Category Archives: IAG

British Airways retires the Airbus A318, Iberia to retire the A340-600 as IAG reports first half results

Iberia Airbus A340-642 EC-JPU (msn 744) KBP (Robbie Shaw). Image: 950772.

International Consolidated Airlines (IAG) today (July 31, 2020) presented Group consolidated results for the six months to June 30, 2020.

The results for the six months were significantly impacted by the outbreak of COVID-19, which has had a devastating impact on the global airline and travel sectors, particularly from late February 2020 onwards.

COVID-19 situation and management actions:

  •   Most Group aircraft grounded in quarter 2, with small programme of passenger flights for essential travel and repatriation
  •   1,875 additional cargo flights operated in quarter 2 to transport critical equipment and essential supplies
  •   Additional operating procedures implemented to protect customers and staff including facemask use and additional cleaning
  •   Liquidity boosted by actions including accessing Spain’s Instituto de Crédito Oficial (ICO) facility and UK’s Coronavirus Corporate Finance Facility (CCFF). Also, British Airways’ Revolving Credit Facility extended and additional one-year bridge aircraft financing facilities agreed and implemented in quarter 2
  •   Multi-year renewal signed with American Express on July 24, including €830 million payment, a significant part of which is Avios pre-purchase
  •   Cash operating costs for quarter 2 reduced to €205 million per week, with April and May slightly lower than previously estimated at €195 million per week, despite additional cost of operating cargo-only flights
  •   Current capacity planning scenario for an increase through quarter 3 and quarter 4, to -74 percent and -46 percent versus 2019 respectively, but plans highly uncertain and subject to easing lockdowns and travel restrictions
  •   Based on our current capacity planning scenario, IAG would reach breakeven in terms of Net cash flows from operating activities during quarter 4 2020
  •   Government wage support schemes accessed in main employee bases and other measures agreed to reduce employee costs due to much-reduced flying program
  •   Capital spending for 2020 reduced by €1.5 billion, against the original plan, with 2020 fleet capital expenditure covered by committed financing
  •   Deliveries of 68 new aircraft due in 2020 to 2022 deferred and certain legacy aircraft retired early, including 32 Boeing 747s and 15 Airbus A340-600s
  •   IAG expects it will take until at least 2023 for passenger demand to recover to 2019 levels and is restructuring its cost-base to reduce each airline’s size, with consultations being undertaken locally as required
  •   Active discussions remain ongoing with Globalia regarding a potential restructuring of the Air Europa acquisition, taking into account the impact of the COVID-19 pandemic. Any agreed transaction would remain subject to regulatory clearances IAG period highlights on results:
  •   Passenger capacity operated in quarter 2 down 95.3 per cent on 2019 and for the six months down 56.2 percent on 2019
  •   Second quarter operating loss €1,365 million before exceptional items (2019 operating profit: €960 million) Note: Iberia is currently operating 3 A340-600s to Latin America: EC-IZY, ECJLE and EC-JNQ.
  •   Operating loss before exceptional items for the half year €1,900 million (2019 operating profit: €1,095 million)
  •   Exceptional charge in the half year of €2,137 million on derecognition of fuel and foreign exchange hedges for 2020 and impairment of fleet
  •   Loss after tax before exceptional items for the half year €1,965 million, and 2020 statutory loss after tax and exceptional items: €3,806 million (2019 profit: €806 million)
  •   Cash of €6,016 million at June 30, 2020 down €667 million on December 31, 2019. Committed and undrawn general and aircraft facilities were €2.1 billion, bringing total liquidity to €8.1 billionProposed capital increase:

 Proposed capital increase of up to €2.75 billion, to be supported by irrevocable commitment from largest shareholder and underwritten, subject to approval at General Shareholders’ Meeting in September

For definitions refer to the Alternative performance measures section.
1 The 2019 results include a reclassification of the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the period to June 30, 2019 was €63 million. Further information is given in note 1.
2 The prior year comparative is December 31, 2019.

Willie Walsh, IAG Chief Executive Officer, said:

“In quarter 2 we’re reporting a record operating loss of €1,365 million before exceptional items compared to an operating profit of €960 million last year. Total operating losses including exceptional items relating to the early retirement of British Airways’ Boeing 747s and Iberia’s Airbus A340s came to €2,177 million.

“We operated 1,875 cargo-only flights using passenger aircraft in quarter 2 which was an important cash contributor to the Group.

“All IAG airlines made substantial losses. As a result of government travel restrictions, quarter 2 passenger traffic fell by 98.4 per cent on a capacity reduction in the quarter of 95.3 per cent. We have seen evidence that demand recovers when government restrictions are lifted. Our airlines have put in place measures to provide additional reassurance to their customers and employees on board and at the airport.

“We continue to expect that it will take until at least 2023 for passenger demand to recover to 2019 levels. Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets not just to get through this crisis but to ensure they remain competitive in a structurally changed industry.

“IAG continues to take action to strengthen its balance sheet and liquidity position including more than halving its operating cash costs and significantly reducing its capital spending. At the end of June liquidity stood at €8.1 billion. Based on our current capacity planning scenario, we would reach breakeven in terms of Net cash flows from operating activities during quarter 4 2020.

“Subject to shareholder approval at our AGM on September 8, IAG will undertake a capital increase of up to €2.75 billion which will enhance the Group’s resilience, balance sheet and liquidity position. We’re delighted that our largest shareholder, Qatar Airways, has already committed to support the proposed capital raising. This will best position IAG to continue executing its strategic objectives and capitalise on its existing market leading position and future growth and consolidation opportunities.”

In other news, British Airways has decided to drop the London (City) – New York Airbus A318 business route. The 32-seat A318s will be retired immediately. The unique route was last revenue flight was operated on March 18, 2020 (BA2 JFK-LCY with G-EUNA).

Video:

Top Copyright Photo: Iberia Airbus A340-642 EC-JPU (msn 744) KBP (Robbie Shaw). Image: 950772.

Iberia aircraft slide show:

 

IAG Group reports on the first quarter

International Consolidated Airlines Group (IAG) today (May 7, 2020) presented Group consolidated results for the three months to March 31, 2020.

The results for the quarter were significantly impacted by the outbreak of COVID-19, which has had a devastating impact on the global airline and travel sectors, with the spread of the virus worldwide, resulting in lockdowns and travel restrictions and advisories, particularly from late February 2020 onwards.

COVID-19 situation and management actions:

  •   Passenger capacity has been reduced by 94 percent from late March with most aircraft grounded and those retained for operating limited passenger, repatriation and cargo-only flights being appropriately-sized and new-generation, where practical
  •   Going into the crisis, IAG had a strong balance sheet and liquidity, with cash and undrawn facilities at 31st March of €9.5 billion and at 30th April increasing to €10.0 billion
  •   Actions have been taken to boost liquidity, such as accessing the UK’s Coronavirus Corporate Finance Facility (CCFF) and Spain’s Instituto de Crédito Oficial (‘ICO’) facility and extending British Airways’ Revolving Credit Facility
  •   For April and May the normal run-rate cash operating costs have been reduced from €440 million per week to €200 million per week
  •   Capital spending for 2020 has been reduced by €1.2 billion, with most of the remaining €3.0 billion covered by committed and agreed financing
  •   IAG is planning a meaningful return to service in July with a planning scenario that could see an overall reduction in passenger capacity of c.50 per cent in 2020, but these plans are highly uncertain and subject to the easing of lockdowns and travel restrictions
  •   IAG expects that its second quarter will be significantly worse than the first quarter
  •   IAG does not expect the level of passenger demand in 2019 to recover before 2023, making further Group-wide restructuring measures essential; as a result IAG expects to defer deliveries of 68 aircraft
  •   As previously announced, and required by UK labour legislation, British Airways has formally notified its trade unions about a proposed restructuring and redundancy program which is subject to consultation

    IAG period highlights on results:

  •   Capacity operated in the quarter down 10.5 percent on 2019
  •   First quarter operating loss before exceptional items €535 million (2019: €135 million operating profit)
  •   Net foreign exchange operating result impact for the quarter adverse €68 million
  •   Exceptional charge in the quarter of €1,325 million on derecognition of fuel and foreign exchange hedges for 2020
  •   Loss after tax before exceptional items for the quarter €556 million (2020 statutory loss after tax and exceptional items:

    €1,683 million, 2019 profit: €70 million)

  •   Cash of €6,945 million at March 31, 2020 was up €262 million on December 31, 2019

For definitions refer to the IAG Annual report and accounts 2019.
1 March 31, 2019 comparatives are the Group’s restated statutory results as reported. The 2019 results have been restated to reclassify the costs the Group incurs in relation to compensation for flight delays and cancellations as a deduction from revenue as opposed to an operating expense. There is no change in operating profit. The amount reclassified for the period to March 31, 2019 was €23 million. Further information is given in the IAG Annual report and accounts 2019.
2 The prior year comparative is December 31, 2019

Willie Walsh, IAG Chief Executive Officer, said:

“In quarter 1 we’re reporting a substantial operating loss of €535 million before exceptional items compared to an operating profit of €135 million last year. Total operating losses including exceptional items relating to fuel and foreign currency hedges came to €1,860 million.

“The operating result up to the end of February was in line with a year ago. However, March’s performance was severely affected by government travel restrictions due to the rapid spread of COVID-19 which significantly impacted demand. Most of the loss in the quarter occurred in the last two weeks of March.

“We had a strong balance sheet and liquidity position coming into this crisis. We are taking all appropriate actions to preserve cash, reduce and defer both capital spending and operating costs and secure additional financing in order to strengthen and maintain our liquidity. At the end of April our liquidity stood at €10.0 billion.

“We are planning for a meaningful return to service in July 2020 at the earliest, depending on the easing of lockdowns and travel restrictions around the world. We will adapt our operating procedures to ensure our customers and our people are properly protected in this new environment. We are working with the various regulatory bodies and are confident that changes in regulations will enable a safe and organised return to service. The industry will adapt to new requirements in the same way that it has adapted to developments in security requirements in the past.

“However, we do not expect passenger demand to recover to the level of 2019 before 2023 at the earliest. This means Group- wide restructuring is essential in order to get through the crisis and preserve an adequate level of liquidity. We intend to come out of the crisis as a stronger Group.”

Trading outlook

As announced on February 28, 2020, given the uncertainty on the impact and duration of COVID-19, IAG is not currently providing profit guidance for 2020. However, as announced on 28th April, the Group expects its operating loss before exceptional items in the second quarter to be significantly worse than in the first quarter, given the substantial decline in passenger capacity and traffic and despite some relief on employee costs from government wage support schemes and various management actions.

British Airways plans to cup up to 12,000 jobs due to the drop in air travel

IAG, the parent of British Airways, reported its first quarter results:

International Airlines Group (IAG) has announced its preliminary results for the first quarter of 2020 and continues to assess further cost reduction and cash flow initiatives across the entire Group. British Airways is to consult over redundancy and restructuring proposals with its trade unions.

First quarter results

Total revenue declined by 13 percent to €4.6 billion compared to €5.3 billion in the prior year period. Operating result before exceptional items was a loss of €535 million compared to a profit of €135 million last year. In addition, IAG’s pre-tax profit was impacted by an exceptional charge of €1.3 billion resulting from the ineffectiveness of its fuel and foreign currency hedges for the rest of 2020 due to over-hedging. This exceptional charge is measured as at the quarter end date. Detailed results for the first quarter will be released as planned on 7 May, accompanied by a presentation and conference call for analysts and investors.

The operating result in the first two months of 2020 was similar to that of last year, despite the suspension of flights to China due to COVID-19 from the end of January. All of the reduction in the operating result in the quarter compared to last year came in March. The majority of the reduction in IAG’s operating result was incurred by British Airways, followed by Iberia and Aer Lingus, while Vueling experienced a modest increase in operating loss.

Capacity

Passenger capacity, expressed in terms of available seat kilometres, declined by 10.5 percent in the quarter. Passenger traffic in terms of revenue passenger kilometres declined by 15.2 percent in the quarter. Seat load factor for the quarter declined by 4.3 points to 76.4 per cent.

IAG has reduced passenger capacity in April and May by 94 percent compared to last year, only operating flights for essential travel and repatriation. Between March 22 and April 26 IAG Cargo undertook around 350 additional cargo only return flights, primarily on long-haul routes with passenger wide body aircraft. Passenger capacity from June will depend on the timing of the easing of lockdowns and travel restrictions by governments around the world.

British Airways redundancy consultation

In light of the impact of COVID-19 on current operations and the expectation that the recovery of passenger demand to 2019 levels will take several years, British Airways is formally notifying its trade unions about a proposed restructuring and redundancy program. The proposals remain subject to consultation but it is likely that they will affect most of British Airways’ employees and may result in the redundancy of up to 12,000 of them.

As previously announced, British Airways has availed itself of the UK’s COVID-19 Job Retention Scheme and furloughed 22,626 employees in April.

Outlook

As announced on 28 February 2020, given the uncertainty on the impact and duration of COVID-19, IAG is not currently providing profit guidance for 2020. However, the Group expects its operating loss in the second quarter to be significantly worse than in the first quarter, given the substantial decline in passenger capacity and traffic and despite some relief on employee costs from government job retention and wage support schemes.

Total cash and undrawn general and committed aircraft finance facilities amounted to €9.5 billion at the end of March, including €6.95 billion of cash, cash equivalents and interest-bearing deposits.

Recovery to the level of passenger demand in 2019 is expected to take several years, necessitating Group-wide restructuring measures.

British Airways also made this announcement:

Letter to colleagues from Alex Cruz, Chairman and CEO at British Airways

On April 27, British Airways flew just a handful of aircraft out of Heathrow. On a normal day we would fly more than 300. What we are facing as an airline, like so many other businesses up and down the country, is that there is no ‘normal’ any longer.

The global aviation body, IATA, has said that the industry has never seen a downturn this deep before, and that full year industry passenger revenues could plummet 55% compared to 2019, while traffic falls 48%.  Many airlines have grounded all of their planes. Sadly, we will see some airlines go out of business with the resulting job losses.

Our very limited flying schedule means that revenues are not coming into our business. We are taking every possible action to conserve cash, which will help us to weather the storm in the short-term. We are working closely with partners and suppliers to discuss repayment terms; we are re-negotiating contracts where possible; and we are considering all the options for our current and future aircraft fleet. All of these actions alone are not enough.

In the last few weeks, the outlook for the aviation industry has worsened further and we must take action now. We are a strong, well-managed business that has faced into, and overcome, many crises in our hundred-year history. We must overcome this crisis ourselves, too.

There  is no Government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely. Any money we borrow now will only be short-term and will not address the longer-term challenges we will face.

We do not know when countries will reopen their borders or when the lockdowns will lift, and so we have to reimagine and reshape our airline and create a new future for our people, our customers and the destinations we serve. We have informed the Government and the Trade Unions of our proposals to consult over a number of changes, including possible reductions in headcount. We will begin a period of consultation, during which we will work with the Trade Unions to protect as many jobs as possible. Your views matter and we will listen to all practical proposals.

The scale of this challenge requires substantial change so we are in a competitive and resilient position, not just to address the immediate Covid-19 pandemic, but also to withstand any longer-term reductions in customer demand, economic shocks or other events that could affect us. However challenging this is, the longer we delay difficult decisions, the fewer options will be open to us.

I want to pay tribute to the thousands of British Airways colleagues who are playing a vital role in the global response to the Covid-19 crisis. Whether you are supporting our repatriation flights or the transport of essential cargo; or one of the hundreds of colleagues volunteering with organisations such as the NHS, you have my sincere respect and thanks.

This has been a difficult message to write and one I never thought I would need to send. I know how tight-knit the BA family is, and how concerned you will be, not just for yourself but for your colleagues, too. We must act decisively now to ensure that British Airways has a strong future and continues connecting Britain with the world, and the world with Britain.

Thank you.

Alex

BALPA had this reaction:

BALPA General Secretary, Brian Strutton said:

“BA pilots and all staff are devastated by the announcement of up to 12,000 possible job losses in British Airways.

“This has come as a bolt out of the blue from an airline that said it was wealthy enough to weather the COVID storm and declined any Government support.

“BALPA does not accept that a case has been made for these job losses and we will be fighting to save every single one.”
More from the BBC.

British Airways aircraft photo gallery (Airbus):

IAG further reduces capacity by 90% and accesses job retention and wage support schemes

IAG has made this announcement:

International Airlines Group (IAG) continues to take every action to reduce operating expenses and improve cash flow.

On March 16, 2020, IAG announced that it would reduce capacity, expressed in terms of available seat kilometers, by at least 75 percent in April and May compared to the same period in 2019. In recent weeks, IAG’s airlines have been helping to repatriate customers throughout the world and to conduct cargo flights delivering vital medical equipment and supplies, food and other products to combat COVID-19 and keep global supply chains moving.

Following a review, IAG has decided to reduce capacity further to an approximately 90 percent reduction in April and May compared to last year.

British Airways accesses UK Job Retention Scheme

As a result of the significant decline in flying, British Airways is making use of the UK’s COVID-19 Job Retention Scheme to help UK-based employees placed on furlough. It has today reached agreement with trade unions, GMB and Unite, to apply this scheme to more than 30,000 cabin crew and ground-based employees in April and May. Under this scheme, furloughed employees will receive 80 per cent of their base pay and of certain allowances. This agreement is subject to union ratification.

British Airways has also reached agreement with its 4,000 pilots to take four weeks of unpaid leave in April and May.

IAG’s other airlines have received support from similar job retention and wage support schemes for more than 17,000 employees in Spain and are seeking similar support in Ireland.

Stephen Gunning
Chief Financial Officer
April 2, 2020

British Airways aircraft photo gallery (Airbus):

IAG’s airlines to reduce capacity by 75%

IAG has issued this statement:

The rapid spread of COVID-19, and associated government travel restrictions and advisories are having a significant and increasingly negative impact on the demand for global air traffic on almost all routes operated by IAG’s airlines.

To date IAG has suspended flights to China, reduced capacity on Asian routes, cancelled all flights to, from and within Italy and made various changes to our network.

The US Presidential announcement to restrict entry of foreign nationals who have been in countries in the Schengen Area, the UK and Ireland has added to the uncertainty on North Atlantic routes. In addition, many other countries have banned or are restricting inward travel including Argentina, Chile, India and Peru. Spain has also been the subject of travel advisories, for example by the UK Foreign and Commonwealth Office (FCO).

IAG is implementing further initiatives in response to this challenging market environment. Capacity, in terms of available seat kilometres, in the first quarter of 2020 is now expected to be reduced by around 7.5 percent compared to last year. For April and May, the Group plans to reduce capacity by at least 75 percent compared to the same period in 2019.

IAG is also taking actions to reduce operating expenses and improve cash flow. These include grounding surplus aircraft, reducing and deferring capital spending, cutting non-essential and non-cyber related IT spend, freezing recruitment and discretionary spending, implementing voluntary leave options, temporarily suspending employment contracts and reducing working hours.

Given the continued uncertainty on the potential impact and duration of COVID-19, it is still not possible to give accurate profit guidance for the full year 2020.

The Group has strong liquidity with cash, cash equivalents and interest-bearing deposits of €7.35 billion as at March 12, 2020. In addition, undrawn general and committed aircraft backed financing facilities amount to €1.9 billion, resulting in total liquidity of €9.3 billion.

Willie Walsh, IAG’s chief executive, said: “We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer. We are therefore making significant reductions to our flying schedules. We will continue to monitor demand levels and we have the flexibility to make further cuts if necessary. We are also taking actions to reduce operating expenses and improve cash flow at each of our airlines. IAG is resilient with a strong balance sheet and substantial cash liquidity.”

In light of the exceptional circumstances facing the aviation industry due to COVID-19, and in particular the developing situation in Spain, it has been decided that Luis Gallego will continue in his role as Iberia chief executive for the next few months to lead the response in Spain. In the meantime, Willie Walsh will continue to act as Group chief executive and Javier Sanchez will remain in place as Vueling chief executive.

Antonio Vázquez, IAG´s chairman, said: “As we respond to COVID-19, Willie, Luis and the board of IAG have decided that management stability across the Group should be a priority in the near term. We are grateful that Willie has agreed to delay his retirement for a short period at this challenging time.”

Stephen Gunning
Chief Financial Officer

Iberia aircraft photo gallery:

IAG reports its full-year 2019 financial results, gives guidance for the coronavirus

International Consolidated Airlines Group (IAG) today (February 28, 2020) presented Group consolidated results for the year to December 31, 2019.

Fourth quarter operating profit of €765 million before exceptional items.

Operating profit before exceptional items for the year to December 31, 2019 of €3,285 million.

Read the full report.

Trading outlook

The earnings outlook is adversely affected by weaker demand as a result of coronavirus (COVID-19). We are currently experiencing demand weakness on Asian and European routes and a weakening of business travel across our network resulting from the cancellation of industry events and corporate travel restrictions.

In Asia, flights to Mainland China have been suspended. On January 29, British Airways suspended its daily flight to both Beijing and Shanghai and Iberia suspended its three times weekly service to Shanghai on January 31. In addition, some services on other Asian routes have been reduced. From February 13, British Airways reduced its daily Hong Kong service from two to one. From March 13, it will reduce its daily service to Seoul to 3-4 times weekly.

Some of the freed-up longhaul capacity is being redeployed to routes with stronger demand. British Airways has announced additional flights to India, South Africa and the US, while Iberia is increasing capacity on US and domestic routes.

Capacity on Italian routes for March has been significantly reduced through a combination of cancellations and change of aircraft gauge and further capacity reductions will be activated over the coming days. We also expect to make some capacity reductions across our wider shorthaul network. Shorthaul capacity is not being redeployed at this stage.

The net impact of current flight cancellations and redeployed capacity is to lower IAG’s FY 2020 planned capacity by approximately 1 per cent in terms of available seat kilometres to 2 per cent for the year. Our operating companies will continue to take mitigating actions to better match supply to demand in line with the evolving situation. Cost and revenue initiatives are being implemented across the business.

IAG is resilient with a strong balance sheet and substantial cash liquidity to withstand the current weakness. We have a management team experienced in similar situations and have demonstrated that we can respond quickly to changing market conditions. We are strongly positioned for the expected recovery in demand.

Given the ongoing uncertainty on the potential impact and duration of COVID-19, it is not possible to give accurate profit guidance for FY 2020 at this stage.

Qatar Airways increases its share of IAG

Qatar Airways following the failure of Air Italy, has increased its share of the IAG Group. The airline issued this short statement:

Qatar Airways Group Q.C.S.C. is pleased to announce that it has increased its shareholding in International Consolidated Airlines Group, S.A. (IAG) from 21.4 percent to 25.1 percent.

Qatar Airways Group Chief Executive Mr. Akbar Al Baker stated, “Our investment to date has been highly successful and the announced increase in our shareholding is evidence of our continued support of IAG and its strategy.”

“Qatar Airways continues to consider opportunities to invest in airlines and support management teams that share our vision to enhance travel opportunities for airline passengers across the globe.”

IAG’s Willie Walsh to retire

International Airlines Group (IAG) announces that Willie Walsh has decided to retire as chief executive. He will stand down from the role and from the Board of IAG on March 26, 2020 and will retire on June 30, 2020. Luis Gallego, currently Iberia chief executive, will succeed Willie.

Antonio Vázquez, IAG chairman, said: “Willie has led the merger and successful integration of British Airways and Iberia to form IAG.  Under Willie’s leadership IAG has become one of the leading global airline groups.

“Willie has been the main driver of this unique idea that is IAG. I hugely admire his commitment, strong leadership and clear vision, always ready to take on whatever challenges lay ahead of him. I am deeply respectful of what he has achieved as CEO of this Group, of his sense of fairness, his transparency and his capacity to integrate people regardless of nationalities or backgrounds.

“Willie has established a strong management team and I am delighted that Luis will be promoted from this team to succeed Willie as CEO. Luis started his career in the airline industry in 1997 with Air Nostrum and, since 2014, he has been CEO of Iberia where he has led a profound transformation of this airline. The Board is confident that Luis is the right person to lead IAG in the next stage of its development and we look forward to working closely with Luis in his new role”.

Willie Walsh said: “It has been a privilege to have been instrumental in the creation and development of IAG. I have had the pleasure of working with many exceptional people over the past 15 years at British Airways and at IAG. Luis has been a core member of the team and has shown true leadership over the years and I have no doubt he will be a great CEO of IAG“.

Luis Gallego said: “It has been a great pleasure to work with Willie over the last seven years. It is a huge honour to lead this great company. It is an exciting time at IAG and I am confident that we can build on the strong foundations created by Willie“.

Luis Gallego’s successor at Iberia will be announced in due course.

IAG to acquire Air Europa for €1 billion, Air Europa to be run by Iberia

International Consolidated Airlines Group (IAG) and Globalia are pleased to announce that definitive transaction agreements have been signed under which IAG’s wholly owned subsidiary, IB OPCO Holding S.L. (Iberia), has agreed to acquire the entire issued share capital of Air Europa for €1 billion to be satisfied in cash at Completion  and subject to a closing accounts adjustment.

Highlights

  • Transforms IAG’s Madrid hub into a true rival to Europe’s four largest hubs: Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle.
  • Re-establishes IAG as a leader in the highly attractive Europe to Latin America and Caribbean market.
  • Offers significant synergy potential in terms of cost and revenue.
  • EPS accretive in the first full year and accretive to IAG’s return on invested capital by the fourth year after Completion.
  • Completion is expected to take place in H2 2020 following receipt of relevant approvals.

Commenting on today’s announcement, Willie Walsh, Chief Executive of IAG, said:

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders.

IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group.”

Javier Hidalgo, Chief Executive of Globalia, said:

“For Globalia, the incorporation of Air Europa to IAG implies the strengthening of the company’s present and future that will maintain the path followed by Air Europa in the last years. We are convinced that the incorporation of Air Europa to a group such as IAG, who over all these years has demonstrated its support to the development of airlines within the group and the Madrid hub, will be a success”.

Luis Gallego, Chief Executive of Iberia, said:

“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America.”

Strategic rationale

Air Europa is one of the leading private airlines in Spain, operating scheduled domestic and international flights to 69 destinations, including European and long-haul routes to Latin America, the United States of America, the Caribbean and North Africa. In 2018, Air Europa generated revenue of €2.1 billion and an operating profit of €100 million. It carried 11.8 million passengers in 2018 and ended the year with a fleet of 66 aircraft.

The Board of IAG believes that the transaction would:

  • Increase the importance of IAG’s Madrid hub, transforming it into a true rival to Europe’s big four hubs: Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle;
  • Unlock further network growth opportunities and re-establish IAG’s South Atlantic leadership; and
  • Result in significant customer benefits through providing increased

The Air Europa brand will initially be retained and the company will remain as a standalone profit center within Iberia run by Iberia CEO Luis Gallego. The managements of IAG and Iberia anticipate opportunities to unlock value through the Acquisition across three key areas:

  • Integrating Air Europa into the existing Iberia hub structure at Madrid;
  • Creating commercial links between Air Europa and other IAG operating companies, in addition to inclusion into IAG’s joint businesses;
  • Integrating Air Europa onto the IAG platform of common services.

Synergies and financial impact

The Acquisition is expected to generate cost synergies across selling, general and administrative expenses, procurement, handling and distribution costs with full run-rate synergies to be achieved by 2025. IAG expects implementation costs to be phased over the same period.

In addition, the Acquisition is expected to generate significant revenue synergies by 2025, including:

  • Adding reciprocal intra-group codeshares across all connecting gateways;
  • Adjusting timings to maximise connectivity through the Madrid hub;
  • Aligning commercial policies and integrating sales forces in home markets;
  • Integrating Air Europa into existing IAG joint businesses; and
  • Integrating Air Europa into the Avios currency for loyalty.

The Acquisition is expected to be earnings accretive in the first full year following Completion and accretive to IAG’s return on invested capital within four years after Completion.

Financing and expected timetable

The Acquisition will be funded by external debt. After Completion, IAG’s net debt to EBITDA is expected to be 0.3 times higher as a result of the Acquisition compared to 1.2 times last reported at the end of Q3 2019.

Assuming satisfaction of all conditions to the Acquisition, Completion is expected to take place in 2H 2020.

IAG has agreed to pay Air Europa a break fee of €40 million in the event that the transaction fails to receive the necessary regulatory approvals and either party elects to terminate the transaction agreement.

The Acquisition constitutes a Class 2 transaction for the purposes of the UK Financial Conduct Authority’s Listing Rules and, as such, does not require IAG’s shareholders’ approval. The gross assets of Air Europa at 31 December 2018 were €901 million. The pre-tax profits attributable to Air Europa for the year ended 31 December 2018 were €67 million.

Steve Gunning

Chief Financial Officer

November 4, 2019

Air Europa aircraft photo gallery:

IAG backs the Airbus A321XLR with an order for 14 aircraft

International Airlines Group (IAG) has selected the Airbus A321XLR to expand its fleet of highly efficient single aisles with a firm order for 14 aircraft. Of these, eight are destined for Iberia and six for Aer Lingus.

IAG, the parent company of leading airlines also including British Airways, Level and Vueling, is one of Airbus’s largest customers and this agreement will take the overall order from the group to 530 aircraft. IAG airlines combined operate one of the world’s largest Airbus fleets with over 400 aircraft.

The aircraft will enable Aer Lingus to launch new routes beyond the US East Coast and Canada. For Iberia, this is a new aircraft type that will enable it to operate new transatlantic destinations and increase frequencies in key markets.

Images: Airbus.