           (3,878)      (95)       (50)  (4,023) 
Reclassifications                       (4)         8        (4)        - 
Exchange movements                  (1,439)     (193)       (81)  (1,713) 
==================================  =======  ========  =========  ======= 
December 31, 2020                    26,936     2,982      1,501   31,419 
==================================  =======  ========  =========  ======= 
Depreciation and impairment 
Balance at January 1, 2019           10,776     1,078        948   12,802 
Depreciation charge for the year      1,710       169         90    1,969 
Disposals                             (447)      (63)       (57)    (567) 
Reclassifications                         8         -        (8)        - 
Exchange movements                      660        65         52      777 
==================================  =======  ========  =========  ======= 
Balance at December 31, 2019         12,707     1,249      1,025   14,981 
Depreciation charge for the year      1,659       165         93    1,917 
Impairment charge for the year(1)       820         -         22      842 
Disposals                           (2,886)      (52)       (44)  (2,982) 
Exchange movements                    (729)      (80)       (61)    (870) 
==================================  =======  ========  =========  ======= 
December 31, 2020                    11,571     1,282      1,035   13,888 
==================================  =======  ========  =========  ======= 
 

1 For details regarding the impairment charge on fleet assets refer to note 3 and the Alternative performance measures section. The impairments principally arose from the permanent grounding of specific fleet assets and accordingly their full net book value was impaired. However, certain fleet assets have been impaired down to their fair value, which was determined based on independent appraisals of their market value.

 
Net book values 
December 31, 2020   15,365  1,700  466  17,531 
December 31, 2019   16,675  1,913  580  19,168 
==================  ======  =====  ===  ====== 
 
 
Analysis at December 31, 2020 
Owned                            5,457    920  382   6,759 
Right of use assets (note 13)    9,124    695   56   9,875 
Progress payments                  710     85   28     823 
Assets not in current use           74      -    -      74 
==============================  ======  =====  ===  ====== 
Property, plant and equipment   15,365  1,700  466  17,531 
==============================  ======  =====  ===  ====== 
Analysis at December 31, 2019 
Owned                            5,321  1,028  460   6,809 
Right of use assets (note 13)    9,746    774   68  10,588 
Progress payments                1,525    110   52   1,687 
Assets not in current use           83      1    -      84 
==============================  ======  =====  ===  ====== 
Property, plant and equipment   16,675  1,913  580  19,168 
==============================  ======  =====  ===  ====== 
 

The net book value of property comprises:

 
EUR million                                2020   2019 
========================================  =====  ===== 
Freehold                                    485    560 
Right of use assets (note 13)               695    774 
Long leasehold improvements > 50 years      297    321 
Short leasehold improvements < 50 years     223    258 
========================================  =====  ===== 
Property                                  1,700  1,913 
========================================  =====  ===== 
 

At December 31, 2020, long-term borrowings of the Group are secured on owned fleet assets with a net book value of EUR2,794 million (2019: EUR1,576 million).

13 Leases

a Amounts recognised in the Consolidated balance sheet

Property, plant and equipment includes the following amounts relating to right of use assets:

 
EUR million                          Fleet  Property  Equipment   Total 
==================================  ======  ========  =========  ====== 
Cost 
Balance at January 1, 2019          12,491       734        119  13,344 
Additions                            1,039        13         16   1,068 
Modifications of leases                128        94          -     222 
Disposals                             (23)         -          -    (23) 
Reclassifications(1)                 (290)       (4)       (16)   (310) 
Exchange movements                     509        45          4     558 
==================================  ======  ========  =========  ====== 
December 31, 2019                   13,854       882        123  14,859 
==================================  ======  ========  =========  ====== 
Additions                            1,194        58          1   1,253 
Modifications of leases                 21        16        (1)      36 
Disposals                             (77)       (6)       (22)   (105) 
Reclassifications(1)                 (389)         -          3   (386) 
Exchange movements                   (595)      (57)        (5)   (657) 
==================================  ======  ========  =========  ====== 
December 31, 2020                   14,008       893         99  15,000 
==================================  ======  ========  =========  ====== 
Depreciation and impairment 
Balance at January 1, 2019           3,056         -         36   3,092 
Depreciation charge for the year     1,032       104         17   1,153 
Disposals                             (21)         -          -    (21) 
Reclassifications(1)                 (123)         -          -   (123) 
Exchange movements                     164         4          2     170 
==================================  ======  ========  =========  ====== 
December 31, 2019                    4,108       108         55   4,271 
==================================  ======  ========  =========  ====== 
Depreciation charge for the year     1,035       103         15   1,153 
Impairment charge for the year(2)      161         -          -     161 
Disposals                             (53)       (5)       (22)    (80) 
Reclassifications(1)                 (166)         -        (3)   (169) 
Exchange movements                   (201)       (8)        (2)   (211) 
==================================  ======  ========  =========  ====== 
December 31, 2020                    4,884       198         43   5,125 
==================================  ======  ========  =========  ====== 
 
Net book value 
December 31, 2020                    9,124       695         56   9,875 
December 31, 2019                    9,746       774         68  10,588 
==================================  ======  ========  =========  ====== 
 

1 Amounts with a net book value of EUR217 million (2019: EUR187 million) were reclassified from ROU assets to Owned Property, plant and equipment at the cessation of the respective leases.

2 For details regarding the impairment charge on fleet assets refer to note 3 and the Alternative performance measures section.

Interest-bearing long-term borrowings includes the following amount relating to lease liabilities:

 
EUR million                  2020     2019 
========================  =======  ======= 
January 1                  11,046   11,123 
Additions                   1,179    1,017 
Modifications of leases        20      182 
Repayments                (1,919)  (1,941) 
Interest expense              442      489 
Exchange movements          (744)      176 
========================  =======  ======= 
December 31                10,024   11,046 
========================  =======  ======= 
 
Current                     1,560    1,694 
Non-current                 8,464    9,352 
========================  =======  ======= 
 

b Amounts recognised in the Consolidated income statement

 
EUR million                                                     2020   2019 
=============================================================  =====  ===== 
Amounts not included in the measurement of lease liabilities 
Variable lease payments                                            1     28 
Expenses relating to short-term leases                            42     74 
Expenses relating to leases of low-value assets, excluding 
 short-term leases of low value assets                             -      1 
Amounts expensed as a result of the recognition of ROU 
 assets and lease liabilities 
Interest expense on lease liabilities                            442    489 
Gain arising from sale and leaseback transactions               (10)    (1) 
Depreciation charge for the year                               1,153  1,153 
Impairment charge for the year                                   161      - 
=============================================================  =====  ===== 
 

During 2020 the IASB issued 'COVID-19 related rent concessions - amendment to IFRS 16 Leases' to provide a practical expedient to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions for those lease modifications arising as a direct result of COVID-19. The Group has applied this practical expedient to all such modifications in the preparation of the consolidated financial statements. The net impact on the Income statement for 2020 has been a credit of EUR2 million reflecting the changes to lease payments that arose from such concessions.

c Amounts recognised in the Consolidated cash flow statement

The Group had total cash outflows for leases of EUR1,997 million in 2020 (2019: EUR2,057 million).

The Group had total cash inflows associated with sale and leaseback transactions of EUR898 million (2019: EUR824 million).

The Group is exposed to future cash outflows (on an undiscounted basis) as at December 31, 2020, for which no amount has been recognised in relation to leases not yet commenced to which the Group is committed of EUR183 million (2019: EUR787 million).

d Maturity profile of the lease liabilities.

The maturity profile of the lease liabilities is disclosed in note 25e.

e Extension options

The Group has certain leases which contain extension options exercisable by the Group prior to the non-cancellable contract period. Where practicable, the Group seeks to include extension options in new leases to provide operational flexibility. The Group assesses at lease commencement whether it is reasonably certain to exercise the extension options.

The Group is exposed to future cash outflows (on an undiscounted basis) as at December 31, 2020, for which no amount has been recognised, for potential extension options of EUR998 million (2019: EUR871 million) due to it not being reasonably certain that these leases will be extended.

14 Capital expenditure commitments

Capital expenditure authorised and contracted for but not provided for in the accounts amounts to EUR10,545 million (December 31, 2019: EUR12,830 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 EUR10,485 million for the acquisition of 26 Airbus A320s (from 2021 to 2025), 38 Airbus A321s (from 2021 to 2024), 1 Airbus A330-300 (in 2021), 26 Airbus A350s (from 2021 to 2024), 18 Boeing 777-9s (from 2024 to 2027), 10 Boeing 787-10s (from 2021 to 2024) and 2 Embraer E190s (in 2021). The Group has certain rights to cancel commitments in the event of significant delays to aircraft deliveries caused by the aircraft manufacturers. No such rights had been exercised as at December 31, 2020.

15 Intangible assets and impairment review

a Intangible assets

 
                                                  Customer 
                                                   loyalty     Landing 
EUR million                   Goodwill  Brand   programmes   rights(1)  Software  Other  Total 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
Cost 
Balance at January 1, 
 2019                              595    451          253       1,559     1,116    211  4,185 
Additions                            -      -            -           5       232    120    357 
Disposals                            -      -            -           -      (28)   (55)   (83) 
Exchange movements                   3      -            -          52        56      6    117 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
Balance at December 31, 
 2019                              598    451          253       1,616     1,376    282  4,576 
Additions                            -      -            -           -       141     51    192 
Disposals                            -      -            -           -      (18)  (121)  (139) 
Reclassifications                    -      -            -           -        43   (46)    (3) 
Exchange movements                 (5)      -            -        (61)      (68)    (5)  (139) 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
December 31, 2020                  593    451          253       1,555     1,474    161  4,487 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
Amortisation and impairment 
Balance at January 1, 
 2019                              249      -            -         106       577     55    987 
Amortisation charge for 
 the year                            -      -            -           6       131      5    142 
Disposals                            -      -            -           -      (28)      -   (28) 
Exchange movements                   -      -            -           3        30      -     33 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
Balance at December 31, 
 2019                              249      -            -         115       710     60  1,134 
Amortisation charge for 
 the year                            -      -            -           6       151      4    161 
Impairment charge for 
 the year                            -      -            -          15        20      -     35 
Disposals                            -      -            -           -       (7)      -    (7) 
Exchange movements                   -      -            -         (4)      (38)    (2)   (44) 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
December 31, 2020                  249      -            -         132       836     62  1,279 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
Net book values 
December 31, 2020                  344    451          253       1,423       638     99  3,208 
December 31, 2019                  349    451          253       1,501       666    222  3,442 
============================  ========  =====  ===========  ==========  ========  =====  ===== 
 

1 The net book value includes non-UK and non-EU based landing rights of EUR88 million (2019: EUR94 million) that have a definite life. The remaining life of these landing rights is 15 years.

b Impairment review

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

 
                                                               Customer 
                                            Landing             loyalty 
EUR million                       Goodwill   rights  Brand   programmes  Total 
================================  ========  =======  =====  ===========  ===== 
2020 
Iberia 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2020          -      423    306            -    729 
================================  ========  =======  =====  ===========  ===== 
 
British Airways 
January 1, 2020                         49      816      -            -    865 
Exchange movements                     (5)     (53)      -            -   (58) 
================================  ========  =======  =====  ===========  ===== 
December 31, 2020                       44      763      -            -    807 
================================  ========  =======  =====  ===========  ===== 
 
Vueling 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2020         28       94     35            -    157 
================================  ========  =======  =====  ===========  ===== 
 
Aer Lingus 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2020        272       62    110            -    444 
================================  ========  =======  =====  ===========  ===== 
 
IAG Loyalty 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2020          -        -      -          253    253 
================================  ========  =======  =====  ===========  ===== 
 
Other CGUs 
January 1, 2020                          -       12      -            -     12 
Impairment charge for the year           -     (12)      -            -   (12) 
================================  ========  =======  =====  ===========  ===== 
December 31, 2020                        -        -      -            -      - 
================================  ========  =======  =====  ===========  ===== 
 
December 31, 2020                      344    1,342    451          253  2,390 
================================  ========  =======  =====  ===========  ===== 
 
 
                                                               Customer 
                                            Landing             loyalty 
EUR million                       Goodwill   rights  Brand   programmes  Total 
================================  ========  =======  =====  ===========  ===== 
2019 
Iberia 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2019          -      423    306            -    729 
================================  ========  =======  =====  ===========  ===== 
 
British Airways 
January 1, 2019                         46      767      -            -    813 
Exchange movements                       3       49      -            -     52 
================================  ========  =======  =====  ===========  ===== 
December 31, 2019                       49      816      -            -    865 
================================  ========  =======  =====  ===========  ===== 
 
Vueling 
January 1, 2019                         28       89     35            -    152 
Additions                                -        5      -            -      5 
================================  ========  =======  =====  ===========  ===== 
December 31, 2019                       28       94     35            -    157 
================================  ========  =======  =====  ===========  ===== 
 
Aer Lingus 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2019        272       62    110            -    444 
================================  ========  =======  =====  ===========  ===== 
 
IAG Loyalty 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2019          -        -      -          253    253 
================================  ========  =======  =====  ===========  ===== 
 
Other CGUs 
================================  ========  =======  =====  ===========  ===== 
January 1 and December 31, 2019          -       12      -            -     12 
================================  ========  =======  =====  ===========  ===== 
 
December 31, 2019                      349    1,407    451          253  2,460 
================================  ========  =======  =====  ===========  ===== 
 

Basis for calculating recoverable amount

The recoverable amounts of Group's CGUs have been measured based on their value-in-use, which utilises a weighted average multi-scenario discounted cash flow model. The details of these scenarios are given in the going concern section of note 2, with a weighting of 70 per cent to the base case and 30 per cent to the downside case. Cash flow projections are based on the business plans approved by the relevant operating companies covering a three-year period. Cash flows extrapolated beyond the three-year period are projected to increase based on long-term growth rates. Cash flow projections are discounted using each CGU's pre-tax discount rate.

Annually the relevant operating companies prepare and approve three-year business plans, and the Board approved the Group three-year business plan in the fourth quarter of the year. The business plan cash flows used in the value-in-use calculations reflect the Group's estimated climate related impacts that are foreseeable and reflect all restructuring of the business where relevant that has been approved by the Board and which can be executed by Management under existing agreements.

Key assumptions

The value-in-use calculations for each CGU reflected the increased risks arising from COVID-19, including updated projected cash flows for the decreased activity from 2021 through to the end of 2023 and an increase in the pre-tax discount rates to incorporate increased equity market volatility. For each of the Group's CGUs the key assumptions used in the value-in-use calculations are as follows:

 
                                                        2020 
                                 =================================================== 
                                  British 
Per cent                          Airways   Iberia  Vueling  Aer Lingus  IAG Loyalty 
===============================  ========  =======  =======  ==========  =========== 
Operating margin                  (20)-16  (12)-11  (22)-12     (14)-13        25-27 
ASK as a proportion of 2019(1)      45-95    49-98   46-107      40-100          n/a 
Long-term growth rate                 2.1      2.0      1.8         1.9          2.0 
Pre-tax discount rate                11.2     11.6     11.5        10.4         10.3 
===============================  ========  =======  =======  ==========  =========== 
 

1 In prior periods the Group applied the average ASK growth per annum as a key assumption. Given the impact of COVID-19, the Group has presented ASKs as a proportion of the level of ASKs achieved in 2019, prior to the application of the terminal value calculation.

 
                                                      2019 
                               ================================================== 
                                British 
Per cent                        Airways  Iberia  Vueling  Aer Lingus  IAG Loyalty 
=============================  ========  ======  =======  ==========  =========== 
Operating margin                     15   10-15    10-14       13-15        20-23 
Average ASK growth per annum        2-4       3      1-5        2-11          n/a 
Long-term growth rate               2.2     1.8      1.5         1.8          1.8 
Pre-tax discount rate               8.0     9.1      9.4         8.0          8.5 
=============================  ========  ======  =======  ==========  =========== 
 
 
                                Within                                3 years 
Jet fuel price ($ per MT)    12 months  1-2 years  2-3 years   and thereafter 
==========================  ==========  =========  =========  =============== 
2020                               373        420        449              449 
2019                               639        612        598              598 
==========================  ==========  =========  =========  =============== 
 

Forecast ASKs reflect the range of ASKs as a percentage of the 2019 actual ASKs over the forecast period, based on planned network growth and taking into account Management's expectation of the market.

The long-term growth rate is calculated for each CGU based on the forecast weighted average exposure in each primary market using gross domestic product (GDP) (source: Oxford Economics). The airlines' network plans are reviewed annually as part of the Business plan and reflect Management's plans in response to specific market risk or opportunity.

Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by airline investors and the cost of debt is derived from both market data and the Group's existing debt structure. CGU specific risk is incorporated by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows.

Jet fuel price assumptions are derived from forward price curves in the fourth quarter of each year and sourced externally. The cash flow forecasts reflect these price increases after taking into consideration of level of fuel derivatives and their associated prices that the Group has in place.

Summary of results

At December 31, 2020 Management reviewed the recoverable amount of each of the CGUs and concluded the recoverable amounts exceeded the carrying values.

Reasonable possible changes in key assumptions, both individually and in combination, have been considered for each CGU, where applicable, which include reducing the operating margin by 2 per cent in each year, ASKs by 5 per cent in each year, long-term growth rates in the terminal value calculation to zero, increasing pre-tax discount rates by 2.5 percentage points, changing the weighting of the base case and the downside case to be 100 per cent weighted towards the downside case, and increasing the fuel price by 40 per cent. These sensitivities, in part, incorporate the potential impact that climate related risks would have on the Group.

For the British Airways, Iberia and Aer Lingus CGUs, while the recoverable amounts are estimated to exceed the carrying amounts by EUR8,702 million, EUR1,701 million and EUR1,348 million, respectively, the recoverable amounts would be below the carrying amounts when applying reasonable possible changes in assumptions in each of the following scenarios:

-- British Airways : (i) if ASKs had been five per cent lower combined with a fuel price increase of 19 per cent; and (ii) if the fuel price had been 36 per cent higher;

-- Iberia : (i) if ASKs had been five per cent lower combined with a reduction of the long-term growth rate to 0.2 per cent; and (ii) if operating margin had been two per cent lower combined with a reduction of the long-term growth rate to 1.7 per cent; (iii) if ASKs had been five per cent lower combined with a fuel price increase of 8 per cent; and (iv) if the fuel price had been 20 per cent higher; and

-- Aer Lingus : (i) if ASKs had been five per cent lower combined with a fuel price increase of 26 per cent.

For the remainder of the reasonable possible changes in key assumptions applied to the British Airways, Iberia and Aer Lingus CGUs and for all the reasonable possible changes in key assumptions applied to the remaining CGUs, no impairment arises.

For impairment charges recognised in relation to landing rights and fleet assets stood down permanently at December 31, 2020, refer to note 3 and the Alternative performance measures section.

16 Investments

a Investments in subsidiaries

The Group's subsidiaries at December 31, 2020 are listed in the Group investments section.

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary undertakings held directly do not differ from the proportion of ordinary shares held. There have been no significant changes in ownership interests of subsidiaries during the year.

The total non-controlling interest at December 31, 2020 is EUR6 million (2019: EUR6 million).

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.

b Investments in associates and joint ventures

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:

 
EUR million           2020  2019 
====================  ====  ==== 
Total assets            73   122 
Total liabilities     (50)  (92) 
Revenue                 22   112 
Profit for the year      1     6 
====================  ====  ==== 
 

The detail of the movement in Investment in associates and joint ventures is shown as follows:

 
EUR million                 2020  2019 
==========================  ====  ==== 
At beginning of year          31    31 
Share of retained profits      1     6 
Dividends received           (3)   (5) 
Exchange movements             -   (1) 
==========================  ====  ==== 
                              29    31 
==========================  ====  ==== 
 

At December 31, 2020 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 both December 31, 2020 and December 31, 2019 the investment in Sociedad Conjunta para la Emisión y Gestión 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 Other equity investments

Other equity investments include the following:

 
EUR million           2020  2019 
====================  ====  ==== 
Listed securities 
Comair Limited           -    10 
Unlisted securities     29    72 
====================  ====  ==== 
                        29    82 
====================  ====  ==== 
 

The credit relating to other equity investments was EUR1 million (2019: EUR3 million).

18 Trade and other receivables

 
EUR million                            2020   2019 
====================================  =====  ===== 
Amounts falling due within one year 
Trade receivables                       682  2,368 
Provision for expected credit loss    (125)  (113) 
====================================  =====  ===== 
Net trade receivables                   557  2,255 
Prepayments and accrued income          596  1,040 
Other non-trade receivables             196    274 
====================================  =====  ===== 
                                      1,349  3,569 
====================================  =====  ===== 
Amounts falling due after one year 
Prepayments and accrued income          226    258 
Other non-trade receivables               2     15 
====================================  =====  ===== 
                                        228    273 
====================================  =====  ===== 
 

Movements in the provision for expected credit loss were as follows:

 
EUR million                               2020  2019 
========================================  ====  ==== 
At beginning of year                       113    98 
Provided during the year                    18    22 
Released during the year                   (2)   (1) 
Receivables written off during the year    (1)   (8) 
Exchange movements                         (3)     2 
========================================  ====  ==== 
                                           125   113 
========================================  ====  ==== 
 

Trade receivables are generally non-interest-bearing and on 30 days terms (2019: 30 days).

The credit risk exposure on the Group's trade receivables is set out below:

December 31, 2020

 
                                                        30-180  180-365  > 365 
EUR million                          Current  <30 days    days     days   days 
===================================  =======  ========  ======  =======  ===== 
Trade receivables                        345       114      88       11    124 
Expected credit loss rate               0.9%      0.2%    1.1%    72.7%  91.1% 
===================================  =======  ========  ======  =======  ===== 
Provision for expected credit loss         3         -       1        8    113 
===================================  =======  ========  ======  =======  ===== 
 

December 31, 2019

 
                                                        30-180  180-365  > 365 
EUR million                          Current  <30 days    days     days   days 
===================================  =======  ========  ======  =======  ===== 
Trade receivables                      1,411       198     338       78    343 
Expected credit loss rate              0.03%      0.2%    0.9%     9.0%  29.7% 
===================================  =======  ========  ======  =======  ===== 
Provision for expected credit loss         1         -       3        7    102 
===================================  =======  ========  ======  =======  ===== 
 

19 Cash, cash equivalents and other current interest-bearing deposits

 
EUR million                                                   2020   2019 
===========================================================  =====  ===== 
Cash at bank and in hand                                     1,882  2,320 
Short-term deposits maturing within three months             3,892  1,742 
===========================================================  =====  ===== 
Cash and cash equivalents                                    5,774  4,062 
Current interest-bearing deposits maturing after three 
 months                                                        143  2,621 
===========================================================  =====  ===== 
Cash, cash equivalents and other interest-bearing deposits   5,917  6,683 
===========================================================  =====  ===== 
 

Cash at bank is primarily held in AAA money market funds and bank deposits. Short-term deposits are for periods up to three months and earn interest based on the floating deposit rates.

At December 31, 2020 the Group had no outstanding bank overdrafts (2019: nil).

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, 2020 Aer Lingus held EUR38 million of restricted cash (2019: EUR41 million) within interest-bearing deposits maturing after more than three months to be used for employee-related obligations.

a Net debt

Movements in net debt were as follows:

 
                                           Balance                                                             Balance 
                                        at January                Exchange          New leases             at December 
EUR million                                1, 2020  Cash flows   movements   and modifications  Non-cash      31, 2020 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Bank, other loans, asset financed 
 liabilities and other financing 
 liabilities                                 3,208       2,589       (227)                   -        85         5,655 
Lease liabilities                           11,046     (1,536)       (726)               1,179        61        10,024 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Liabilities from financing activities       14,254       1,053       (953)               1,179       146        15,679 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Cash and cash equivalents                  (4,062)     (1,940)         228                   -         -       (5,774) 
Current interest-bearing deposits          (2,621)       2,366         112                   -         -         (143) 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
                                             7,571       1,479       (613)               1,179       146         9,762 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
 
 
                                           Balance                                                             Balance 
                                        at January                Exchange          New leases             at December 
EUR million                                1, 2019  Cash flows   movements   and modifications  Non-cash      31, 2019 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Bank, other loans and asset 
 financed liabilities                        1,581       1,556        (12)                   -        83         3,208 
Lease liabilities                           11,123     (1,507)         176               1,199        55        11,046 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Liabilities from financing activities       12,704          49         164               1,199       138        14,254 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
Cash and cash equivalents                  (3,837)        (85)       (140)                   -         -       (4,062) 
Current interest-bearing deposits          (2,437)       (103)        (81)                   -         -       (2,621) 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
                                             6,430       (139)        (57)               1,199       138         7,571 
=====================================  ===========  ==========  ==========  ==================  ========  ============ 
 

20 Trade and other payables

 
EUR million                           2020   2019 
===================================  =====  ===== 
Trade creditors(1)                   1,609  2,311 
Other creditors                        679  1,099 
Other taxation and social security     149    271 
Accruals and deferred income           373    663 
===================================  =====  ===== 
                                     2,810  4,344 
===================================  =====  ===== 
 

1 Trade creditors includes EUR55 million (2019: EURnil) due to suppliers that have signed up to supply chain financing programmes offered by a number of partner financial institutions. Under these programmes either or both: (i) the suppliers can elect on an invoice-by-invoice basis to receive a discounted early payment from the partner financial institutions rather than being paid in line with the agreed payment terms; and/or (ii) the Group elects on an invoice-by-invoice basis for the partner financial institution to pay the supplier in line with the agreed payment terms and the Group enters into payment terms with the partner financial institution of up to 120 days with interest incurred at rates between 2.5 per cent and 3.5 per cent.

The Group assesses the arrangement against indicators to assess if liabilities which suppliers have transferred to the partner financial institutions under the supplier financing programmes continue to meet the definition of trade creditors or should be classified as borrowings. The cash flows arising from such arrangements are reported within cash flows from operating activities or within cash flows from financing activities, in the Consolidated cash flow statement, depending on whether the associated liabilities meet the definition of trade creditors or as borrowings.

At December 31, 2020 the liabilities met the criteria of Trade creditors and are excluded from the Net debt table in note 19a.

Average payment days to suppliers - Spanish Group companies

 
Days                                            2020  2019 
==============================================  ====  ==== 
Average payment days for payment to suppliers     43    33 
Ratio of transactions paid                        36    32 
Ratio of transactions outstanding for payment    135    43 
==============================================  ====  ==== 
 
 
EUR million                   2020   2019 
===========================  =====  ===== 
Total payments made          3,694  7,165 
Total payments outstanding     293    114 
===========================  =====  ===== 
 

21 Deferred revenue on ticket sales

 
                                                      Customer         Sales 
                                                       loyalty    in advance 
EUR million                                         programmes   of carriage    Total 
=================================================  ===========  ============  ======= 
Balance at January 1, 2020                               1,917         3,569    5,486 
Changes in estimates                                         -           291      291 
Revenue recognised in the income statement(1, 2)         (260)       (6,032)  (6,292) 
Loyalty points issued to customers                         361             8      369 
Cash received from customers(3, 4)                         850         4,714    5,564 
Exchange movements                                       (143)         (145)    (288) 
=================================================  ===========  ============  ======= 
Balance at December 31, 2020                             2,725         2,405    5,130 
=================================================  ===========  ============  ======= 
Analysis: 
Current                                                  2,252         2,405    4,657 
Non-current                                                473             -      473 
=================================================  ===========  ============  ======= 
                                                         2,725         2,405    5,130 
=================================================  ===========  ============  ======= 
 
 
                                                      Customer         Sales 
                                                       loyalty    in advance 
EUR million                                         programmes   of carriage     Total 
=================================================  ===========  ============  ======== 
Balance at January 1, 2019                               1,769         3,066     4,835 
Changes in estimates                                         6          (20)      (14) 
Revenue recognised in the income statement(1, 2)         (805)      (22,691)  (23,496) 
Loyalty points issued to customers                         844            47       891 
Cash received from customers(4)                              -        23,029    23,029 
Exchange movements                                         103           138       241 
=================================================  ===========  ============  ======== 
Balance at December 31, 2019                             1,917         3,569     5,486 
=================================================  ===========  ============  ======== 
 

1 Where the Group acts as an agent in the provision of redemption products and services to customers through loyalty programmes, or in the provision of interline flights to passengers, revenue is recognised in the Income statement net of the related costs.

2 Included within revenue recognised in the Income statement is an amount of EUR2,006 million previously held as deferred revenue at January 1, 2020 (at January 1, 2019: EUR3,361 million).

3 Included within cash received from customers is an amount of EUR830 million received from American Express upon signing of the multi-year commercial partnership renewal with IAG Loyalty and unwinds over the duration of the contract term as the associated performance obligations are fulfilled.

   4   Cash received from customers is net of refunds. 

Deferred revenue relating to customer loyalty programmes consists primarily of revenue allocated to performance obligations associated with Avios. Avios are issued by the Group's airlines through their loyalty programmes, or are sold to third parties such as credit card providers, who issue them as part of their loyalty programme. Avios do not have an expiry date and can be redeemed at any time in the future. Revenue may therefore be recognised at any time in the future.

Deferred revenue in respect of sales in advance of carriage consists of revenue allocated to airline tickets to be used for future travel. Typically these tickets expire within 12 months after the planned travel date, if they are not used within that time period, however, with the significant disruption caused by the COVID-19 pandemic, the Group has extended the expiry period up to 24 months after the planned travel date, depending on the operating company.

22 Other long-term liabilities

 
EUR million                    2020  2019 
=============================  ====  ==== 
Non-current trade creditors      49     6 
Accruals and deferred income     91    65 
=============================  ====  ==== 
                                140    71 
=============================  ====  ==== 
 

23 Long-term borrowings

a Current

 
EUR million                                    2020   2019 
============================================  =====  ===== 
Bank and other loans                             90     75 
Bank and other loans less than 12 months(1)     329      - 
Asset financed liabilities                      139     74 
Other financing liabilities(2)                   97      - 
Lease liabilities                             1,560  1,694 
============================================  =====  ===== 
Interest-bearing borrowings                   2,215  1,843 
============================================  =====  ===== 
 

1 Bank and other loans less than 12 months represents borrowings with a term on inception of less than 12 months in duration.

2 Other financing liabilities include sale and repurchase agreements entered into during the course of 2020 with regard to emission allowances and represents the amount the Group is expected to repurchase during the course of 2021.

b Non-current

 
EUR million                     2020    2019 
============================  ======  ====== 
Bank and other loans           2,950   1,879 
Asset financed liabilities     2,050   1,180 
Lease liabilities              8,464   9,352 
============================  ======  ====== 
Interest-bearing borrowings   13,464  12,411 
============================  ======  ====== 
 

Banks and other loans are repayable up to the year 2027. Long-term borrowings of the Group amounting to EUR2,412 million (2019: EUR1,520 million) are secured on owned fleet assets with a net book value of EUR2,794 million (2019: EUR1,576 million) (note 12). Asset financing liabilities are all secured on the associated aircraft or property, plant and equipment.

On April 12, 2020, British Airways availed itself of the Coronavirus Corporate Finance Facility, issuing commercial paper to the Government of the United Kingdom of EUR328 million (GBP298 million) and repayable in April 2021 for a principal value of GBP300 million.

On May 1, 2020, Iberia and Vueling entered into floating rate syndicated financing agreements backed by Spain's ICO for EUR750 million and EUR260 million, respectively. The facilities are amortising from April 30, 2023 with maturity in 2025.

On May 19, 2020, British Airways entered into a syndicated mortgage loan of EUR639 million ($750 million) secured on specific aircraft. The loan was repaid in full on December 17, 2020.

On June 10, 2020, Iberia entered into a mortgage loan of EUR194 million ($228 million) secured on specific aircraft. The loan was repaid in full on December 22, 2020.

On December 23, 2020, Aer Lingus entered into a floating rate financing agreement with the Ireland Strategic Investment Fund (ISIF) for EUR75 million. The facility is repayable in 2023.

In July 2019, two senior unsecured bonds were issued by the Group for an aggregate principal amount of EUR1 billion; EUR500 million fixed rate 0.50 per cent due in 2023, and EUR500 million fixed rate 1.50 per cent due in 2027.

During 2019 the Group early redeemed all of the EUR500 million 0.25 per cent convertible bonds due in 2020.

In November 2020, the Group entered into an asset-financing structure, under which nine aircraft were sold and leased back by December 31, 2020, with a further five aircraft expected to be sold and leased back during 2021. These transactions mature between 2028 and 2032. This arrangement was transacted through an unconsolidated structured entity, which in turn issued the British Airways Pass Through Certificates, Series 2020-1, commonly referred to as Enhanced Equipment Trust Certificates (EETCs). Accordingly as at December 31, 2020, the Group recognised EUR472 million of Asset financed liabilities with a further EUR351 million expected to arise during the aforementioned sale and lease backs during 2021.

In the third quarter of 2019, the Group entered into an asset-financing structure, under which eight aircraft were sold and leased back, during the course of 2019 and 2020, with the transactions maturing between 2029 and 2034. This arrangement was transacted through an unconsolidated structured entity, which in turn issued the British Airways Pass Through Certificates, Series 2019-1. In doing so the Group recognised EUR725 million of Asset financed liabilities.

As at December 31, 2020, Asset financed liabilities include cumulative amounts of EUR1,312 million (2019: EUR416 million) associated with transactions with unconsolidated structured entities having issued EETCs.

c Total borrowings

 
EUR million                                  2020    2019 
=========================================  ======  ====== 
Interest-bearing long-term borrowings      13,464  12,411 
Bank and other loans less than 12 months      329       - 
Current portion of long-term borrowings     1,886   1,843 
=========================================  ======  ====== 
Interest-bearing long-term borrowings      15,679  14,254 
=========================================  ======  ====== 
 

d Bank and other loans

 
EUR million                                                      2020   2019 
==============================================================  =====  ===== 
Floating rate ICO guaranteed loans(1)                           1,009      - 
EUR500 million fixed rate 0.50 per cent bond 2023(2)              498    497 
EUR500 million fixed rate 1.50 per cent bond 2027(2)              497    496 
EUR500 million fixed rate 0.625 per cent convertible bond 
 2022(3)                                                          480    470 
CCFF pound sterling commercial paper(4)                           329      - 
Floating rate euro mortgage loans secured on aircraft(5)          198    226 
Fixed rate unsecured bonds(6)                                     137    136 
Fixed rate unsecured US dollar mortgage loan(7)                    97     71 
ISIF facility(8)                                                   75      - 
Fixed rate Chinese yuan mortgage loans secured on aircraft(9)      25     40 
Fixed rate unsecured euro loans with the Spanish State 
 (Department of Industry)(10)                                      24     18 
==============================================================  =====  ===== 
                                                                3,369  1,954 
Less current instalments due on bank and other loans            (419)   (75) 
==============================================================  =====  ===== 
                                                                2,950  1,879 
==============================================================  =====  ===== 
 

1 On April 30, 2020, Iberia and Vueling entered into floating rate syndicated financing agreements of EUR750 million and EUR260 million respectively. The loans are repayable between 2023 and 2025. The ICO in Spain guarantees 70 per cent of the value of loans. The loans contain a number of non-financial covenants to protect the position of the banks involved, including restrictions on the upstreaming of cash to the rest of the IAG companies.

2 In July 2019, the Group issued two tranches of senior unsecured bonds for an aggregate principal amount of EUR1 billion, EUR500 million due July 4, 2023 and EUR500 million due July 4, 2027. The bonds bear a fixed rate of interest of 0.5 per cent and 1.5 per cent per annum annually payable in arrears, respectively. The bonds were issued at 99.417 per cent and 98.803 per cent of their principal amount, respectively, and, unless previously redeemed or purchased and cancelled, will be redeemed at 100 per cent of their principal amount on their respective maturity dates.

3 Senior unsecured bond convertible into ordinary shares of IAG was issued by the Group in November 2015; EUR500 million fixed rate 0.625 per cent raising net proceeds of EUR494 million and due in 2022. The Group holds an option to redeem the convertible bond at its principal amount, together with accrued interest, no earlier than two years prior to the final maturity date. The bond contains dividend protection and a total of 40,306,653 options related to the bond were outstanding at December 31, 2020.

4 On April 12, 2020, British Airways availed itself of the Coronavirus Corporate Finance Facility (CCFF) implemented by the Government of the United Kingdom. Under the CCFF, British Airways issued commercial paper to the government of the United Kingdom of EUR328 million (GBP298 million). This loan is repayable in April 2021.

5 Floating rate euro mortgage loans are secured on specific aircraft assets of the Group and bear interest of between 0.04 and 1.01 per cent. The loans are repayable between 2024 and 2027.

6 Total of EUR200 million fixed rate unsecured bonds between 3.5 to 3.75 per cent coupon repayable between 2022 and 2027.

7 Fixed rate unsecured US dollar mortgage loan bearing interest between 1.38 to 2.86 per cent. The loan is repayable between 2023 and 2026.

8 On December 23, 2020, Aer Lingus entered into a floating rate financing agreement with the Ireland Strategic Investment Fund (ISIF) for EUR75 million. The facility is repayable in 2023.

9 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.

10 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 2021 and 2028.

e Total loans, lease liabilities, other financing liabilities and asset financed liabilities

 
Million                                  2020       2019 
==================================  =========  ========= 
Loans 
Bank: 
  US dollar                              $121        $79 
  Pound sterling                       GBP299       GBP- 
  Euro                               EUR1,303     EUR380 
  Chinese yuan                        CNY 201    CNY 314 
==================================  =========  ========= 
                                     EUR1,756     EUR491 
==================================  =========  ========= 
 
Fixed rate bonds: 
  Euro                               EUR1,613   EUR1,463 
==================================  =========  ========= 
                                     EUR1,613   EUR1,463 
==================================  =========  ========= 
 
Asset financed liabilities 
  US dollar                            $2,080       $996 
  Euro                                 EUR448     EUR319 
  Japanese yen                       Yen4,883   Yen4,867 
==================================  =========  ========= 
                                     EUR2,189   EUR1,254 
==================================  =========  ========= 
 
Other financing liabilities 
  Euro                                  EUR97       EUR- 
==================================  =========  ========= 
                                        EUR97       EUR- 
==================================  =========  ========= 
 
Lease liabilities 
  US dollar                            $8,436     $8,408 
  Euro                               EUR1,858   EUR2,142 
  Japanese yen                      Yen74,734  Yen77,984 
  Pound sterling                       GBP608     GBP597 
==================================  =========  ========= 
                                    EUR10,024  EUR11,046 
==================================  =========  ========= 
 
Total interest-bearing borrowings   EUR15,679  EUR14,254 
==================================  =========  ========= 
 

24 Provisions

 
                                                                   Employee 
                                                                    leaving 
                                                                indemnities 
                                                                  and other 
                                   Restoration                     employee        Legal 
                                  and handback  Restructuring       related       claims        Other 
EUR million                         provisions     provisions    provisions   provisions   provisions  Total 
===============================  =============  =============  ============  ===========  ===========  ===== 
Net book value January 1, 2020           1,675            528           664           82           98  3,047 
 
Reclassifications                            -              -             -         (22)            -   (22) 
Provisions recorded during the 
 year                                      377            320            76           42           31    846 
Utilised during the year                 (213)          (383)          (27)          (9)         (29)  (661) 
Release of unused amounts                (136)           (27)             -          (7)          (4)  (174) 
Unwinding of discount                       10              -             3            1            -     14 
Exchange differences                     (125)            (6)           (2)          (3)          (2)  (138) 
===============================  =============  =============  ============  ===========  ===========  ===== 
Net book value December 31, 
 2020                                    1,588            432           714           84           94  2,912 
===============================  =============  =============  ============  ===========  ===========  ===== 
Analysis: 
Current                                    270            200            62           47           47    626 
Non-current                              1,318            232           652           37           47  2,286 
===============================  =============  =============  ============  ===========  ===========  ===== 
                                         1,588            432           714           84           94  2,912 
===============================  =============  =============  ============  ===========  ===========  ===== 
 

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 lease. The provision also includes an amount relating to leased land and buildings where restoration costs are contractually required at the end of the lease. Such costs are capitalised within ROU assets. The provision is long-term in nature, typically covering the leased asset term, which for aircraft is up to 12 years.

During 2020, as part of certain lease modifications, these pre-existing restoration and handback conditions have been removed and the associated provision released to the Income statement.

Within the amounts included in the additions to this provision is EUR37 million relating to the recognition of contractual lease provisions, representing the estimation of the additional cost to fulfil the handback conditions associated with the aforementioned leased aircraft that have been permanently stood down and impaired.

Restructuring provisions

Included within the restructuring provision is an amount of EUR72 million that relates to the voluntary and compulsory redundancies arising in British Airways, Aer Lingus and LEVEL from the restructuring plans related to COVID-19. While the majority of employees affected by these restructuring plans had left the Group as at December 31, 2020, there remains a small portion of employees expected to leave the Group over 2021. Refer to note 3 and the Alternative performance measures section for further information.

In addition, the restructuring provision includes provisions for voluntary redundancies including the collective redundancy programme for Iberia's Transformation Plan implemented prior to 2020, 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 0.00 per cent. The payments related to this provision will continue over the next eight years.

At December 31, 2020, EUR428 million of this provision related to collective redundancy programmes (2019: EUR513 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, 2020 with the use of independent actuaries using the projected unit credit method, based on a discount rate consistent with the iBoxx index of 0.37 per cent and 0.00 per cent (2019: iBoxx index of 0.59 per cent and 0.00 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 (2019: 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 EUR654 million at December 31, 2020 (2019: EUR600 million).

Legal claims provisions

Legal claims provisions include:

-- Amounts for multi-party claims from groups of employees on a number of matters related to its operations, including claims for additional holiday pay and for age discrimination; 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 final amount required to pay the remaining claims and fines is subject to uncertainty (note 31).

Reclassifications from legal claims provisions include an amount of EUR22 million relating to the theft of customer data at British Airways in 2018, which following the issue of the penalty notice by the UK Information Commissioner's Office on October 16, 2020 has been reclassified to Other creditors.

Other provisions

Other provisions include a provision for the Emissions Trading Scheme for CO(2) emitted on flights within the EU in excess of the EU Emission Allowances granted.

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 and liquidity risk. Further information on the Group's financial exposure to these risks is disclosed on 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 focuses on the unpredictability of financial markets and seeks to minimise the risk of incremental costs arising from adverse financial markets movements.

The Group Treasury department is responsible for the oversight of the financial risk management. Fuel price fluctuations, euro-US dollar and sterling-US dollar exchange rate volatility represents the largest financial risks facing the Group. Other foreign exchange currencies and interest rate risks are also the subject of the Financial Risk Management. The IAG Audit and Compliance Committee approves the Group hedging profile and delegates to the operating company Risk Committee to agree on the degree of flexibility in applying the approved hedging levels. 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 bi-annual 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 aiming that the Group is not competitively disadvantaged in the event of a substantial fall in the price. The Group Treasury Policies determine the list of approved over the counter (OTC) derivative instruments that can be contracted with approved counterparties.

The Group strategy is to hedge a proportion of fuel consumption up to three years within the approved hedging profile.

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:

 
                       2020                                                 2019 
===================================================    =============================================== 
                                                                               Effect on 
Increase/(decrease)  Effect on result     Effect on    Increase/(decrease)        result     Effect on 
      in fuel price        before tax        equity          in fuel price    before tax        equity 
           per cent       EUR million   EUR million               per cent   EUR million   EUR million 
===================  ================  ============    ===================  ============  ============ 
                 30               189           525                     30             -         1,774 
               (30)             (219)         (664)                   (30)             -       (1,824) 
===================  ================  ============    ===================  ============  ============ 
 

During the year to December 31, 2020, following a substantial fall in the global price of crude oil and associated products, the fair value of such net liability derivative instruments was EUR778 million at December 31, 2020, representing a loss of EUR650 million since January 1, 2020, which was recognised in Other comprehensive income. In addition, with the substantial decline in demand for air travel and the grounding of the majority of the fleet during the second quarter of 2020, a significant proportion of the associated hedge relationships were no longer expected to occur and subsequently fuel hedge accounting was discontinued. As a result of this discontinuance, EUR1,781 million of the losses were reclassified to the Income statement and recognised within Fuel, oil costs and emission costs.

The loss arising from the discontinuance of fuel hedge accounting has been recorded as an exceptional item. Refer to note 3 and the Alternative performance measures section for further details.

b Foreign currency risk

The Group presents its consolidated financial statements in euros, has subsidiaries with functional currencies 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 Group strategy is to hedge a proportion of up to three years within the approved hedging profile.

Each operating company hedges its net balance sheet assets and liabilities in US dollars through a rolling hedging programme using a number of derivative instruments to minimise the profit and loss volatility arising from revaluation of these items into its functional currency. British Airways utilises its euro, Japanese yen and Chinese yuan debt repayments as a hedge of future euro, Japanese yen and Chinese yuan revenues.

The following table demonstrates the sensitivity of the Group's principal foreign exchange exposure to a reasonable possible change in the US dollar, pound sterling and Japanese yen exchange rates, with all other variables held constant, on result before tax and equity:

 
                         Effect                              Effect                              Effect 
                             on            Strengthening/        on                                  on 
       Strengthening/    result    Effect     (weakening)    result    Effect  Strengthening/    result 
          (weakening)    before        on        in pound    before        on     (weakening)    before     Effect 
         in US dollar       tax    equity        sterling       tax    equity     in Japanese       tax  on equity 
                 rate       EUR       EUR            rate       EUR       EUR        yen rate       EUR        EUR 
             per cent   million   million        per cent   million   million        per cent   million    million 
=====  ==============  ========  ========  ==============  ========  ========  ==============  ========  ========= 
2020               10       885       297              10       162     (167)              10      (10)       (42) 
                 (10)     (931)     (359)            (10)     (161)       157            (10)        10         42 
 
2019               10        22       388              10      (23)     (178)              10       (1)       (58) 
                 (10)         -     (365)            (10)        20       171            (10)         2         58 
=====  ==============  ========  ========  ==============  ========  ========  ==============  ========  ========= 
 

At December 31, 2020, the fair value of foreign currency net liability derivatives instruments was EUR321 million, representing a loss of EUR430 million, since January 1, 2020, which was recognised in Other comprehensive income. Similar to the fuel price risk above, a significant proportion of the hedge relationships associated with fuel foreign currency derivatives and revenue foreign currency derivatives were no longer expected to occur and subsequently were discontinued. As a result of this discontinuance, EUR116 million of the gains associated with the fuel foreign currency derivatives and EUR56 million of the losses associated with the revenue foreign currency derivatives were reclassified to the Income statement and recognised within Fuel, oil costs and emission costs and within Passenger revenue, respectively.

The gain arising from the discontinuance of foreign currency hedge accounting has been recorded as an exceptional item. Refer to note 3 and the Alternative performance measures section for further details.

c Interest rate risk

The Group is exposed to changes in interest rates on financial debt, leases, sale and lease backs and on cash deposits.

Interest rate risk on floating rate debt is managed through a list of approved OTC derivative instruments that can be contracted with approved counterparties. After taking into account the impact of these derivatives, 64 per cent of the Group's borrowings were at fixed rates and 36 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 the Group's interest rate exposure to a reasonable possible change in the US dollar, euro and sterling interest rates, on result before tax and equity:

 
                         Effect                              Effect                              Effect 
       Strengthening/        on            Strengthening/        on            Strengthening/        on 
          (weakening)    result    Effect     (weakening)    result    Effect     (weakening)    result 
                   in    before        on              in    before        on     in sterling    before     Effect 
          US interest       tax    equity   euro interest       tax    equity        interest       tax  on equity 
                 rate       EUR       EUR            rate       EUR       EUR            rate       EUR        EUR 
         Basis points   million   million    Basis points   million   million    Basis points   million    million 
=====  ==============  ========  ========  ==============  ========  ========  ==============  ========  ========= 
2020               50         -         -              50         9       (8)              50         -          - 
                 (50)         -         -            (50)       (9)         7            (50)         -          - 
 
2019               50         -        19              50       (2)        16              50         2          - 
                 (50)         -      (19)            (50)         2      (13)            (50)       (2)          - 
=====  ==============  ========  ========  ==============  ========  ========  ==============  ========  ========= 
 

For details regarding the Group's management of interest rate benchmark reform, refer to note 25h.

d Counterparty risk

The Group is exposed to the non-performance by its counterparties in respect of financial assets receivable. The Group has policies and procedures to monitor the risk by assigning limits to each counterparty by underlying exposure and by operating company. The underlying exposures are monitored on a daily basis and the overall exposure limit by counterparty is periodically reviewed by using available market information.

The financial assets recognised in the financial statements, net of impairment losses (if any), represent the Group's maximum exposure to credit risk, without taking account any guarantees in place or other credit enhancements.

At December 31, 2020 the Group's credit risk position, allocated by region, in respect of treasury managed cash and derivatives was as follows:

 
                        Mark-to-market 
                     of treasury controlled 
                           financial 
                     instruments allocated 
                          by geography 
                   ========================= 
Region                     2020         2019 
=================  ============  =========== 
United Kingdom              53%          41% 
Spain                        3%           3% 
Ireland                      7%           3% 
Rest of Eurozone            16%          30% 
Rest of world               21%          23% 
=================  ============  =========== 
 

e Liquidity risk

The Group invests cash in interest-bearing accounts, time deposits and money market funds, choosing instruments with appropriate maturities or liquidity to retain sufficient headroom to readily generate cash inflows required to manage liquidity risk. The Group has also committed revolving credit facilities.

At December 31, 2020 the Group had undrawn overdraft facilities of EUR52 million (2019: EUR13 million). The Group held undrawn uncommitted money market lines of EURnil (2019: EURnil).

The Group held undrawn general and committed aircraft financing facilities:

 
                                                                   2020 
                                                         ======================== 
Million                                                  Currency  EUR equivalent 
=======================================================  ========  ============== 
General facilities(1) 
Euro facilities expiring between January and June 2021     EUR126             126 
Euro facilities expiring between January and July 2022      EUR95              95 
US dollar facility expiring June 2021                        $786             643 
US dollar facility expiring May 2022                          $50              41 
=======================================================  ========  ============== 
                                                                              905 
Committed aircraft facilities 
US dollar facility expiring March 2021(2)                    $428             351 
US dollar facilities expiring July 2023(3)                 $1,013             829 
=======================================================  ========  ============== 
                                                                            1,180 
=======================================================  ========  ============== 
 
 
                                                                   2019 
                                                         ======================== 
Million                                                  Currency  EUR equivalent 
=======================================================  ========  ============== 
General facilities(1) 
Euro facilities expiring between January and June 2020     EUR129             129 
US dollar facility expiring June 2020                      $1,330           1,196 
=======================================================  ========  ============== 
                                                                            1,325 
Committed aircraft facilities 
US dollar facilities expiring December 2021(3, 4)          $1,217           1,096 
=======================================================  ========  ============== 
 

1 The general facilities can be drawn at any time at the discretion of the Group subject to the provision of up to three days' notice of the intended utilisation, depending on the facility.

2 The aircraft facility maturing in 2021 is available for specific committed aircraft deliveries and further information is given in note 23b.

3 The aircraft facilities maturing in 2023 (2019: maturing in 2021) are available for specific committed aircraft deliveries and requires the Group to give three months' notice to the counterparty of its intention to utilise the facilities.

4 The figures relating to the US dollar facilities expiring in December 2021 have been updated to better reflect the amounts available to the Group at December 31, 2019.

The following table analyses 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     6-12      1-2      2-5  More than     Total 
EUR million                               6 months   months    years    years    5 years      2020 
=======================================  =========  =======  =======  =======  =========  ======== 
Interest-bearing loans and borrowings: 
  Asset financing liabilities                (101)     (97)    (193)    (571)    (1,673)   (2,635) 
  Lease liabilities                          (901)    (919)  (1,500)  (4,122)    (5,962)  (13,404) 
  Fixed rate borrowings                      (360)     (37)    (631)    (666)      (587)   (2,281) 
  Floating rate borrowings                    (78)     (32)     (58)  (1,179)       (41)   (1,388) 
  Other financing liabilities                 (97)        -        -        -          -      (97) 
Trade and other payables                   (2,810)        -        -        -          -   (2,810) 
Derivative financial instruments 
 (assets): 
  Forward contracts                             73       41       33        8          -       155 
  Fuel derivatives                               6        2        1        -          -         9 
Derivative financial instruments 
 (liabilities): 
  Interest rate swaps                         (13)     (13)     (25)     (14)        (2)      (67) 
  Forward contracts                          (370)     (91)    (115)     (56)          -     (632) 
  Fuel derivatives                           (423)    (314)    (108)      (4)          -     (849) 
=======================================  =========  =======  =======  =======  =========  ======== 
December 31, 2020                          (5,074)  (1,460)  (2,596)  (6,604)    (8,265)  (23,999) 
=======================================  =========  =======  =======  =======  =========  ======== 
 
 
                                            Within     6-12      1-2      2-5  More than     Total 
EUR million                               6 months   months    years    years    5 years      2019 
=======================================  =========  =======  =======  =======  =========  ======== 
Interest-bearing loans and borrowings: 
  Asset finance obligations                   (56)     (49)     (95)    (289)      (988)   (1,477) 
  Lease liabilities                        (1,073)    (957)  (1,753)  (4,505)    (6,289)  (14,577) 
  Fixed rate borrowings                       (20)     (31)     (46)  (1,158)      (599)   (1,854) 
  Floating rate borrowings                    (13)     (17)     (30)    (110)       (67)     (237) 
Trade and other payables                   (3,881)        -        1        -          -   (3,880) 
Derivative financial instruments 
 (assets): 
  Aircraft lease hedges                          -        -        -        -          -         - 
  Interest rate derivatives                      1        1        1        2          -         5 
  Foreign exchange contracts                   115      116      157       96          -       484 
  Fuel derivatives                              66       25       12        2          -       105 
Derivative financial instruments 
 (liabilities): 
  Aircraft lease hedges                          -        -        -        -          -         - 
  Interest rate derivatives                    (9)     (19)     (18)     (22)        (1)      (69) 
  Foreign exchange contracts                  (47)     (43)     (62)     (86)          -     (238) 
  Fuel derivatives                            (61)     (73)     (90)     (11)          -     (235) 
=======================================  =========  =======  =======  =======  =========  ======== 
December 31, 2019                          (4,978)  (1,047)  (1,923)  (6,081)    (7,944)  (21,973) 
=======================================  =========  =======  =======  =======  =========  ======== 
 

f Offsetting financial assets and liabilities

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 financial assets and liabilities are subject to offsetting, enforceable master netting arrangements and similar agreements.

 
December 31, 2020 
                                                      Gross    Net amounts      Related 
                                                    amounts   of financial      amounts 
                                           Gross    set off    instruments   not offset 
                                           value     in the         in the       in the 
                                    of financial    balance        balance      balance 
EUR million                          instruments   sheet(1)          sheet     sheet(1)  Net amount 
=================================  =============  =========  =============  ===========  ========== 
Financial assets 
Derivative financial assets                  165        (1)            164         (13)         151 
 
Financial liabilities 
Derivative financial liabilities           1,537       (67)          1,470         (37)       1,433 
=================================  =============  =========  =============  ===========  ========== 
 

1 The Group has pledged cash and cash equivalents as collateral against certain of its derivative financial liabilities. As December 31, 2020, the Group recognised EUR66 million of collateral (2019: EURnil) offset in the balance sheet and EUR24 million (2019: EURnil) not offset in the balance sheet.

December 31, 2019

 
                                                     Gross    Net amounts      Related 
                                                   amounts   of financial      amounts 
                                           Gross   set off    instruments   not offset 
                                           value    in the         in the       in the 
                                    of financial   balance        balance      balance 
EUR million                          instruments     sheet          sheet        sheet  Net amount 
=================================  =============  ========  =============  ===========  ========== 
Financial assets 
Derivative financial assets                  550        42            592          (9)         583 
 
Financial liabilities 
Derivative financial liabilities             580      (42)            538          (9)         529 
=================================  =============  ========  =============  ===========  ========== 
 

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 net debt to EBITDA ratio. For the year to December 31, 2020, the net debt to EBITDA was minus 4.3 times (2019: 1.4 times). 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 going concern section in note 2.

h Managing interest rate benchmark reform and associated risks

Overview

A reform of major interest rate benchmarks is being undertaken globally, including the replacement of certain interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as 'IBOR reform'). The Group has exposures to IBORs on its financial instruments that will be replaced or reformed as part of these market-wide initiatives. The Group anticipates that IBOR reform will impact its risk management and hedge accounting.

Group Treasury monitors and manages the Group's transition to alternative rates. Group Treasury tracks which contracts reference IBOR, whether such contracts will need to be amended, and how to manage communication about IBOR reform with counterparties.

Derivatives

The Group holds interest rate swaps for risk management purposes which are designated in cash flow hedge relationships. The interest rate swaps have floating legs that are indexed to both US dollar and sterling LIBOR.

Hedge accounting

The Group has evaluated the extent to which its cash flow hedging relationships are subject to uncertainty driven by IBOR reform as at December 31, 2020. As part of this evaluation, the Group has applied the hedging relief provided by the IFRS 9 amendments for IBOR reform phase one. Certain of the Group's hedged items and hedging instruments continue to be indexed to the aforementioned LIBORs. These benchmark rates are quoted each day and the IBOR cash flows are exchanged with counterparties as usual. However, certain of these LIBOR cash flow hedging relationships extend beyond the anticipated cessation date. There is uncertainty about when and how replacement may occur with respect to the relevant hedged items and hedging instruments. Such uncertainty may impact the hedging relationship.

Hedging relationships impacted by IBOR reform may experience ineffectiveness attributable to market participant's expectations of when the change in rates will occur, which may differ between the hedged item and the hedging instrument.

The Group's exposure to both US dollar and sterling LIBOR designated in hedging relationships had a nominal amount of EUR775 million as at December 31, 2020.

26 Financial instruments

a Financial assets and liabilities by category

The detail of the Group's nancial instruments at December 31, 2020 and December 31, 2019 by nature and classi cation for measurement purposes is as follows:

 
December 31, 2020 
                                                        Financial assets 
                                           =========================================== 
                                                                                                        Total 
                                                                                                     carrying 
                                                                                  Fair                 amount 
                                                                Fair value       value                     by 
                                                                   through     through        Non-    balance 
                                           Amortised   Other comprehensive      Income   financial      sheet 
 EUR million                                    cost                income   statement      assets       item 
=========================================  =========  ====================  ==========  ==========  ========= 
 Non-current assets 
Other equity investments                           -                    29           -           -         29 
 Derivative financial instruments                  -                     -          42           -         42 
 Other non-current assets                        119                    10           -          99        228 
=========================================  =========  ====================  ==========  ==========  ========= 
 
 Current assets 
 Trade receivables                               557                     -           -           -        557 
 Other current assets                            350                     -           -         442        792 
 Derivative financial instruments                  -                     -         122           -        122 
 Other current interest-bearing deposits         143                     -           -           -        143 
 Cash and cash equivalents                     5,774                     -           -           -      5,774 
=========================================  =========  ====================  ==========  ==========  ========= 
 
 
                                                     Financial liabilities 
                                          ============================================ 
                                                                                                          Total 
                                                                                                       carrying 
                                                                                  Fair                   amount 
                                                                Fair value       value                       by 
                                                                   through     through          Non-    balance 
                                           Amortised   Other comprehensive      income     financial      sheet 
 EUR million                                    cost                income   statement   liabilities       item 
========================================  ==========  ====================  ==========  ============  ========= 
 Non-current liabilities 
Lease liabilities                              8,464                     -           -             -      8,464 
Interest-bearing long-term borrowings          5,000                     -           -             -      5,000 
Derivative financial instruments                   -                     -         310             -        310 
Other long-term liabilities                       80                     -           -           533        613 
========================================  ==========  ====================  ==========  ============  ========= 
 
 Current liabilities 
Lease liabilities                              1,560                     -           -             -      1,560 
Current portion of long-term borrowings          655                     -           -             -        655 
Trade and other payables                       2,572                     -           -           238      2,810 
Derivative financial instruments                   -                     -       1,160             -      1,160 
----------------------------------------  ----------  --------------------  ----------  ------------  --------- 
 

December 31, 2019

 
                                                       Financial assets 
                                          =========================================== 
                                                                                                         Total 
                                                                                                      carrying 
                                                               Fair value  Fair value                   amount 
                                                                  through     through        Non-   by balance 
                                          Amortised   Other comprehensive      income   financial        sheet 
 EUR million                                   cost                income   statement      assets         item 
========================================  =========  ====================  ==========  ==========  =========== 
 Non-current assets 
Other equity investments                          -                    82           -           -           82 
Derivative financial instruments                  -                     -         268           -          268 
Other non-current assets                        133                     -           -         140          273 
========================================  =========  ====================  ==========  ==========  =========== 
 
Current assets 
Trade receivables                             2,255                     -           -           -        2,255 
Other current assets                            414                     -           -         900        1,314 
Derivative financial instruments                  -                     -         324           -          324 
Other current interest-bearing deposits       2,621                     -           -           -        2,621 
Cash and cash equivalents                     4,062                     -           -           -        4,062 
========================================  =========  ====================  ==========  ==========  =========== 
 
 
                                                     Financial liabilities 
                                          =========================================== 
                                                                                                         Total 
                                                                                                      carrying 
                                                                                                        amount 
                                                               Fair value  Fair value                       by 
                                                                  through     through          Non-    balance 
                                          Amortised   Other comprehensive      Income     financial      sheet 
 EUR million                                   cost                income   statement   liabilities       item 
========================================  =========  ====================  ==========  ============  ========= 
 Non-current liabilities 
Lease liabilities                             9,352                     -           -             -      9,352 
Interest-bearing long-term borrowings         3,059                     -           -             -      3,059 
Derivative financial instruments                  -                     -         286             -        286 
Other long-term liabilities                      12                     -           -            59         71 
========================================  =========  ====================  ==========  ============  ========= 
 
 Current liabilities 
Lease liabilities                             1,694                     -           -             -      1,694 
Current portion of long-term borrowings         149                     -           -             -        149 
Trade and other payables                      3,881                     -           -           463      4,344 
Derivative financial instruments                  -                     -         252             -        252 
========================================  =========  ====================  ==========  ============  ========= 
 

b Fair value of financial assets and financial liabilities

The fair values of the Group's financial instruments are disclosed in hierarchy levels depending on the nature of the inputs used in determining the fair values and using the following methods and assumptions:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. Level 1 methodologies (market values at the balance sheet date) were used to determine the fair value of listed asset investments classified as equity investments and listed interest-bearing borrowings.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. Derivative instruments are measured based on the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. 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: Inputs for the asset or liability that are not based on observable market data. The principal method of such valuation is performed using a valuation model that considers the present value of the dividend cash flows expected to be generated by the associated assets.

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

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2020 are as follows:

 
                                                                     Carrying 
                                                 Fair value             value 
                                         ==========================  ======== 
                                         Level  Level  Level 
EUR million                                  1      2      3  Total     Total 
=======================================  =====  =====  =====  =====  ======== 
Financial assets 
Other equity investments                     -      -     29     29        29 
Derivative financial assets: 
  Interest rate swaps(1)                     -      1      -      1         1 
  Foreign exchange contracts(1)              -    154      -    154       154 
  Fuel derivatives(1)                        -      9      -      9         9 
 
Financial liabilities 
Interest-bearing loans and borrowings: 
  Asset financed liabilities                 -  2,417      -  2,417     2,189 
  Fixed rate borrowings                  1,510    560      -  2,070     2,163 
  Floating rate borrowings                   -  1,206      -  1,206     1,206 
  Other financing liabilities                -     97      -     97        97 
Derivative financial liabilities: 
  Interest rate derivatives(2)               -     63      -     63        63 
  Foreign exchange contracts(2)              -    620      -    620       620 
  Fuel derivatives(2)                        -    787      -    787       787 
=======================================  =====  =====  =====  =====  ======== 
 
   1   Current portion of derivative financial assets is EUR122 million 
   2   Current portion of derivative financial liabilities is EUR1,177 million 

The carrying amounts and fair values of the Group's financial assets and liabilities at December 31, 2019 are set out below:

 
                                                                     Carrying 
                                                 Fair value             value 
                                         ==========================  ======== 
                                         Level  Level  Level 
EUR million                                  1      2      3  Total     Total 
=======================================  =====  =====  =====  =====  ======== 
Financial assets 
Other equity investments                    10      -     72     82        82 
Derivative financial assets: 
  Interest rate swaps(1)                     -      1      -      1         1 
  Foreign exchange contracts(1)              -    488      -    488       488 
  Fuel derivatives(1)                        -    103      -    103       103 
 
Financial liabilities 
Interest-bearing loans and borrowings: 
   Asset financed liabilities                -  1,623      -  1,623     1,254 
  Fixed rate borrowings                  1,640    136      -  1,776     1,728 
  Floating rate borrowings                   -    226      -    226       226 
Derivative financial liabilities: 
  Interest rate derivatives(2)               -     67      -     67        67 
  Foreign exchange contracts(2)              -    240      -    240       240 
  Fuel derivatives(2)                        -    231      -    231       231 
=======================================  =====  =====  =====  =====  ======== 
 
   1   Current portion of derivative financial assets is EUR324 million. 
   2   Current portion of derivative financial liabilities is EUR252 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 in the consolidated financial statements, with the exception of interest-bearing borrowings, which are measured at amortised cost.

c Level 3 financial assets reconciliation

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

 
EUR million                                       2020  2019 
================================================  ====  ==== 
Opening balance for the year                        72    63 
Additions                                            3     6 
Losses recognised in other comprehensive income   (44)     - 
Exchange movements                                 (2)     3 
================================================  ====  ==== 
Closing balance for the year                        29    72 
================================================  ====  ==== 
 

d Hedges

Cash flow hedges

At December 31, 2020 the Group's principal risk management activities that were hedging future forecast transactions were:

-- Future loan repayments in foreign currency (predominantly US dollar loan repayments), hedging foreign exchange fluctuations on revenue cash inflows. Remeasurement gains and losses on the loans are recognised in equity and transferred to the income statement within revenue when the loan is repaid (generally in instalments over the life of the loan).

-- Foreign exchange contracts, hedging foreign currency exchange risk on revenue cash inflows and certain operational payments. Remeasurement gains and losses on the derivatives are recognised in equity and transferred to the income statement or balance sheet to match against the related cash inflow or outflow. Reclassification gains and losses on derivatives, arising from the discontinuance of hedge accounting, are recognised in the income statement within fuel, oil costs and emissions charges when the future transaction is no longer expected to occur.

-- Forward crude, gas oil and jet kerosene derivative contracts, hedging price risk on fuel expenditure. Remeasurement gains and losses on the derivatives are recognised in equity and transferred to the income statement within fuel, oil costs and emissions charges to match against the related fuel cash outflow. Reclassification gains and losses on derivatives, arising from the discontinuance of hedge accounting, are recognised in the income statement within fuel, oil costs and emissions charges when the future transaction is no longer expected to occur.

-- Interest rate contracts, hedging interest rate risk on floating rate debt and certain operational payments.

The amounts included in equity including the periods over which the related cash flows are expected to occur are summarised below:

 
(Gains)/losses in respect of cash flow hedges included 
 within equity 
 EUR million                                                   2020  2019 
============================================================  =====  ==== 
Loan repayments to hedge future revenue                         220   141 
Foreign exchange contracts to hedge future revenue and 
 expenditure(1)                                                 168  (80) 
Crude, gas oil and jet kerosene derivative contracts(1)         295   113 
Derivatives used to hedge interest rates(1)                      66    72 
Instruments for which hedge accounting no longer applies(1)     276   355 
============================================================  =====  ==== 
                                                              1,025   601 
Related deferred tax credit                                   (168)  (94) 
============================================================  =====  ==== 
Total amount included within equity                             857   507 
============================================================  =====  ==== 
 

1 The carrying value of derivative instruments recognised in assets and liabilities is analysed in parts a and b above.

The notional amounts of significant financial instruments used as cash flow hedging instruments are set out below:

 
                                                                                   Total 
Notional principal amounts               Hedge   Within                         December 
 (EUR million)                           range   1 year  1-2 years  2-5 years   31, 2020 
=====================================  =======  =======  =========  =========  ========= 
Foreign exchange contracts to hedge 
 future revenue and expenditure from    1.15 - 
 US dollars to pound sterling(1)          1.50    2,402      1,321        442      4,165 
Foreign exchange contracts to hedge 
 future revenue and expenditure from    0.74 - 
 US dollars to euros(1)                   1.37    1,009        960        155      2,124 
=====================================  =======  =======  =========  =========  ========= 
 
   1   Represents the value of the hedged item. 
 
                                                                                      Total 
Notional principal amounts                  Hedge   Within                         December 
 (EUR million)                              range   1 year  1-2 years  2-5 years   31, 2019 
=====================================  ==========  =======  =========  =========  ========= 
Foreign exchange contracts to hedge 
 future revenue and expenditure from 
 US dollars to pound sterling(1)        1.17-1.51    3,493      1,810      1,359      6,662 
Foreign exchange contracts to hedge 
 future revenue and expenditure from       0.74 - 
 US dollars to euros(1)                      1.39    1,397      1,091        483      2,971 
=====================================  ==========  =======  =========  =========  ========= 
 
   1   Represents the value of the hedged item. 
 
                                                                                         Total 
For the year to December 31,                                                        recognised 
 2020                                                                                 (gains)/ 
                                                           Amounts  Discontinuance 
                                                        associated        of hedge                     Other 
                                     Amounts  with ineffectiveness      accounting                   amounts       Amounts 
                                  recognised            recognised    reclassified              reclassified  reclassified 
                                    in Other                in the          to the                    to the        to the 
                               comprehensive                Income          Income                    Income       Balance 
 (EUR million)                     income(1)          statement(2)       statement      losses     statement         sheet 
=============================  =============  ====================  ==============  ==========  ============  ============ 
Loan repayments to hedge 
 future 
 revenue                                 123                     -            (22)         101          (19)             - 
Foreign exchange contracts 
 to hedge future revenue and 
 expenditure                              88                     -              54         142            55            32 
Crude, gas oil and jet 
 kerosene 
 derivative contracts                  2,369                     2         (1,757)         614         (461)             - 
Derivatives used to hedge 
 interest rates                           59                     -               -          59          (30)          (32) 
Instruments for which hedge 
 accounting no longer applies              -                     -               -           -          (63)             - 
=============================  =============  ====================  ==============  ==========  ============  ============ 
                                       2,639                     2         (1,725)         916         (518)             - 
=============================  =============  ====================  ==============  ==========  ============  ============ 
 

1 Amounts recognised in Other comprehensive income represent gains and losses on the hedging instrument.

2 Ineffectiveness recognised in the Income statement is presented as Realised and Unrealised gains and losses on derivatives not qualifying for hedge accounting within non-operating items.

 
                                                                                   Total 
                                                                              recognised 
For the year to December 31, 2019                                               (gains)/ 
                                                                    Amounts 
                                                                 associated 
                                             Amounts   with ineffectiveness                     Amounts        Amounts 
                                          recognised             recognised                reclassified   reclassified 
                                            in Other                 in the                      to the         to the 
                                       comprehensive                 Income                      Income        Balance 
 (EUR million)                             income(1)           statement(2)       losses      statement          sheet 
====================================  ==============  =====================  ===========  =============  ============= 
Loan repayments to hedge future 
 revenue                                       (106)                      -        (106)           (20)              - 
Foreign exchange contracts to hedge 
 future revenue and expenditure                   20                      -           20             99              7 
Crude, gas oil and jet kerosene 
 derivative 
 contracts                                     (622)                      8        (614)          (178)              - 
Derivatives used to hedge interest 
 rates                                            56                      -           56           (11)              - 
Instruments for which hedge 
 accounting 
 no longer applies                              (38)                      -         (38)           (54)              - 
====================================  ==============  =====================  ===========  =============  ============= 
                                               (690)                      8        (682)          (164)              7 
====================================  ==============  =====================  ===========  =============  ============= 
 

1 Amounts recognised in Other comprehensive income represent gains and losses on the hedging instrument.

2 Ineffectiveness recognised in the Income statement is presented as Realised and Unrealised gains and losses on derivatives not qualifying for hedge accounting within non-operating items.

The losses associated with the discontinuance of hedge accounting recognised in the Income statement and the subsequent fair value movements of those derivative instruments recorded in the Income statement through to the earlier of the balance sheet date and the maturity date of the derivative are set out below:

 
EUR million                                                      2020  2019 
==============================================================  =====  ==== 
Losses associated with the discontinuance of hedge accounting 
 recognised in the Income statement                             1,725     - 
Fair value movements subsequently recorded in the Income 
 statement                                                         31     - 
==============================================================  =====  ==== 
Total effect of discontinuance of hedge accounting in the 
 Income statement(1)                                            1,756     - 
==============================================================  =====  ==== 
 
   1   Refer to note 3 and the Alternative performance measures section. 

The Group has no significant fair value hedges at December 31, 2020 and 2019.

27 Share capital, share premium and treasury shares

 
                                                                     Ordinary 
                                                         Number         share         Share 
                                                      of shares       capital       premium 
Allotted, called up and fully paid                        '000s   EUR million   EUR million 
===================================================  ==========  ============  ============ 
January 1, 2019: Ordinary shares of EUR0.50 each      1,992,033           996         6,022 
Special 2018 dividend of EUR0.35 per share                                            (695) 
===================================================  ==========  ============  ============ 
January 1, 2020: Ordinary shares of EUR0.50 each      1,992,033           996         5,327 
Share capital reduction                                                 (797) 
Rights issue                                          2,979,443           298         2,443 
===================================================  ==========  ============  ============ 
December 31, 2020: Ordinary shares of EUR0.10 each    4,971,476           497         7,770 
===================================================  ==========  ============  ============ 
 

a Share capital reduction

On September 8, 2020, the Company undertook a share capital reduction of EUR797 million, that reduced the nominal value of each ordinary share from EUR0.50 per share to EUR0.10 per share. A corresponding amount has been recognised within Capital reserves (note 29).

b Rights issue

On October 2, 2020, the Company raised EUR2,741 million (and incurred related transaction costs of EUR70 million as detailed in Note 29) through a rights issue of 2,979,443,376 new ordinary shares at a price of 92 EUR cents per share on the basis of 3 shares for every 2 existing shares.

In accordance with accounting standards, the discount element inherent in the rights issue has been accounted for as a bonus issue of 1,071,565 thousand shares. Earnings per share information (note 10) has been restated for the comparative period presented, by adjusting the weighted average number of shares to include the impact of the bonus shares.

c Treasury shares

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, 2020 the Group held 5.1 million shares (2019: 7.7 million) which represented 0.10 per cent of the issued share capital of the Company.

28 Share-based payments

The Group operates share-based payment schemes as part of the total remuneration package provided to employees. These schemes comprise both share option schemes where employees acquire shares at an option price and share award plans whereby shares are issued to employees at no cost, subject to the achievement by the Group of specified performance targets.

a 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. Since 2015, awards have been made as nil-cost options, with a two-year holding period following the three-year performance period, before options can be exercised. All awards since 2015 have three independent performance measures with equal weighting: Total Shareholder Return (TSR) relative to the STOXX Europe 600 Travel and Leisure Index (for 2020 awards) or MSCI European Transportation Index (for prior to 2020 awards), earnings per share, and Return on Invested Capital.

In 2020, the outstanding PSP awards granted to participants other than Executive Directors from 2018 onwards were modified, and the resulting incremental fair value granted of GBP1.61 per award is recognised over the remaining vesting period.

b IAG Incentive Award Deferral Plan

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

 
                                                                                                        Vested 
                           Outstanding                Rights                     Outstanding   and exercisable 
                            at January  Granted        issue   Lapsed   Vested   at December          December 
                               1, 2020   number   adjustment   number   number      31, 2020          31, 2020 
                                 '000s    '000s        '000s    '000s    '000s         '000s             '000s 
=========================  ===========  =======  ===========  =======  =======  ============  ================ 
Performance Share Plans         19,178    7,388       11,323    3,275    1,814        32,800             1,299 
Incentive Award Deferral 
 Plans                           4,473    1,694        2,795       12      583         8,367                14 
=========================  ===========  =======  ===========  =======  =======  ============  ================ 
                                23,651    9,082       14,118    3,287    2,397        41,167             1,313 
=========================  ===========  =======  ===========  =======  =======  ============  ================ 
 

The weighted average share price at the date of exercise of options exercised during the year to December 31, 2020 was GBP3.89 (2019: not applicable).

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:

 
                                                      December  December 
                                                           31,       31, 
                                                          2020      2019 
====================================================  ========  ======== 
Expected share price volatility (per cent)                  35        35 
Expected comparator group volatility (per cent)             20        20 
Expected comparator group correlation (per cent)            70        55 
Expected life of options (years)                           4.6       4.8 
Weighted average share price at date of grant (GBP)       4.59      5.67 
====================================================  ========  ======== 
Weighted average fair value (GBP)                         1.84      1.93 
====================================================  ========  ======== 
 

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 credit of EUR8 million for the year to December 31, 2020 (2019: EUR34 million).

29 Other reserves and non-controlling interests

For the year to December 31, 2020

 
                                                       Other reserves 
                   ====================================================================================== 
                                                                Equity 
                   Unrealised                                  portion 
                        gains        Cost                           of                              Total 
                          and  of hedging        Currency  convertible      Merger      Capital     other  Non-controlling 
EUR million         losses(1)  reserve(2)  translation(3)      bond(4)  reserve(5)  reserves(6)  reserves         interest 
=================  ==========  ==========  ==============  ===========  ==========  ===========  ========  =============== 
January 1, 2020         (464)          60             160           62     (2,467)           70   (2,579)                6 
 
Other 
comprehensive 
loss 
for the year: 
Cash flow hedges 
reclassified 
and reported in 
net loss: 
  Passenger 
   revenue                 50           -               -            -           -            -        50                - 
  Fuel and oil 
   costs                  356           -               -            -           -            -       356                - 
  Currency 
   differences             18           -               -            -           -            -        18                - 
  Finance costs            12           -               -            -           -            -        12                - 
  Discontinuance 
   of hedge 
   accounting           1,435           -               -            -           -            -     1,435                - 
Net change in 
 fair value 
 of cash flow 
 hedges               (2,216)           -               -            -           -            -   (2,216)                - 
Net change in 
 fair value 
 of other equity 
 investments             (53)           -               -            -           -            -      (53)                - 
Net change in 
 fair value 
 of cost of 
 hedging                    -          10               -            -           -            -        10                - 
Cost of hedging 
 reclassified 
 and reported in 
 the net 
 profit                     -        (19)               -            -           -            -      (19)                - 
Currency 
 translation 
 differences                -           -           (192)            -           -            -     (192)                - 
 
Hedges 
 reclassified and 
 reported in 
 property, 
 plant and 
 equipment                (5)        (13)               -            -           -            -      (18)                - 
Share capital 
 reduction                  -           -               -            -           -          797       797                - 
=================  ==========  ==========  ==============  ===========  ==========  ===========  ========  =============== 
December 31, 2020       (867)          38            (32)           62     (2,467)          867   (2,399)                6 
=================  ==========  ==========  ==============  ===========  ==========  ===========  ========  =============== 
 
 
                                                   Other reserves 
                ===================================================================================== 
                                                             Equity 
                Unrealised                                  portion 
                     gains        Cost                           of                Redeemed     Total 
                       and  of hedging        Currency  convertible      Merger     capital     other  Non-controlling 
EUR million      losses(1)  reserve(2)  translation(3)      bond(4)  reserve(5)  reserve(6)  reserves         interest 
==============  ==========  ==========  ==============  ===========  ==========  ==========  ========  =============== 
January 1, 
 2019              (1,130)           6           (136)          101     (2,467)          70   (3,556)                6 
 
Other 
comprehensive 
income 
for the year: 
Cash flow 
hedges 
reclassified 
and reported 
in net profit: 
  Passenger 
   revenue              55           -               -            -           -           -        55                - 
  Fuel and oil 
   costs               106           -               -            -           -           -       106                - 
  Currency 
   differences        (26)           -               -            -           -           -      (26)                - 
  Finance 
   costs                 6           -               -            -           -           -         6                - 
Net change in 
 fair value of 
 cash flow 
 hedges                540           -               -            -           -           -       590                - 
Net change in 
 fair value of 
 other equity 
 investments           (8)           -               -            -           -           -       (8)                - 
Net change in 
 fair value of 
 cost of 
 hedging                 -          68               -            -           -           -        18                - 
Cost of 
 hedging 
 reclassified 
 and reported 
 in the net 
 profit                  -        (10)               -            -           -           -      (10)                - 
Currency 
 translation 
 differences             -           -             296            -           -           -       296                - 
 
Hedges 
 reclassified 
 and reported 
 in property, 
 plant and 
 equipment             (7)         (4)               -            -           -           -      (11)                - 
Redemption of 
 convertible 
 bond                    -           -               -         (39)           -           -      (39)                - 
==============  ==========  ==========  ==============  ===========  ==========  ==========  ========  =============== 
December 31, 
 2019                (464)          60             160           62     (2,467)          70   (2,579)                6 
==============  ==========  ==========  ==============  ===========  ==========  ==========  ========  =============== 
 

1 The unrealised gains and losses reserve records fair value changes on equity 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. The amounts at December 31, 2020 that relate to the fair value changes on equity instruments and to the cash flow hedge reserve were EUR9 million credit and EUR891 million charge respectively.

2 The cost of hedging reserve records, amongst others, fair value changes on the time value of options.

3 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.

4 The equity portion of convertible bond reserve represents the equity portion of convertible bonds issued. At December 31, 2019, this related to the EUR500 million fixed rate 0.625 per cent convertible bond (note 23). During 2019 the Group exercised its option to early redeem the EUR500 million fixed rate 0.25 per cent convertible bond with no conversion to ordinary shares.

5 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).

6 Capital reserves include a Redeemed capital reserve of EUR70 million (2019: EUR70 million) associated with the decrease in share capital relating to cancelled shares and a Share capital reduction reserve of EUR797 million (2019: nil) associated with a reduction in the nominal value of the Company's share capital (note 27).

30 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, 2020 were EUR235 million (2019: EUR262 million).

Defined benefit schemes

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. NAPS has been closed to new members since 2004 and closed to future accrual since 2018, resulting in a reduction of the defined benefit obligation. Following closure members' deferred pensions will now be increased annually by inflation up to five per cent per annum (measured using the Government's annual Pension Increase (Review) Orders, which since 2011 have been based on CPI). As part of the closure of NAPS to future accrual in 2018, British Airways agreed to make certain additional transition payments to NAPS members if the deficit had reduced more than expected at either the 2018 or 2021 valuations. No payment was triggered by the 2018 valuation and no allowance for such payments has been made in the valuation of the defined benefit obligation on the expected outcome of the 2021 valuation. The NAPS actuarial valuation at March 31, 2018 resulted in a deficit of EUR2,736 million.

APS has been closed to new members since 1984, but remains open to future accrual. The benefits provided under APS are based on final average pensionable pay and, for the majority of members, are subject to inflationary increases in payment. The APS actuarial valuation at March 31, 2018 resulted in a surplus of EUR683 million.

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. Some 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.

Deficit payment plans are agreed with the Trustee of each scheme every three years based on the actuarial valuation rather than the IAS 19 accounting valuation. In October 2019, the latest deficit recovery plan was agreed as at March 31, 2018 with respect to NAPS (see note 30i below). The actuarial valuations performed as at March 31, 2018 for APS and NAPS are different to the valuation performed as at December 31, 2019 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. For example, IAS 19 requires the discount rate to be based on corporate bond yields regardless of how the assets are actually invested, which may not result in the calculations in this report being a best estimate of the cost to the Group of providing benefits under either Scheme. The investment strategy of each Scheme is likely to change over its life, so the relationship between the discount rate and the expected rate of return on each Scheme's assets may also change.

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 Company to actuarial risks, such as longevity risk, interest rate risk, inflation risk and market (investment) risk, including currency risk.

Cash payments

Cash payments in respect to pension obligations 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, 2020 net of service costs were EUR313 million (2019: EUR865 million) being the employer contributions of EUR318 million (2019: EUR870 million) less the current service cost of EUR5 million (2019: EUR5 million) (note 30b).

On December 18, 2020 British Airways reached agreement with the Trustee of NAPS to defer deficit contributions on an interim basis for the period between October 1, 2020 and January 31, 2021. On February 19, 2021 British Airways reached further agreement with the Trustee of NAPS to defer deficit contributions previously agreed in October 2019 on the March 31, 2018 valuation, through to September 30, 2021. Under this deferral agreement, the deferred payments will be incorporated into the future deficit payment plan and associated deficit contributions arising from the triennial valuation of the NAPS scheme as at March 31, 2021. If the future deficit payment plan has not been agreed by September 30, 2021, the default position is that British Airways will return to making payments of EUR41 million (GBP38 million) per month from October 2021.

a Employee benefit schemes recognised on the Balance Sheet

 
                                                      2020 
                                      ===================================== 
EUR million                               APS      NAPS  Other(1)     Total 
====================================  =======  ========  ========  ======== 
Scheme assets at fair value             8,537    22,240       408    31,185 
Present value of scheme liabilities   (8,143)  (22,151)     (714)  (31,008) 
====================================  =======  ========  ========  ======== 
Net pension asset/(liability)             394        89     (306)       177 
Effect of the asset ceiling(2)          (124)     (479)         -     (603) 
Other employee benefit obligations          -         -      (11)      (11) 
====================================  =======  ========  ========  ======== 
December 31, 2020                         270     (390)     (317)     (437) 
====================================  =======  ========  ========  ======== 
Represented by: 
Employee benefit assets                                                 282 
Employee benefit obligations                                          (719) 
====================================  =======  ========  ========  ======== 
                                                                      (437) 
====================================  =======  ========  ========  ======== 
 
 
                                                     2019(3) 
                                      ===================================== 
EUR million                               APS      NAPS  Other(1)     Total 
====================================  =======  ========  ========  ======== 
Scheme assets at fair value             8,830    22,423       428    31,681 
Present value of scheme liabilities   (8,401)  (21,650)     (731)  (30,782) 
====================================  =======  ========  ========  ======== 
Net pension asset/(liability)             429       773     (303)       899 
Effect of the asset ceiling(2)          (127)     (847)         -     (974) 
Other employee benefit obligations          -         -      (11)      (11) 
====================================  =======  ========  ========  ======== 
December 31, 2019                         302      (74)     (314)      (86) 
====================================  =======  ========  ========  ======== 
Represented by: 
Employee benefit assets                                                 314 
Employee benefit obligations                                          (400) 
====================================  =======  ========  ========  ======== 
                                                                       (86) 
====================================  =======  ========  ========  ======== 
 

1 The present value of scheme liabilities for the US PRMB was EUR12 million at December 31, 2020 (2019: EUR15 million).

2 APS and NAPS have 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.

3 Refer to note 2 for information relation to the reclassification from the Employee benefit obligations to deferred taxes at December 31, 2019.

b Amounts recognised in the Income statement

Pension costs charged to operating result are:

 
EUR million                                2020  2019 
=========================================  ====  ==== 
Defined benefit plans: 
Current service cost                          5     5 
Past service cost(1, 2)                       7   665 
=========================================  ====  ==== 
                                             12   670 
Defined contribution plans                  235   262 
=========================================  ====  ==== 
Pension costs recorded as employee costs    247   932 
=========================================  ====  ==== 
 

1 Refer to the Alternative performance measures section for amounts recorded within exceptional items in 2019.

2 Includes a past service credit of EURnil (2019: EUR7 million) relating to schemes other than APS and NAPS.

Pension costs charged as finance costs are:

 
EUR million                                  2020   2019 
==========================================  =====  ===== 
Interest income on scheme assets            (599)  (775) 
Interest expense on scheme liabilities        581    710 
Interest expense on asset ceiling              14     39 
==========================================  =====  ===== 
Net financing income relating to pensions     (4)   (26) 
==========================================  =====  ===== 
 

c Remeasurements recognised in the Statement of other comprehensive income

 
EUR million                                                       2020  2019(1) 
=============================================================  =======  ======= 
Return on plan assets excluding interest income                (2,288)  (1,916) 
Remeasurement of plan liabilities from changes in financial 
 assumptions                                                     3,633    3,423 
Remeasurement of experience (gains)/losses                       (355)      193 
Remeasurement of the APS and NAPS asset ceilings                 (320)  (1,027) 
Exchange movements                                                   8     (13) 
=============================================================  =======  ======= 
Pension remeasurements charged to Other comprehensive income       678      660 
=============================================================  =======  ======= 
 

1 Refer to note 2 for information relation to the reclassification from the Employee benefit obligations to deferred taxes at December 31, 2019.

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:

 
EUR million                                          2020     2019 
================================================  =======  ======= 
January 1                                          31,681   27,600 
Interest income                                       599      775 
Return on plan assets excluding interest income     2,288    1,916 
Employer contributions(1)                             313      870 
Employee contributions                                 14        6 
Benefits paid                                     (1,573)  (1,269) 
Exchange movements                                (2,137)    1,783 
================================================  =======  ======= 
December 31                                        31,185   31,681 
================================================  =======  ======= 
 

1 Includes employer contributions to APS of EUR2 million (2019: EUR5 million) and to NAPS of EUR303 million (2019: EUR816 million) of which deficit funding payments represented EURnil for APS (2019: EURnil) and EUR296 million for NAPS (2019: EUR797 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 support achievement of these objectives. The committee also deals with the monitoring of performance and activities, including work on developing the strategic benchmark to improve the risk return profile of the scheme where possible, as well as having a trigger based dynamic governance process to be able to take advantage of opportunities as they arise. The investment committee reviews the existing investment restrictions, performance benchmarks and targets, as well as continuing to develop the de-risking and liability hedging portfolio.

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.

Scheme assets held by all defined benefit schemes operated by the Group at December 31 comprise:

 
EUR million                               2020    2019 
======================================  ======  ====== 
Return seeking investments - equities 
                                        ======  ====== 
UK                                       1,465   2,310 
Rest of world                            4,705   4,774 
                                        ======  ====== 
                                         6,170   7,084 
Return seeking investments - other 
                                        ======  ====== 
Private equity                           1,062   1,035 
Property                                 1,798   2,135 
Alternative investments                    880   1,081 
                                        ======  ====== 
                                         3,740   4,251 
Liability matching investments 
                                        ======  ====== 
UK fixed bonds                           6,868   6,356 
Rest of world fixed bonds                   93      93 
UK index-linked bonds                    6,513   6,266 
Rest of world index-linked bonds            11     120 
                                        ======  ====== 
                                        13,485  12,835 
Other 
Cash and cash equivalents                  947     689 
Derivatives                              (228)   (344) 
Insurance contract                       1,660   1,740 
Longevity swap                           4,424   4,547 
Other                                      987     879 
======================================  ======  ====== 
                                        31,185  31,681 
======================================  ======  ====== 
 

All equities and bonds have quoted prices in active markets.

For APS and NAPS, the composition of the scheme assets is:

 
                                            December 31,    December 31, 
                                                2020            2019 
                                           ==============  ============== 
EUR million                                   APS    NAPS     APS    NAPS 
=========================================  ======  ======  ======  ====== 
Return seeking investments                    138   9,576     347  10,844 
Liability matching investments              2,286  11,092   1,897  10,828 
=========================================  ======  ======  ======  ====== 
                                            2,424  20,668   2,244  21,672 
Insurance contract and related longevity 
 swap                                       6,058       -   6,260       - 
Other                                          55   1,572     326     751 
=========================================  ======  ======  ======  ====== 
Fair value of scheme assets                 8,537  22,240   8,830  22,423 
=========================================  ======  ======  ======  ====== 
 

The strategic benchmark for asset allocations differentiate between 'return seeking assets' and 'liability matching assets' depending on the maturity of each scheme. At December 31, 2020, the benchmark for NAPS was 42.3 per cent (2019: 46 per cent) in return seeking assets and 57.8 per cent (2019: 54 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 their investment managers to work within. APS no longer has a 'strategic benchmark' as instead, APS now runs off its liquidation portfolio to a liability matching portfolio of bonds and cash. The actual asset allocation for APS at December 31, 2020 was 1.4 per cent (2019: 4 per cent) in return seeking assets and 98.6 per cent (2019: 96 per cent) in liability matching investments.

APS has an insurance contract with Rothesay Life which covers 24 per cent (2019: 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. APS also has secured a longevity swap contract with Rothesay Life, which covers an additional 20 per cent (2019: 20 per cent) of the pensioner liabilities for the same members covered by the insurance contract above. The value of the contract is based on the difference between the value of the payments expected to be received under this contract and the pensions payable by the scheme under the contract. The fees are linked to LIBOR, and an assumed future LIBOR rate has been derived based on swap prices at December 31, 2020.

During 2018 the Trustee of APS secured a buy-in contract with Legal & General. The buy-in contract covers all members in receipt of pension from APS at March 31, 2018, excluding dependent children receiving a pension at that date and members in receipt of equivalent pension (EPB) only benefits, who are alive on October 1, 2018. Benefits coming into payment for retirements after March 31, 2018 are not covered. The contract covers benefits payable from October 1, 2018 onwards. The policy covers approximately 60 per cent of all benefits APS expects to pay out in future. Along with existing insurance products (the asset swap and longevity swaps with Rothesay Life), APS is now 90 per cent protected against all longevity risk and fully protected in relation to all pensions that were already being paid as at March 31, 2018. It is also more than 90 per cent protected against interest rates and inflation (on a Retail Price Index (RPI) basis).

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:

 
EUR million                                      2020     2019 
============================================  =======  ======= 
January 1                                      30,782   25,383 
Current service cost                                5        5 
Past service cost/(credit)                          7      665 
Interest expense                                  581      710 
Remeasurements - financial assumptions          3,633    3,423 
Remeasurements of experience (gains)/losses     (355)      193 
Benefits paid                                 (1,573)  (1,269) 
Employee contributions                             14        6 
Exchange movements                            (2,086)    1,666 
============================================  =======  ======= 
December 31                                    31,008   30,782 
============================================  =======  ======= 
 

The defined benefit obligation comprises EUR24 million (2019: EUR30 million) arising from unfunded plans and EUR30,984 million (2019: EUR30,752 million) from plans that are wholly or partly funded.

f Effect of the asset ceiling

A reconciliation of the effect of the asset ceiling used in calculating the IAS 19 irrecoverable surplus in APS is set out below:

 
EUR million           2020  2019(1) 
===================  =====  ======= 
January 1              974    1,868 
Interest expense        14       39 
Remeasurements       (320)  (1,027) 
Exchange movements    (65)       94 
===================  =====  ======= 
December 31            603      974 
===================  =====  ======= 
 

1 Refer to note 2 for information relation to the reclassification from the Employee benefit obligations to deferred taxes at December 31, 2019. As at January 1, 2019 the reclassification had the effect of increasing the asset ceiling by EUR503 million to EUR1,868 million. As at December 31, 2019, the reclassification had the effect of increasing the remeasurements by EUR246 million to EUR1,027 million.

g Actuarial assumptions

The principal assumptions used for the purposes of the actuarial valuations were as follows:

 
                                          2020                  2019 
                                  ====================  ==================== 
                                                 Other                 Other 
Per cent per annum                 APS  NAPS   schemes   APS  NAPS   schemes 
================================  ====  ====  ========  ====  ====  ======== 
                                                 0.5 -                 0.8 - 
Discount rate(1)                  1.20  1.40       2.4  1.85  2.05       3.2 
Rate of increase in pensionable 
 pay(2)                           2.95     -       2.5  2.90     -       2.5 
Rate of increase of pensions                     1.1 -                 1.2 - 
 in payment(3)                    2.95  2.25       3.5  2.90  2.15       3.5 
                                                 2.5 -                 2.5 - 
RPI rate of inflation             2.95  2.80       2.7  2.90     -       2.8 
                                                 1.1 -                 1.2 - 
CPI rate of inflation             2.25  2.25       3.0     -  2.15       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 increases in RPI. 

3 It has been assumed that the rate of increase of pensions in payment will be in line with CPI for NAPS and APS as at December 31, 2020.

Rate of increase in healthcare costs is based on medical trend rates of 6.25 per cent grading down to 5.00 per cent over five years (2019: 6.50 per cent to 5.00 per cent over five years).

In the UK, mortality rates for APS and NAPS are calculated using the standard SAPS mortality tables produced by the CMI. 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              2020  2019 
=================================  ====  ==== 
Life expectancy at age 60 for a: 
- male currently aged 60           28.2  28.2 
- male currently aged 40           29.9  29.9 
- female currently aged 60         29.3  29.0 
- female currently aged 40         31.8  31.6 
=================================  ====  ==== 
 

At December 31, 2020, the weighted-average duration of the defined benefit obligation was 12 years for APS (2019: 12 years) and 20 years for NAPS (2019: 19 years).

In the US, mortality rates were based on the MP-2020 mortality tables.

h Sensitivity analysis

Reasonable possible changes at the reporting date to significant actuarial assumptions, holding other assumptions constant, would have affected the present value of scheme liabilities by the amounts shown:

 
                                                         (Decrease)/increase 
                                                         in scheme liabilities 
                                                      ========================== 
                                                                           Other 
EUR million                                              APS    NAPS     schemes 
====================================================  ======  ======  ========== 
Discount rate (decrease of 5 basis points)              (22)   (429)          16 
Future salary growth (increase of 10 basis points)         -       -           7 
Future pension growth (increase of 10 basis points)     (33)   (374)           3 
Future mortality rate (one year increase in life 
 expectancy)                                            (33)   (826)           5 
====================================================  ======  ======  ========== 
 

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, 2018, using assumptions and methodologies agreed between the Group and Trustee of each scheme. At the date of the actuarial valuation, the actuarial deficit of NAPS amounted to EUR2,736 million. In order to address the deficit in the scheme, the Group has also committed to the following undiscounted deficit payments:

 
EUR million                                  NAPS 
=========================================   ===== 
Within 12 months                              124 
2-5 years                                   1,156 
==========================================  ===== 
Total expected deficit payments for NAPS    1,280 
==========================================  ===== 
 

The Group has determined that the minimum funding requirements set out above for NAPS will not be restricted. The present value of the contributions payable is expected to be available as a refund or a reduction in future contributions after they are paid into the plan. This determination has been made independently for each plan, subject to withholding taxes that would be payable by the Trustee.

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 EUR126 million in employer contributions and deficit payments to the two significant post-retirement benefit plans in 2021. This is made up of EUR125 million of deficit payments for NAPS after giving consideration to the aforementioned contribution deferral agreement and ongoing employer contributions of EUR1 million for APS.

Under the contribution deferral agreement between British Airways and the Trustee of NAPS, in the period up to December 31, 2023, no dividend payment is permitted from British Airways to IAG. From 2024 onwards, any dividends paid by British Airways will be matched by contributions to NAPS of 50 per cent of the value of dividends paid. Any such payments to NAPS will reduce the outstanding repayment balance and are capped at that level. The requirement to make such payments to NAPS ceases after deferred contributions have been repaid.

31 Contingent liabilities and guarantees

Details of contingent liabilities are set out below. The Group does not consider it probable that there will be an outflow of economic resources with regard to these proceedings and accordingly no provision for these proceedings has been recognised.

Contingent liabilities associated with income and deferred taxes are presented note 9. For information pertaining to previously reported contingent liabilities associated with the Airways Pension Scheme, refer to note 30. For information pertaining to previous contingent liabilities associated with the theft of customer data at British Airways that have been recognised as legal claims provisions refer to note 24.

There are a number of other legal and regulatory proceedings against the Group in a number of jurisdictions which at December 31, 2020 amounted to EUR56 million (December 31, 2019: EUR53 million).

The Group also has guarantees and indemnities entered into as part of the normal course of business, which at December 31, 2020 are not expected to result in material losses for the Group.

32 Government grants and assistance

The Group has availed itself of government grants and assistance as follows:

The Coronavirus Job Retention Scheme (CJRS) - recognised net within Employee costs

The CJRS was implemented by the Government of the United Kingdom from March 1, 2020 to August 30, 2020, where those employees designated as being 'furloughed workers' were eligible to have 80 per cent of their wage costs paid up to a maximum of GBP2,500 per month.

From September 1, 2020 to September 30, 2020, the level eligibility reduced to 70 per cent of wage costs and up to a maximum of GBP2,197.50 per month. From October 1, 2020 to October 31, 2020, the level of eligibility reduced to 60 per cent of wage costs and up to a maximum of GBP1,875 per month. Following the introduction of further lockdown restrictions in the United Kingdom in November 2020, the CJRS was extended from November 1, 2020 to November 30, 2020 and then further to March 31, 2021 with the level of eligibility increased to 80 per cent of wage costs and a maximum of GBP2,500 per month.

Such costs are paid by the Government to the Group in arrears. The Group is obliged to continue to pay the associated social security costs and employer pension contributions.

The Temporary Wage Subsidy Scheme (TWSS) and the Employment Wage Subsidy Scheme (EWSS) - recognised net within Employee costs

The TWSS was implemented by the government of Ireland from March 1, 2020 to August 30, 2020, where those employees designated as being furloughed workers are eligible to have 85 per cent of their wage costs paid up to a maximum of EUR410 per week. This scheme was replaced with the EWSS from September 1, 2020 and is expected to run through to March 31, 2021. For those qualifying employees (earning less than EUR1,462 per week), the government will reimburse wage costs up to a maximum of EUR350 per week. Such costs are paid by the government to the Group in arrears.

The total amount of the relief received under the CJRS, the TWSS and the EWSS by the Group during 2020 amounted to EUR344 million (2019: EURnil).

Temporary Redundancy Plan (ERTE) - no recognition in the financial statements of the Group

The ERTE was implemented by the government of Spain from March 1, 2020 and is expected to run through to May 31, 2021. Under this plan, employment is temporarily suspended and those designated employees are paid directly by the government and there is no remittance made to the Group. The Group is obliged to continue to pay the associated social security costs.

Had those designated employees not been temporarily suspended during 2020, the Group would have incurred further employee costs of EUR214 million (2019: EURnil).

The Coronavirus Corporate Finance Facility (CCFF) - recognised within Short-term borrowings

On April 12, 2020, British Airways availed itself of the CCFF implemented by the Government of the United Kingdom. Under the CCFF, British Airways received EUR328 million (GBP298 million), with interest incurred at the prevailing market rate. Refer to note 23 for further details.

Syndicated financing agreements - recognised within Long-term borrowings

On April 30, 2020, Iberia and Vueling entered into syndicated financing agreements of EUR750 million and EUR260 million, respectively, with interest incurred at the prevailing market rate. The Instituto de Crédito Oficial ('ICO') in Spain has guaranteed 70 per cent of both financial agreements. Refer to note 23 for further details.

The Ireland Strategic Investment Fund (ISIF) - recognised within Long-term borrowings

On December, 23, 2020, Aer Lingus entered into a financing arrangement for EUR75 million under the ISIF. Refer to note 23 for further details.

The UK Export Finance (UKEF) - not recognised as at December 31, 2020

On December 31, 2020, British Airways entered into a 5 year term loan Export Development Guarantee Facility of EUR2.2 billion (GBP2.0 billion) underwritten by a syndicate of banks, with 80 per cent of the principal guaranteed by UKEF.

33 Related party transactions

The following transactions took place with related parties for the financial years to December 31:

 
EUR million                                  2020  2019 
===========================================  ====  ==== 
Sales of goods and services 
Sales to associates and joint ventures(1)      12     6 
Sales to significant shareholders(2)           23    32 
 
Purchases of goods and services 
Purchases from associates(3)                   42    76 
Purchases from significant shareholders(2)     80   149 
===========================================  ====  ==== 
 
 
Receivables from related parties 
Amounts owed by associates(4)                 1 2 
Amounts owed by significant shareholders(5)   1 8 
 
Payables to related parties 
Amounts owed to associates(6)                 2 3 
Amounts owed to significant shareholders(5)   118 
============================================ 
 

1 Sales to associates: Consisted primarily of sales for airline related services to Dunwoody Airline Services (Holding) Limited (Dunwoody) of EUR9 million (2019: EUR4 million), EUR1 million (2019: EURnil) to Viajes Ame S.A. and EUR1 million (2019: EUR1 million) to Serpista, S.A. and Multiservicios Aeroportuarios, S.A.

2 Sales to and purchases from significant shareholders related to interline services with Qatar Airways.

3 Purchases from associates: Consisted primarily of EUR23 million of airport auxiliary services purchased from Multiservicios Aeroportuarios, S.A. (2019: EUR50 million), EUR9 million of handling services provided by Dunwoody (2019: EUR10 million) and EUR7 million of maintenance services received from Serpista, S.A. (2019: EUR16 million).

4 Amounts owed by associates: Consisted primarily of EUR1 million of services provided to Multiservicios Aeroportuarios, S.A., Serpista, S.A., Dunwoody and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A. (2019: EUR1 million of services provided to Multiservicios Aeroportuarios, S.A. and EUR1 million of services provided to Dunwoody, Iberia Cards and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).

   5   Amounts owed by and to significant shareholders related to Qatar Airways. 

6 Amounts owed to associates: Consisted primarily of EUR2 million due to Multiservicios Aeroportuarios, S.A., Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A., Viajes Ame S.A, Serpista, S.A. and Dunwoody (2019: EUR1 million due to Dunwoody and EUR2 million due to Multiservicios Aeroportuarios, S.A., Serpista, S.A. and Empresa Hispano Cubana de Mantenimiento de Aeronaves, Ibeca, S.A.).

During the year to December 31, 2020 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 EUR7 million (2019: EUR9 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, 2020, the Group has not made any provision for expected credit loss arising relating to amounts owed by related parties (2019: nil).

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, 2020 the Group had cash deposit balances with shareholders holding a participation of between 3 to 5 per cent, of EURnil (2019: EURnil).

Board of Directors and Management Committee remuneration

Compensation received by the Group's Board of Directors and Management Committee, in 2020 and 2019 is as follows:

 
                                  Year to December 
                                         31 
                                 ================== 
EUR million                          2020      2019 
===============================  ========  ======== 
Base salary, fees and benefits 
Board of Directors 
Short-term benefits                     3         5 
Share based payments                    -         3 
Management Committee 
Short-term benefits                     5         8 
Share based payments                    -         5 
===============================  ========  ======== 
 

For the year to December 31, 2020 the Board of Directors includes remuneration for three Executive Directors (December 31, 2019: three Executive Directors). The Management Committee includes remuneration for 14 members (December 31, 2019: 12 members).

The Company provides life insurance for all executive directors and the Management Committee. For the year to December 31, 2020 the Company's obligation was EUR38,000 (2019: EUR63,000).

At December 31, 2020 the transfer value of accrued pensions covered under defined benefit pension obligation schemes, relating to the current members of the Management Committee totalled EUR1 million (2019: EUR1 million).

No loan or credit transactions were outstanding with Directors or offices of the Group at December 31, 2020 (2019: nil).

34 Post balance sheet events

On January 19, 2021, the Group amended the original agreement announced on November 4, 2019, under which the Group had agreed to acquire the entire issued share capital of Air Europa. The amendment agreement reduces the total expected consideration for the acquisition to EUR500 million, which would be payable on the sixth anniversary of the completion of the acquisition. The acquisition is subject to the completion of negotiations with Sociedad Estatal de Participaciones Industriales in Spain and approval from the European Commission. Until the completion of these negotiations and receipt of the relevant approvals, the acquisition does not meet the recognition criteria under IFRS 3 Business combinations, and no accounting has been made for the transaction in these consolidated financial statements.

On February 19, 2021 British Airways reached further agreement with the Trustee of NAPS to extend the deferral of deficit contributions through to September 30, 2021. The deferral of such contributions will amount to EUR330 million (GBP300 million). Under the contribution deferral agreement between British Airways and the Trustee of NAPS, in the period up to December 31, 2023, no dividend payment is permitted from British Airways to IAG. From 2024 onwards, any dividends paid by British Airways will be matched by contributions to NAPS of 50 per cent of the value of dividends paid. Any such payments to NAPS will reduce the outstanding repayment balance and are capped at that level. The requirement to make such payments to NAPS ceases after deferred contributions have been repaid.

On February 22, 2021, British Airways entered into a 5 year term loan Export Development Guarantee Facility of EUR2.2 billion (GBP2.0 billion) underwritten by a syndicate of banks, with 80 per cent of the principal guaranteed by UKEF.

ALTERNATIVE PERFORMANCE MEASURES

The performance of the Group is assessed using a number of alternative performance measures (APMs), some of which have been identified as key performance indicators of the Group. These measures are not defined under International Financial Reporting Standards (IFRS), should be considered in addition to IFRS measurements and may differ to definitions given by regulatory bodies applicable to the Group. They are used to measure the outcome of the Group's strategy based on 'Unrivalled customer proposition', 'Value accretive and sustainable growth' and 'Efficiency and innovation'.

The definition of each APM, together with a reconciliation to the nearest measure prepared in accordance with IFRS is presented below.

a Changes to APMs in 2020

The Group has not adjusted its APMs policy for the impact of COVID-19. However, under the existing exceptional items definition, certain costs arising from the impact of COVID-19 have been classified as exceptional items.

During 2020, the Group has made two changes to its disclosures and treatment of APMs compared with those disclosed in the Annual Report and Accounts for the year to December 31, 2019:

-- (Loss)/profit after tax before exceptional items - For the year to December 31, 2019, the Group presented exceptional items on the face of the Income statement using a three column approach to reflect the results of the Group on a pre and post exceptional basis to enable users to better understand the performance of the Group. During 2020, following the consideration of regulatory guidance, the Group has re-presented the Income statement to reflect a single column approach. Accordingly, for 2020, exceptional items and the associated narrative have been incorporated into this APM section of the consolidated financial statements. This disclosure has further been disaggregated by reportable operating segment to enable a greater understanding of the performance of each of the reportable operating segments of the Group; and

-- Pro forma financial information - The Group adopted IFRS 16 'Leases' on January 1, 2019 and applied the modified retrospective transition approach. In doing so, the comparative figures for 2018 were not restated. Accordingly, to provide a consistent basis for comparison with 2019, the Group introduced Pro forma financial information for 2018. As comparative figures for 2018 are no longer required, this pro forma information is no longer required.

b (Loss)/profit after tax before exceptional items

Exceptional items are those that in management's view need to be separately disclosed by virtue of their size or incidence in understanding the entity's financial performance. The exceptional items include: significant discontinuance of hedge accounting; significant restructuring; significant settlement agreements with the Group's pension schemes; significant changes in the long term fleet plans that result in the impairment of fleet assets and the recognition of associated provisions; and, legal settlements.

The table below reconciles the statutory income statement to the income statement before exceptional items of the Group:

 
                                                                Year to December 31 
                                     ========================================================================== 
                                                                   Before                                Before 
                                                              exceptional                           exceptional 
                                     Statutory  Exceptional         items  Statutory  Exceptional         items 
EUR million                               2020        items          2020       2019        items          2019 
===================================  =========  ===========  ============  =========  ===========  ============ 
 
Passenger revenue(1)                     5,512         (62)         5,574     22,468                     22,468 
Cargo revenue                            1,306                      1,306      1,117                      1,117 
Other revenue                              988                        988      1,921                      1,921 
-----------------------------------  ---------  -----------  ------------  ---------  -----------  ------------ 
Total revenue                            7,806         (62)         7,868     25,506                     25,506 
===================================  =========  ===========  ============  =========  ===========  ============ 
 
Employee costs(2, 6)                     3,560          313         3,247      5,634          672         4,962 
Fuel, oil costs and emissions 
 charges(1)                              3,735        1,694         2,041      6,021                      6,021 
Handling, catering and other 
 operating costs                         1,340                      1,340      2,972                      2,972 
Landing fees and en-route charges          918                        918      2,221                      2,221 
Engineering and other aircraft 
 costs(3)                                1,456          108         1,348      2,092                      2,092 
Property, IT and other costs(4)            782           28           754        811                        811 
Selling costs                              405                        405      1,038                      1,038 
Depreciation, amortisation and 
 impairment(5)                           2,955          856         2,099      2,111                      2,111 
Currency differences                        81                         81        (7)                        (7) 
-----------------------------------  ---------  -----------  ------------  ---------  -----------  ------------ 
Total expenditure on operations         15,232        2,999        12,233     22,893          672        22,221 
===================================  =========  ===========  ============  =========  ===========  ============ 
Operating (loss)/profit                (7,426)      (3,061)       (4,365)      2,613        (672)         3,285 
 
Finance costs                            (670)                      (670)      (611)                      (611) 
Finance income                              41                         41         50                         50 
Net financing credit relating 
 to pensions                                 4                          4         26                         26 
Net currency retranslation credits         245                        245        201                        201 
Other non-operating charges                (4)                        (4)        (4)                        (4) 
-----------------------------------  ---------  -----------  ------------  ---------  -----------  ------------ 
Total net non-operating costs            (384)                      (384)      (338)                      (338) 
===================================  =========  ===========  ============  =========  ===========  ============ 
(Loss)/profit before tax               (7,810)      (3,061)       (4,749)      2,275        (672)         2,947 
Tax                                        887          463           424      (560)                      (560) 
(Loss)/profit after tax for 
 the year                              (6,923)      (2,598)       (4,325)      1,715        (672)         2,387 
===================================  =========  ===========  ============  =========  ===========  ============ 
 
 
                                                            Three months to December 31 
===================================  ========================================================================== 
                                                                   Before                                Before 
                                                              exceptional                           exceptional 
                                     Statutory  Exceptional         items  Statutory  Exceptional         items 
EUR million                               2020        items          2020       2019        items          2019 
===================================  =========  ===========  ============  =========  ===========  ============ 
 
Passenger revenue(1)                       684          (2)           686      5,390                      5,390 
Cargo revenue                              389                        389        292                        292 
Other revenue                              228                        228        532                        532 
===================================  =========  ===========  ============  =========  ===========  ============ 
Total revenue                            1,301          (2)         1,303      6,214                      6,214 
===================================  =========  ===========  ============  =========  ===========  ============ 
 
Employee costs(2, 6)                       693           44           649      1,921          672         1,249 
Fuel, oil costs and emissions 
 charges(1)                                453           95           358      1,452                      1,452 
Handling, catering and other 
 operating costs                           260                        260        736                        736 
Landing fees and en-route charges          181                        181        522                        522 
Engineering and other aircraft 
 costs(3)                                  321           25           296        505                        505 
Property, IT and other costs(4)            185                        185        229                        229 
Selling costs                               65                         65        225                        225 
Depreciation, amortisation and 
 impairment(5)                             620          140           480        557                        557 
Currency differences                       (6)                        (6)       (26)                       (26) 
-----------------------------------  ---------  -----------  ------------  ---------  -----------  ------------ 
Total expenditure on operations          2,772          304         2,468      6,121          672         5,449 
===================================  =========  ===========  ============  =========  ===========  ============ 
Operating (loss)/profit                (1,471)        (306)       (1,165)         93        (672)           765 
 
Finance costs                            (167)                      (167)      (165)                      (165) 
Finance income                              14                         14         17                         17 
Net financing credit relating 
 to pensions                                 -                          -          7                          7 
Net currency retranslation credits          62                         62        108                        108 
Other non-operating charges               (47)                       (47)       (54)                       (54) 
-----------------------------------  ---------  -----------  ------------  ---------  -----------  ------------ 
Total net non-operating costs            (138)                      (138)       (87)                       (87) 
===================================  =========  ===========  ============  =========  ===========  ============ 
(Loss)/profit before tax               (1,609)        (306)       (1,303)          6        (672)           678 
Tax                                        253           99           154      (105)                      (105) 
(Loss)/profit after tax for 
 the year                              (1,356)        (207)       (1,149)       (99)        (672)           573 
===================================  =========  ===========  ============  =========  ===========  ============ 
 

The rationale for each exceptional item is given below. In 2020 all items were associated with the impact of COVID-19, except the settlement provision in relation to the theft of customer data at British Airways in 2018 (part 4).

1 Discontinuation of hedge accounting

The exceptional charge of EUR1,756 million represented by an expense of EUR62 million relating to revenue foreign currency derivatives, an expense of EUR1,781 million relating to fuel derivatives and a credit of EUR87 million related to the associated fuel foreign currency derivatives. These amounts relate to the discontinuance of hedge accounting of the associated foreign currency and fuel derivatives on forecast revenue and fuel consumption. These losses have arisen from the substantial deterioration in demand for air travel caused by COVID-19, which has caused a significant level of hedged passenger revenue transactions and fuel purchases in US dollars to no longer be expected to occur based on the Group's operating forecasts prevailing at the Balance sheet date. The Group's risk management strategy has been to build up these hedges gradually over a three-year period when the level of forecast passenger revenue and fuel consumption were higher than current expectations. Accordingly, the hedge accounting for these transactions has been discontinued and the losses recognised in the Income statement. The exceptional charge relating to revenue derivatives and fuel derivatives have been recorded in the Income statement within Passenger revenue and Fuel, oil and emission charges, respectively.

The related tax credit was EUR273 million, with EUR11 million being attributable to the charge to Passenger revenue and EUR262 million being attributable to Fuel, oil costs and emissions charges.

2 Restructuring costs

The exceptional charge of EUR319 million (comprising EUR313 million of employee severance pay and EUR6 million of associated legal costs) represent the Group-wide restructuring programme, which right-sizes the Group for the near term. While the restructuring programme affects all of the Group's operating companies, the exceptional charges in the year to December 31, 2020 relate to British Airways, Aer Lingus, Iberia and LEVEL only, due to the status of negotiations with employees and their representatives. The exceptional charge has been recorded within Employee costs and Property, IT and other costs.

The related tax credit was EUR53 million.

3 Engineering and other aircraft costs

The exceptional charge of EUR108 million includes an inventory write-down expense of EUR71 million and a charge relating to contractual lease provisions of EUR37 million. The inventory write-down expense represents those expendable inventories that, given the asset impairments, are no longer expected to be utilised. The charge relating to the recognition of contractual lease provisions represents the estimation of the additional cost to fulfil the hand back conditions associated with the leased aircraft that have been permanently stood down and impaired, which are discussed further below. The exceptional charge has been recorded within Engineering and other aircraft costs.

The related tax credit was EUR14 million.

4 Settlement provision

The exceptional charge of EUR22 million represents the fine issued by the Information Commissioner's Office in the United Kingdom, relating to the theft of customer data at British Airways in 2018. The exceptional charge has been recorded within Property, IT and other costs in the Income statement, with a corresponding amount recorded in Provisions.

There is no tax impact on the recognition of this charge.

5 Impairment of fleet and associated assets

The total exceptional impairment expense of EUR856 million is represented by an impairment of fleet assets of EUR837 million and an impairment of other assets of EUR19 million. The fleet impairment relates to 82 aircraft, their associated engines and rotable inventories that have been stood down permanently and 2 further aircraft which have been impaired down to their recoverable value at December 31, 2020, which includes 32 Boeing 747 aircraft, 23 Airbus A320 aircraft, 15 Airbus A340 aircraft, 4 Airbus A330-200 aircraft, 2 Airbus A318 aircraft, 1 Airbus A321 aircraft, 1 Airbus A319 aircraft, 2 Boeing 777-200 aircraft and 4 Embraer E170 aircraft. Of the fleet impairment, EUR676 million is recorded within Property, plant and equipment relating to owned aircraft and EUR161 million is recorded within Right of use assets relating to leased aircraft.

Included within the impairment of other assets is an amount of EUR15 million relating to the landing rights, classified within Intangible assets, that were held by the operations of LEVEL in Paris. Following the decision to cease the operations of LEVEL in Paris, these landing rights have been recorded at the lower of their carrying value and their recoverable value.

The exceptional impairment expenses have been recorded within Depreciation, amortisation and impairment in the Income statement.

The related tax credit was EUR123 million.

The impairment expense has arisen from the substantial deterioration in current and forecast demand for air travel caused by the COVID-19 outbreak, which has led the Group to re-assess the medium- and long-term capacity and utilisation of the fleet. Subsequent to these impairments, all assets are held at their recoverable amounts.

6 Employee benefit obligations

The exceptional expense of EUR672 million recognised in the year to December 31, 2019 related to the past service cost of the Airways Pension Scheme ('APS') settlement agreement described in note 30. This amount arose from the increase in the IAS 19 defined benefit liability of APS following the settlement agreement between the Trustee Directors of APS and British Airways which was approved by the High Court in November 2019. The settlement agreement established higher pensions in payment growth assumptions in future years, resulting in a non-cash increase to the IAS 19 defined benefit liability. The exceptional charge was recorded within Employee costs.

The table below provides a reconciliation of the post-exceptional to pre-exceptional condensed alternative income statement by operating segment for the years to 31 December 2020 and 2019:

 
                                                                                               Year to December 31, 2020 
==============  ======================================================================================================================================================================================= 
                          British Airways                      British Airways 
                               (GBP)                                (EUR)                               Iberia                               Vueling                            Aer Lingus 
                ===================================  ===================================  ===================================  ===================================  =================================== 
                                        Before                               Before                               Before                               Before                               Before 
                           Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional 
EUR million     Statutory   items       items        Statutory   items       items        Statutory   items       items        Statutory   items       items        Statutory   items       items 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 
Passenger 
 revenue            2,840         (54)        2,894      3,309         (59)        3,368      1,160            -        1,160        569            -          569        379          (3)          382 
Cargo revenue         890            -          890        998            -          998        240            -          240          -            -            -         88            -           88 
Other revenue         217            -          217        251            -          251        859            -          859          5            -            5          -            -            - 
--------------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  ----------- 
Total revenue       3,947         (54)        4,001      4,558         (59)        4,617      2,259            -        2,259        574            -          574        467          (3)          470 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 
Employee costs      1,916          221        1,695      2,168          243        1,925        798           14          784        196            -          196        217           24          193 
Fuel, oil 
 costs 
 and emissions 
 charges            1,996          837        1,159      2,317          984        1,333        716          344          372        314          154          160        286          144          142 
Depreciation, 
 amortisation 
 and 
 impairment         1,475          399        1,076      1,659          445        1,214        612          242          370        345           68          277        157           24          133 
Other 
 operating 
 costs              2,440           42        2,398      2,792           47        2,745      1,544           52        1,492        594           30          564        370            7          363 
--------------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  ----------- 
Total 
 expenditure 
 on operations      7,827        1,499        6,328      8,936        1,719        7,217      3,670          652        3,018      1,449          252        1,197      1,030          199          831 
--------------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  ----------- 
Operating loss    (3,880)      (1,553)      (2,327)    (4,378)      (1,778)      (2,600)    (1,411)        (652)        (759)      (875)        (252)        (623)      (563)        (202)        (361) 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
Operating 
 margin 
 (%)              (98.3)%                   (58.2)%          -                         -    (62.5)%                   (33.6)%   (152.3)%                  (108.5)%   (120.4)%                   (76.8)% 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 
 
                                                                                               Year to December 31, 2019 
==============  ======================================================================================================================================================================================= 
                          British Airways                      British Airways 
                               (GBP)                                (EUR)                               Iberia                               Vueling                            Aer Lingus 
                ===================================  ===================================  ===================================  ===================================  =================================== 
                                        Before                               Before                               Before                               Before                               Before 
                           Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional             Exceptional  exceptional 
EUR million     Statutory   items       items        Statutory   items       items        Statutory   items       items        Statutory   items       items        Statutory   items       items 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 
Passenger 
 revenue           11,899            -       11,899     13,525            -       13,525      4,053            -        4,053      2,437            -        2,437      2,060            -        2,060 
Cargo revenue         711            -          711        808            -          808        291            -          291          -            -            -         54            -           54 
Other revenue         680            -          680        773            -          773      1,301            -        1,301         18            -           18         11            -           11 
--------------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  ----------- 
Total revenue      13,290            -       13,290     15,106            -       15,106      5,645            -        5,645      2,455            -        2,455      2,125            -        2,125 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 
Employee costs      3,112          583        2,529      3,549          672        2,877      1,164            -        1,164        301            -          301        405            -          405 
Fuel, oil 
 costs and 
 emissions 
 charges            3,237            -        3,237      3,679            -        3,679      1,202            -        1,202        548            -          548        460            -          460 
Depreciation, 
 amortisation 
 and 
 impairment         1,106            -        1,106      1,258            -        1,258        390            -          390        250            -          250        130            -          130 
Other 
 operating 
 costs              4,497            -        4,497      5,110            -        5,110      2,392            -        2,392      1,116            -        1,116        854            -          854 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
Total 
 expenditure 
 on operations     11,952          583       11,369     13,596          672       12,924      5,148            -        5,148      2,215            -        2,215      1,849            -        1,849 
--------------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  -----------  ---------  -----------  ----------- 
Operating 
 profit             1,338        (583)        1,921      1,510        (672)        2,182        497            -          497        240            -          240        276            -          276 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
Operating            10.1                      14.5                                             8.8                       8.8        9.8                       9.8       13.0                      13.0 
 margin (%)             %                         %          -                         -          %                         %          %                         %          %                         % 
==============  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  ===========  =========  ===========  =========== 
 

c Basic earnings per share before exceptional items and adjusted earnings per share (KPI)

Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and interest on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the assumed conversion of the bonds and employee share schemes outstanding. The effect of the assumed conversion of the IAG EUR500 million convertible bond 2022 and outstanding employee share schemes is antidilutive for the year to December 31, 2020, and therefore has not been included in the diluted earnings per share calculation.

 
EUR million                                              Note     2020  2019(1) 
=======================================================  ====  =======  ======= 
(Loss)/profit after tax attributable to equity holders 
 of the parent                                              b  (6,923)    1,715 
Exceptional items                                           b  (2,598)    (672) 
=======================================================  ====  =======  ======= 
(Loss)/profit after tax attributable to equity holders 
 of the parent before exceptional items                        (4,325)    2,387 
Interest expense on convertible bonds                                -       26 
=======================================================  ====  =======  ======= 
Adjusted (loss)/earnings                                       (4,325)    2,413 
=======================================================  ====  =======  ======= 
 
Weighted average number of shares used for basic 
 earnings per share(2)                                     10    3,528    3,056 
Weighted average number of shares used for diluted 
 earnings per share                                        10    3,528    3,137 
 
Basic (loss)/earnings per share before exceptional 
 items (EUR cents)                                             (122.6)     78.1 
=======================================================  ====  =======  ======= 
Adjusted (loss)/earnings per share (EUR cents)                 (122.6)     76.9 
=======================================================  ====  =======  ======= 
 

1 Earnings per share information has been restated for the comparative period presented, by adjusting the weighted average number of shares to include the impact of the rights issue (note 27). The discount element inherent in the rights issue has been accounted for as a bonus issue of 1,071,565 thousand shares in 2019.

2 In 2020, includes 734,657 thousand shares as the weighted average impact for 2,979,443 thousand new ordinary shares issued through the rights issue (note 27).

d Airline non-fuel costs per ASK

The Group monitors airline unit costs (per ASK, a standard airline measure of capacity) as a means of tracking operating efficiency of the core airline business. As fuel costs can vary with commodity prices, the Group monitors fuel and non-fuel costs individually. Within non-fuel costs are the costs associated with generating Other revenue, which typically do not represent the costs of transporting passengers or cargo and instead represent the costs of handling and maintenance for other airlines, non-flight products in BA Holidays and costs associated with other miscellaneous non-flight revenue streams. Airline non-fuel costs per ASK is defined as total operating expenditure before exceptional items, less fuel, oil costs and emission charges and less non-flight specific costs divided by total available seat kilometres (ASKs), and is shown on a constant currency basis.

 
                                                         2020             ccy     2020 
EUR million                                   Note   Reported   adjustment(1)      ccy     2019 
===========================================  =====  =========  ==============  =======  ======= 
Total expenditure on operations                  b     15,232           (122)   15,110   22,893 
Less: exceptional items within expenditure 
 on operations                                   b      2,999                    2,999      672 
Less: fuel, oil costs and emission 
 charges before exceptional items                b      2,041            (29)    2,012    6,021 
===========================================  =====  =========  ==============  =======  ======= 
Non-fuel costs                                         10,192            (93)   10,099   16,200 
Less: Non-flight specific costs                           851               1      852    1,654 
Airline non-fuel costs                                  9,341            (94)    9,247   14,546 
==================================================  =========  ==============  =======  ======= 
 
ASKs                                                  113,195                  113,195  337,754 
 
Airline non-fuel unit costs per ASK 
 (EUR cents)                                             8.25                     8.17     4.31 
==================================================  =========  ==============  =======  ======= 
 
   1   Refer to note h for the definition of the ccy adjustment 

e Levered free cash flow (KPI)

Levered free cash flow represents the cash generated by the underlying businesses before shareholder returns and is defined as the net increase in cash and cash equivalents taken from the Cash flow statement, adjusting for movements in Current interest-bearing deposits, less the cash inflows from the rights issue and adding back the cash outflows associated with dividends paid and the acquisition of treasury shares. The Group believes that this measure is useful to the users of the financial statements in understanding the underlying cash generating ability of the Group that is available to return to shareholders, to improve leverage and/or to undertake inorganic growth opportunities.

 
EUR million                                                         2020   2019 
===============================================================  =======  ===== 
Net Increase in cash and cash equivalents                          1,940     85 
===============================================================  =======  ===== 
Less: (Decrease)/increase in current interest-bearing deposits   (2,366)    103 
Less: Net proceeds from rights issue                             (2,674)      - 
Add: Dividends paid                                                   53  1,308 
===============================================================  =======  ===== 
Levered free cash flow                                           (3,047)  1,496 
===============================================================  =======  ===== 
 

f Net debt to EBITDA (KPI)

To supplement total borrowings as presented in accordance with IFRS, the Group reviews net debt to EBITDA to assess its level of net debt in comparison to the underlying earnings generated by the Group in order to evaluate the underlying business performance of the Group. This measure is used to monitor the Group's leverage and to assess financial headroom.

Net debt is defined as long-term borrowings (both current and non-current), less cash, cash equivalents and current interest-bearing deposits.

EBITDA is defined as operating profit before exceptional items, interest, taxation, depreciation, amortisation and impairment. The Group believes that this additional measure, which is used internally to assess the Group's financial capacity, is useful to the users of the financial statements in helping them to see how the Group's financial capacity has changed over the year. It is a measure of the profitability of the Group and of the core operating cash flows generated by the business model.

 
EUR million                                      Note     2020     2019 
===============================================  ====  =======  ======= 
Interest-bearing long-term borrowings              23   15,679   14,254 
Less: Cash and cash equivalents                    19  (5,774)  (4,062) 
Less: Current interest-bearing deposits            19    (143)  (2,621) 
===============================================  ====  =======  ======= 
Net debt                                                 9,762    7,571 
===============================================  ====  =======  ======= 
 
Operating (loss)/profit                             b  (7,426)    2,613 
Add: Exceptional items                              b    3,061      672 
Add: Depreciation, amortisation and impairment      b    2,099    2,111 
===============================================  ====  =======  ======= 
EBITDA                                                 (2,266)    5,396 
===============================================  ====  =======  ======= 
 
Net debt to EBITDA                                       (4.3)      1.4 
===============================================  ====  =======  ======= 
 

g Return on invested capital (KPI)

The Group monitors return on invested capital (RoIC) as it gives an indication of the Group's capital efficiency relative to the capital invested as well as the ability to fund growth and to pay dividends. RoIC is defined as EBITDA, less fleet depreciation adjusted for inflation, depreciation of other property, plant and equipment, and amortisation of software intangibles, divided by average invested capital and is expressed as a percentage.

Invested capital is defined as the average of property, plant and equipment and software intangible assets over a 12-month period between the opening and closing net book values. The fleet aspect of property, plant and equipment is inflated over the average age of the fleet to approximate the replacement cost of the associated assets.

 
EUR million                                               Note     2020     2019 
========================================================  ====  =======  ======= 
EBITDA                                                       f  (2,266)    5,396 
Less: Fleet depreciation multiplied by inflation 
 adjustment                                                     (1,921)  (2,040) 
Less: Other property, plant and equipment depreciation            (258)    (259) 
Less: Software intangible amortisation                            (151)    (131) 
========================================================  ====  =======  ======= 
                                                                (4,596)    2,966 
========================================================  ====  =======  ======= 
Invested capital 
Average fleet value(2)                                      12   16,020   15,598 
Less: average progress payments(3)                          12  (1,117)  (1,297) 
========================================================  ====  =======  ======= 
Fleet book value less progress payments                          14,903   14,301 
Inflation adjustment(1)                                            1.18     1.19 
========================================================  ====  =======  ======= 
                                                                 17,520   17,065 
Average net book value of other property, plant and 
 equipment(4)                                               12    2,329    2,448 
Average net book value of software intangible assets(5)     14      652      603 
========================================================  ====  =======  ======= 
Total invested capital                                           20,501   20,116 
========================================================  ====  =======  ======= 
Return on Invested Capital                                      (22.4)%   14.7 % 
========================================================  ====  =======  ======= 
 

1 Presented to two decimal places and calculated using a 1.5 per cent inflation (December 31, 2019: 1.5 per cent inflation) rate over the weighted average age of the fleet December 31, 2020: 9.8 years (December 31, 2019: 11.9 years).

2 The average net book value of aircraft is calculated from an amount of EUR16,675 million at December 31, 2019 and EUR15,365 million at December 31, 2020.

3 The average net book value of progress payments is calculated from an amount of EUR1,525 million at December 31, 2019 and EUR710 million at December 31, 2020.

4 The average net book value of other property, plant and equipment is calculated from an amount of EUR2,493 million at December 31, 2019 and EUR2,166 million at December 31, 2020.

5 The average net book value of software intangible assets is calculated from an amount of EUR666 million at December 31, 2019 and EUR638 million at December 31, 2020.

h Results on a constant currency (ccy) basis

Movements in foreign exchange rates impact the Group's financial results. The Group reviews the results, including revenue and operating costs at constant rates of exchange (abbreviated to 'ccy'). The Group calculates these financial measures at constant rates of exchange based on a retranslation, at prior year exchange rates, of the current year's results of the Group. Although the Group does not believe that these measures are a substitute for IFRS measures, the Group does believe that such results excluding the impact of currency fluctuations year-on-year provide additional useful information to investors regarding the Group's operating performance on a constant currency basis. Accordingly, the financial measures at constant currency within the discussion of the Group Financial review should be read in conjunction with the information provided in the Group financial statements.

The following table represents the main average and closing exchange rates for the reporting periods. Where 2020 figures are stated at a constant currency basis, they have applied the 2019 rates stated below:

Foreign exchange rates

 
                               Average     Closing 
                              ==========  ========== 
                              2020  2019  2020  2019 
============================  ====  ====  ====  ==== 
Euro to pound sterling        1.13  1.13  1.10  1.18 
US dollar to the euro         1.13  1.12  1.22  1.11 
US dollar to pound sterling   1.27  1.27  1.35  1.31 
============================  ====  ====  ====  ==== 
 

Group Investments

Subsidiaries

British Airways

 
                                                                                           Percentage 
                                                               Principal       Country of   of equity 
Name and address                                                activity    incorporation       owned 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Avios Group (AGL) Limited* 
 Astral Towers, Betts Way, London Road, Crawley, 
 West Sussex, RH10 9XY                                 Airline marketing          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA and AA Holdings Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Holding company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Call Centre India Private Limited (callBA) 
 F-42, East of Kailash, New-Delhi, 110065                    Call centre            India        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Cityflyer Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB        Airline operations          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA European Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Holding company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Excepted Group Life Scheme Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB            Life insurance          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Healthcare Trust Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                Healthcare          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Holdco Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Holding company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Number One Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                   Dormant          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BA Number Two Limited 
 IFC 5, St Helier, JE1 1ST                                       Dormant           Jersey        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Bealine Plc 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                   Dormant          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
BritAir Holdings Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Holding company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways (BA) Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                   Dormant          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways 777 Leasing Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB          Aircraft leasing          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Associated Companies Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Holding company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Avionic Engineering Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB      Aircraft maintenance          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Capital Limited 
 Queensway House, Hilgrove Street, St Helier, 
 JE1 1ES                                              Aircraft financing           Jersey        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Holdings B.V. 
 Strawinskylaan 3105, Atrium, Amsterdam, 1077ZX          Holding company      Netherlands        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Holidays Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB             Tour operator          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Interior Engineering Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB      Aircraft maintenance          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Leasing Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB          Aircraft leasing          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Maintenance Cardiff Limited* 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB      Aircraft maintenance          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Airways Pension Trustees (No 2) Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Trustee company          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Midland Airways Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB            Former airline          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Midland Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                   Dormant          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Diamond Insurance Company Limited 
 1st Floor, Rose House, 51-59 Circular Road, 
 Douglas, IM1 1RE                                                Dormant      Isle of Man        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Flyline Tele Sales & Services GmbH 
 Hermann Koehl-Strasse 3, 28199, Bremen                      Call centre          Germany        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Gatwick Ground Services Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB           Ground services          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Overseas Air Travel Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB                 Transport          England        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
Speedbird Insurance Company Limited* 
 Canon's Court, 22 Victoria Street, Hamilton, 
 HM 12                                                         Insurance          Bermuda        100% 
-------------------------------------------------  ---------------------  ---------------  ---------- 
British Mediterranean Airways Limited 
 Waterside, PO Box 365, Harmondsworth, UB7 0GB            Former airline          England         99% 
=================================================  =====================  ===============  ========== 
 

Iberia

 
                                                                                              Percentage 
                                                                                  Country of   of equity 
Name and address                                         Principal activity    incorporation       owned 
==================================================  =======================  ===============  ========== 
Compañía Explotación Aviones 
 Cargueros Cargosur, S.A. 
 Calle Martínez Villergas 49, Madrid, 
 28027                                                      Cargo transport            Spain        100% 
==================================================  =======================  ===============  ========== 
Compañía Operadora de Corto y 
 Medio Radio Iberia Express, S.A.* 
 Calle Alcañiz 23, Madrid, 28006                    Airline operations            Spain        100% 
==================================================  =======================  ===============  ========== 
Iberia Líneas Aéreas de España, 
 S.A. Operadora* 
 Calle Martínez Villergas 49, Madrid,               Airline operations 
 28027                                                      and maintenance            Spain      100% 1 
==================================================  =======================  ===============  ========== 
Iberia México, S.A.* 
 Ejército Nacional 439, Mexico City,               Storage and custody 
 11510                                                             services           Mexico        100% 
==================================================  =======================  ===============  ========== 
Iberia Operadora UK Limited 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                                            Dormant          England        100% 
==================================================  =======================  ===============  ========== 
Iberia Tecnología, S.A.* 
 Calle Martínez Villergas 49, Madrid, 
 28027                                                 Aircraft maintenance            Spain        100% 
==================================================  =======================  ===============  ========== 
Auxiliar Logística Aeroportuaria, 
 S.A.*                                                    Airport logistics 
 Centro de Carga Aérea, Parcela 2                   and cargo terminal 
 P5, Nave 6, Madrid, 28042                                       management            Spain         75% 
==================================================  =======================  ===============  ========== 
Compañía Auxiliar al Cargo Exprés, 
 S.A.* 
 Centro de Carga Aérea, Parcela 2 
 P5, Nave 6, Madrid, 28042                                  Cargo transport            Spain         75% 
==================================================  =======================  ===============  ========== 
Iberia Desarrollo Barcelona, S.L.* 
 Avenida de les Garrigues 38-44, Edificio 
 B,                                                  Airport infrastructure 
 El Prat de Llobregat, Barcelona, 08220                         development            Spain         75% 
==================================================  =======================  ===============  ========== 
 

Aer Lingus

 
                                                                                      Percentage 
                                                                          Country of   of equity 
Name and address                                 Principal activity    incorporation       owned 
==============================================  ===================  ===============  ========== 
                                                 Provision of human 
                                                  resources support 
Aer Lingus (Ireland) Limited                        to fellow group         Republic 
 Dublin Airport, Dublin                                   companies       of Ireland        100% 
==============================================  ===================  ===============  ========== 
Aer Lingus 2009 DCS Trustee Limited                                         Republic 
 Dublin Airport, Dublin                                     Dormant       of Ireland        100% 
==============================================  ===================  ===============  ========== 
Aer Lingus Beachey Limited 
 Penthouse Suite, Analyst House, Peel Road, 
 IM1 4LZ                                                    Dormant      Isle of Man        100% 
==============================================  ===================  ===============  ========== 
Aer Lingus Group DAC*                                                       Republic 
 Dublin Airport, Dublin                             Holding company       of Ireland      100% 2 
==============================================  ===================  ===============  ========== 
Aer Lingus Limited*                                                         Republic 
 Dublin Airport, Dublin                          Airline operations       of Ireland        100% 
==============================================  ===================  ===============  ========== 
Aer Lingus (UK) Limited 
 Aer Lingus Base, Belfast City Airport, 
 Sydenham Bypass, Belfast, Co. Antrim, BT3                                  Northern 
 9JH                                                        Dormant          Ireland        100% 
==============================================  ===================  ===============  ========== 
ALG Trustee Limited 
 33-37 Athol Street, Douglas, IM1 1LB                       Trustee      Isle of Man        100% 
==============================================  ===================  ===============  ========== 
Dirnan Insurance Company Limited 
 Canon's Court, 22 Victoria Street, Hamilton, 
 Bermuda, HM 12                                           Insurance          Bermuda        100% 
==============================================  ===================  ===============  ========== 
Santain Developments Limited                                                Republic 
 Dublin Airport, Dublin                                     Dormant       of Ireland        100% 
==============================================  ===================  ===============  ========== 
 

IAG Loyalty

 
                                                                               Percentage 
                                                                   Country of   of equity 
Name and address                          Principal activity    incorporation       owned 
=======================================  ===================  ===============  ========== 
Avios South Africa Proprietary Limited 
 Block C, 1 Marignane Drive, Bonaero 
 Park, Gauteng, 1619                                 Dormant     South Africa        100% 
=======================================  ===================  ===============  ========== 
IAG Loyalty Limited 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                             Dormant          England        100% 
=======================================  ===================  ===============  ========== 
 

IAG Cargo

 
                                                                                  Percentage 
                                                                      Country of   of equity 
Name and address                             Principal activity    incorporation       owned 
==========================================  ===================  ===============  ========== 
Routestack Limited 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                     Shipping solutions          England        100% 
==========================================  ===================  ===============  ========== 
Zenda Group Limited 
 Carrus Cargo Centre, PO Box 99, Sealand 
 Road, London Heathrow Airport, Hounslow, 
 Middlesex, TW6 2JS                          Shipping solutions          England        100% 
==========================================  ===================  ===============  ========== 
 

Vueling

 
                                                                                 Percentage 
                                                                     Country of   of equity 
Name and address                            Principal activity    incorporation       owned 
=========================================  ===================  ===============  ========== 
Yellow Handling, S.L.U 
 Plaça Pla de l'Estany 5, Parque de 
 Negocios Mas Blau II,                         Ground handling 
 El Prat de Llobregat, Barcelona, 08820               services            Spain        100% 
=========================================  ===================  ===============  ========== 
Vueling Airlines, S.A.* 
 Plaça Pla de l'Estany 5, Parque de 
 Negocios Mas Blau II, 
 El Prat de Llobregat, Barcelona, 08820     Airline operations            Spain       99.5% 
=========================================  ===================  ===============  ========== 
 

LEVEL

 
                                                                               Percentage 
                                                                   Country of   of equity 
Name and address                          Principal activity    incorporation       owned 
=======================================  ===================  ===============  ========== 
FLYLEVEL UK Limited 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                  Airline operations          England        100% 
=======================================  ===================  ===============  ========== 
Openskies SASU 
 3 Rue le Corbusier, Rungis, 94150        Airline operations           France        100% 
=======================================  ===================  ===============  ========== 
 

International Consolidated Airlines Group, S.A.

 
                                                                                              Percentage 
                                                                                  Country of   of equity 
Name and address                                         Principal activity    incorporation       owned 
================================================  =========================  ===============  ========== 
AERL Holding Limited 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                                    Holding company          England        100% 
================================================  =========================  ===============  ========== 
British Airways Plc* 
 Waterside, PO Box 365, Harmondsworth, 
 UB7 0GB                                                 Airline operations          England      100% 3 
================================================  =========================  ===============  ========== 
FLY LEVEL, S.L. 
 Camino de la Muñoza s/n, El Caserío, 
 Iberia Zona Industrial 2, Madrid, 28042                 Airline operations            Spain        100% 
================================================  =========================  ===============  ========== 
IAG Cargo Limited* 
 Carrus Cargo Centre, PO Box 99, Sealand 
 Road, London Heathrow 
 Airport, Hounslow, TW6 2JS                          Air freight operations          England        100% 
================================================  =========================  ===============  ========== 
IAG Connect Limited 
 Waterside, PO Box 365, Harmondsworth,                   Inflight eCommerce         Republic 
 UB7 0GB                                                           platform       of Ireland        100% 
================================================  =========================  ===============  ========== 
IAG GBS Limited* 
 Waterside, PO Box 365, Harmondsworth,             IT, finance, procurement 
 UB7 0GB                                                           services          England        100% 
================================================  =========================  ===============  ========== 
IAG GBS Poland sp z.o.o.*                          IT, finance, procurement 
 Ul. Opolska 114, Krakow, 31-323                                   services           Poland        100% 
================================================  =========================  ===============  ========== 
IB Opco Holding, S.L. 
 Calle Martínez Villergas 49, Madrid, 
 28027                                                      Holding company            Spain      100% 1 
================================================  =========================  ===============  ========== 
Veloz Holdco, S.L. 
 Plaça Pla de l'Estany 5, Parque de 
 Negocios Mas Blau II, 
 El Prat de Llobregat, Barcelona, 08820                     Holding company            Spain        100% 
================================================  =========================  ===============  ========== 
 

* Principal subsidiaries

1 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.

2 The Group holds 49.75% of the total number of voting rights and the majority of the economic rights in Aer Lingus Group DAC. The remaining voting rights, representing 50.25 per cent, correspond to a trust established for implementing the Aer Lingus nationality structure.

3 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, are held by a trust established for the purposes of implementing the British Airways nationality structure.

Associates

 
                                                                             Percentage 
                                                                    Country   of equity 
Name and address                                           of incorporation       owned 
=======================================================  ==================  ========== 
Empresa Hispano Cubana de Mantenimiento de Aeronaves, 
 Ibeca, S.A. 
 Avenida de Vantroi y Final, 
 Jose Martí Airport, Havana                                       Cuba         50% 
=======================================================  ==================  ========== 
Empresa Logística de Carga Aérea, S.A. 
 Carretera de Wajay km 15, 
 Jose Martí Airport, Havana                                       Cuba         50% 
=======================================================  ==================  ========== 
Multiservicios Aeroportuarios, S.A. 
 Avenida de Manoteras 46, 2-- planta, Madrid, 28050                   Spain         49% 
=======================================================  ==================  ========== 
Dunwoody Airline Services Limited 
 Building 70, Argosy Road, East Midlands Airport, 
 Castle Donnington, Derby, DE74 2SA                                 England         40% 
=======================================================  ==================  ========== 
Serpista, S.A. 
 Calle Cardenal Marcelo Spínola 10, Madrid, 28016                Spain         39% 
=======================================================  ==================  ========== 
Air Miles España, S.A. 
 Avenida de Bruselas 20, Alcobendas, Madrid, 28108                    Spain       26.7% 
=======================================================  ==================  ========== 
Inloyalty by Travel Club, S.L.U. 
 Avenida de Bruselas 20, Alcobendas, Madrid, 28108                    Spain       26.7% 
=======================================================  ==================  ========== 
Viajes Ame, S.A. 
 Avenida de Bruselas 20, Alcobendas, Madrid, 28108                    Spain       26.7% 
=======================================================  ==================  ========== 
DeepAir Solutions Limited 
 Ground Floor North, 86 Brook Street, London, W1K 5AY               England      24.75% 
=======================================================  ==================  ========== 
 

Joint ventures

 
                                                                            Percentage 
                                                                   Country   of equity 
Name and address                                          of incorporation       owned 
======================================================  ==================  ========== 
Sociedad Conjunta para la Emisión y Gestión 
 de Medios de Pago EFC, S.A. 
 Calle de O'Donnell 12, Madrid, 28009                                Spain       50.5% 
======================================================  ==================  ========== 
 

Other equity investments

The Group's principal other equity investments are as follows:

 
                                                                   Percentage            Shareholder's   Profit/(loss) 
                                                          Country   of equity                    funds          before 
Name and address                                 of Incorporation       owned  Currency      (million)   tax (million) 
=============================================  ==================  ==========  ========  =============  ============== 
Servicios de Instrucción de Vuelo, 
 S.L. 
 Camino de la Muñoza s/n, El 
 Caserío, 
 Iberia Zona Industrial 2, Madrid, 28042                    Spain       19.9%       EUR           (71)            (10) 
=============================================  ==================  ==========  ========  =============  ============== 
The Airline Group Limited 
 5th Floor, Brettenham House South, 
 Lancaster Place, 
 London, WC2N 7EN                                         England      16.68%       GBP            287              25 
=============================================  ==================  ==========  ========  =============  ============== 
Importwise Limited 
 International House, 12 Constance Street, 
 London, E16 2DQ                                          England       14.8%       GBP             52              19 
=============================================  ==================  ==========  ========  =============  ============== 
Comair Limited 
 1 Marignane Drive, Bonaero Park, 
 Johannesburg,                                              South 
 1619                                                      Africa      11.49%       ZAR            760         (2,091) 
=============================================  ==================  ==========  ========  =============  ============== 
Travel Quinto Centenario, S.A. 
 Calle Alemanes 3, Sevilla, 41004                           Spain         10%       EUR            n/a             n/a 
=============================================  ==================  ==========  ========  =============  ============== 
i6 Group Limited 
 Farnborough Airport, Ively Road, 
 Farnborough, 
 Hampshire, GU14 6XA                                      England       7.42%       GBP              6             (1) 
=============================================  ==================  ==========  ========  =============  ============== 
Monese Limited 
 1 King Street, London, EC2V 8AU                          England       6.45%       GBP           (16)            (29) 
=============================================  ==================  ==========  ========  =============  ============== 
 

Statement of directors' responsibilities

LIABILITY STATEMENT OF DIRECTORS FOR THE PURPOSES ENVISAGED UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19 OCTOBER (REAL DECRETO 1362/2007).

At a meeting held on February 25, 2021, the directors of International Consolidated Airlines Group, S.A. state that, to the best of their knowledge, the consolidated financial statements for the year to December 31, 2020 prepared in accordance with the applicable international accounting standards, offer 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 the interim consolidated management report includes a fair review of the required information.

February 25, 2021

 
 
Javier Ferrán Larraz                  Luis Gallego Martín 
 Chairman                                   Chief Executive Officer 
 
Giles Agutter                              Peggy Bruzelius 
 
Eva Castillo Sanz                          Margaret Ewing 
 
Heather Ann McSharry                       Robin Phillips 
 
Emilio Saracho Rodríguez de Torres    Lucy Nicola Shaw 
 
Alberto Terol Esteban 
 

AIRCRAFT FLEET

 
                                                              Changes 
                                      Total      Total          since 
                                   December   December       December 
                                        31,        31,            31,           Future 
                           Right 
                  Owned   of use       2020       2019           2019       deliveries  Options 
================  =====  =======  =========  =========      =========      ===========  ======= 
Airbus A318           -        -          -          1            (1)                -        - 
Airbus A319          13       36         49         57            (8)                -        - 
Airbus A320          60      172        232        254           (22)               26       76 
Airbus A321          19       53         72         66              6               38       14 
Airbus A330-200       2       17         19         24            (5)                -        - 
Airbus A330-300       4       14         18         16              2                1        - 
Airbus A340-600       -        -          -         15           (15)                -        - 
Airbus A350          10        7         17          9              8               26       52 
Airbus A380           2       10         12         12              -                -        - 
Boeing 747-400        -        -          -         32           (32)                -        - 
Boeing 777-200       36        7         43         46            (3)                -        - 
Boeing 777-300        2       14         16         12              4                -        - 
Boeing 777-9          -        -          -          -              -               18       24 
Boeing 787-8          -       12         12         12              -                -        - 
Boeing 787-9          1       17         18         18              -                -        - 
Boeing 787-10         2        -          2          -              2               10        - 
Embraer E170          1        -          1          6            (5)                -        - 
Embraer E190          9       13         22         18              4                2        - 
================  =====  =======  =========  =========      =========      ===========  ======= 
Group total         161      372        533        598           (65)              121      166 
================  =====  =======  =========  =========      =========      ===========  ======= 
 

During 2020 the Group recorded impairments for 84 aircraft, of which 63 were still held by the Group at December 31, 2020. The Group also held 9 other aircraft not in service, pending disposal.

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END

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February 26, 2021 02:00 ET (07:00 GMT)

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