Cost savings counter revenue

RNS Number : 3080M
British Airways PLC
21 May 2010
 



 

PRELIMINARY RESULTS ANNOUNCEMENT

 

Year April 1, 2009 - March 31, 2010

 

COST SAVINGS COUNTER REVENUE DECLINE

      

British Airways today (May 21) presented its preliminary results for the 12 months ended March 31, 2010.

 

Period highlights:

 

·      Operating loss of £231 million, including restructuring of £85 million (2009: £220 million including restructuring of £78 million)

·      Quarter 4 operating loss of £145 million (2009: £309 million)

·      Loss before tax of £531 million (2009: £401 million)

·      Revenue down £1 billion to £7,994 million (2009: £8,992 million)

·      Full year fuel costs down £597 million

·      Other operating costs down £390 million

·      Underlying unit costs down 10.8 per cent

 

British Airways' chief executive Willie Walsh said:

 

"Despite a £1 billion drop in revenue during the year, our determined efforts on cost control mean that costs have reduced at a comparable level and our operating loss is virtually the same as in the previous year. To be in the midst of the biggest economic downturn in 60 years and produce the same operating figure as last year shows the hard work that has been put into steering our business through the recession. Total costs are down by almost £1 billion, comprising a £597 million reduction in fuel costs and a £390 million reduction in non-fuel costs. The cut in non-fuel costs has been achieved by the introduction of permanent structural change in the way that we work allied with capacity reductions and cuts in external spend.

 

"Returning the business to profitability requires permanent change across the company and it's disappointing that our cabin crew union fails to recognise that. Structural change has been achieved in many parts of the business and our engineers and pilots have voted for permanent change. I would like to thank our staff across the airline for their outstanding loyalty during this demanding period and our customers for their continued support.

 

"We signed our merger agreement with Iberia in early April and are on track to complete the merger by the end of 2010. The merger will create a new leading airline group known as International Airlines Group. Both airlines will retain their separate operations and individual brands. The group will generate enhanced customer benefits with a larger combined network and continued investment in new customer products and services. It will deliver annual synergies of €400 million by year five.

 

"Also, we have received conditional approval from the US Department of Transportation for our transatlantic joint business with American Airlines and Iberia on condition that we divest up to four daily slot pairs for our competitors to use on transatlantic services. While we don't agree with the US DOT on every aspect of their decision, we are keen for them to reach their decision as soon as possible so that we can start implementing the joint business. We have also offered commitments to the EU which has undertaken formal market testing on them. If our competitors operate the schedules between London and New York in summer 2012 that they have announced, the effect of the EU commitments will be broadly similar to the DOT conditions. We look forward to receiving final approval from the DOT and EU by the summer.

 

"We are addressing our £3.7 billion pension deficits and have concluded consultations with our trade unions on the future benefits of the schemes. The new benefit structure, which the unions are recommending to their members, avoids closing the schemes and maintains the company's contributions at the current level. The new structure will be proposed to our pension fund trustees and form part of the negotiations towards a recovery plan that we expect to present to the Pensions Regulator by June 30, 2010.

 

"Despite the cost achievements, the focus on our customers remains as strong as ever. Terminal 5 has just celebrated its second birthday and has revolutionised our operation with more than 90 per cent of flights regularly operating on time across the network. This February we launched our new First class cabin and feedback from customers has been extremely positive.

 

"The current financial year could hardly have had a worse start with the unprecedented closures of UK airspace following the eruption of the volcano in Iceland. This added to the aviation industry's current financial woes while highlighting its crucial contribution to the economy. We are pleased that the European Commission has agreed that national governments can compensate airlines for the losses incurred. We are not looking for a bail out, only for compensation for the losses caused by the airspace closure which was something completely out of our control.

 

"In 2007 the Office of Fair Trading had agreed that it would be prepared to resolve its investigation into alleged price fixing between British Airways and Virgin Atlantic under the Competition Act 1998 if certain conditions were met. Given the collapse of the criminal trial on May 10 2010, the acquittal of the four defendants, and in light of potential new evidence, we are considering whether the settlement terms the company was offered by the OFT, including the as yet unpaid fine of £121.5 million, remain appropriate."

 

British Airways' chairman Martin Broughton said: 

 

"This is our second consecutive year of record losses but we take heart from the fact that, while our revenue has fallen by £1 billion, so have our costs. I would like to thank everyone who has worked diligently and made sacrifices in order to produce this excellent cost performance. 

 

"While the outlook is becoming slightly more positive, we urge the Government to reconsider its plans to tax the aviation industry, which already more than pays its way in taxation, isn't used as a convenient source of public sector funding through increased taxes. The industry is vital to the UK economy and the travellingpublic as the airspace closure indicated yet we have a larger, and increasing, tax burden than other transport sectors.

 

"In light of our current financial situation, the board is unable to recommend a dividend this year."

 

Financial review:

 

Group revenue in quarter 4 was down 4.7 per cent to just under £1.9 billion with operating costs down 11.4 per cent to £2 billion. This results in an operating loss for the quarter of £145 million, an improvement of £164 million from quarter 4 in the previous year.  Excluding fuel the operating costs were down 5.9 per cent. Loss before tax for quarter 4 was £189 million. Passenger revenue for quarter 4 was down 3.2 per cent. Yields were up 3.2 per cent, 5.8 per cent excluding the impact of exchange.  The quarter's operating loss includes seven days of strike action with a net cost of £43 million.

 

For the full year, revenue at £8 billion was down 11.1 per cent, 14.5 per cent excluding exchange.

 

Passenger revenue for the full year was down 10.9 per cent to £7 billion, on capacity down 4.9 per cent.  Despite improvement in the second half of the year, yields were down 8.0 per cent, excluding exchange down 11.4 per cent.

 

According to IATA, demand for global premium travel finally returned to year on year growth in December 2009 some three months behind a pick up in general global economic activity.  It was the first such increase in 18 months.  

 

Global freight markets were affected materially by the economic downturn reaching a low point in early 2009.  Since November 2009 both the market and the airlines have seen a return to positive year on year growth. Overall volumes, measured in cargo tonne kilometres, for the year down only 2.2 per cent against capacity down 4.6 per cent.  Cargo revenue for the full year decreased by 18.3 per cent mainly due to the impact on yields of excess capacity. 

 

Our early reaction to the economic downturn drove excellent cost performance.  Fuel costs, driven mainly by lower oil prices, fell by £597 million. Non-fuel costs reduced by £390 million as a direct result of our robust cost initiative programmes implemented from October 2008.  Non-fuel costs include a charge of £85 million for restructuring (£78 million last year). Despite the reduced capacity, unit costs excluding fuel, exchange and restructuring were down 4.1 per cent.

 

Loss before tax for the year was £531 million.

 

The tax rate for the year was 20 per cent.

 

Our cash balance at the end of March 2010 at £1.7 billion remains strong, up £333 million since March 2009. In addition we have £2 billion of committed aircraft facilities and some £450 million of general facilities. Net debt reduced by £94 million to £2.3 billion, including £85 million of exchange and other non-cash movements. Gross debt increased by £368 million.

 

Reserves at March 2010 were £692 million, an increase of £262 million since March 2009.  This increase is primarily driven by the marked to market movement on fuel and cash flow hedges of £587 million offset by the loss for the year.  The equity component of the convertible bond raised in August 2009 adds a further £84 million to reserves.

 

Capital expenditure for the full year was £505 million, down £66 million from last year following management's review of capital spend during the economic crisis.

 

Business review:

 
Upgraded customer experience

 

We launched our new First class cabin in February and the majority of our longhaul aircraft will be fitted with the new cabin by the end of next year. We have completed the installation of our new Club World cabin on all our Boeing 747 and 777 aircraft.

 

This summer we take delivery of the first of three new Boeing 777-300ER aircraft joining our fleet this year. They will be fitted with new cabins throughout including new First, Club World and newly designed World Traveller and World Traveller Plus cabins as well as our next generation inflight entertainment system.

 

BA CityFlyer's fleet upgrade continues apace with nine of its 11 new Embraer 170 and 190SR jets now in operation.  

 

Our subsidiaries BA CityFlyer and OpenSkies are launching new routes this month. BA CityFlyer is starting flights from London City to Ibiza and Majorca today while OpenSkies has started services between Paris and Washington DC.

      

Capacity and fleet

 

Capacity this year has reduced by 4.9 per cent (4.4 per cent excluding the strike impact) and we have effectively managed capacity in line with demand. Our seat factor rose by 1.5 points to 78.5 per cent for the full year.

 

We have decided to re-introduce one Boeing 747 into service this winter and will keep capacity under review as market conditions develop.

 

Competitive cost base

             

Our thorough review of our cost base, including working closely with our suppliers, reduced our non-fuel operating costs by £390 million.

 

Our manpower has fallen by nearly 3,800 compared with last March. The manpower savings have come from productivity improvements and have been achieved by natural attrition combined with voluntary redundancy, overtime reductions, part time working and unpaid leave.  Overall, since September 2008, our manpower has reduced by more than 6,000.

 

While cutting costs and improving efficiency, we continue to achieve high levels of customer satisfaction and excellent operational performance. 

 
Corporate responsibility

 

We are establishing, in partnership with the Solena Group, Europe's first sustainable jet-fuel plant and plan to use the low-carbon fuel to power part of our fleet from 2014. The new fuel will be derived from waste biomass and manufactured in a state-of-the-art facility that can convert a variety of waste materials, destined for landfill, into aviation fuel.  

 

Our carbon offset scheme has been improved to enable customers to become more carbon neutral by basing offsets not only on the distance flown but also the cabin in which the customer is flying. Customers travelling in premium cabins, who have more space on the aircraft, will pay more to offset emissions.

 

We are the official airline of the England 2018 World Cup bid and flew England's formal bid proposal to FIFA's headquarters in Zurich earlier this month. Our partnership with the World Cup bid will see us flying the bid team around the globe to meet key figures in the football world as they seek to earn the right to stage the tournament in England.

 

Principal risks and uncertainties

 

The principal risks and uncertainties affecting the Group remain those detailed in our March 31, 2009 Annual Report and Accounts.  We report the following additional risks which were not previously reported.

 

Events causing long-term network disruption

Several possible events may cause a long-term network disruption.  Example scenarios include a significant failure of the public transport system, the complete or partial loss of the use of terminals at London Heathrow Airport, adverse weather conditions (such as snow, fog or volcanic ash), war, civil unrest or terrorism.  A long-term network disruption may result in significant lost revenue and additional cost.  The management has robust business continuity plans to mitigate these risks to the extent feasible. 

Failure of a critical IT system

We are dependent on IT systems for most of our principal business processes.  The failure of a key system may cause significant disruption to our operation and/or lost revenue.  System controls, disaster recovery and business continuity arrangements exist to mitigate the risk of a critical system failure.

 

Pandemic

If there is a significant outbreak of Swine Flu or other infectious disease, staff absence will increase which may seriously impact the operation.  Key corporate clients may discourage travel, significantly impacting sales.  As part of the recent outbreak of Swine Flu we fully rehearsed our contingency plans.

 

Related parties

 

Related party disclosures are given in note 19 to the summary consolidated financial information.

 

Trading Outlook

 

Market conditions are showing improvement from the depressed levels in 2009/10. Cargo is showing significant signs of improvement. Passenger revenue is recovering, with increased corporate activity, particularly across the Atlantic; yield is expected to continue to improve from the  strengthening position seen in Quarter 4.

 

On the basis of these market improvements we are targeting revenue growth of some 6 per cent and breakeven at the profit before tax level.

 

ends

 

May 21, 2010                                                                             043/LG/10

 

 

Note to Editors:

 

British Airways is holding its annual Investor Day today. Presentations will be available via a webcast through our website www.bashares.com from 0900 (BST).

 

Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward looking statements.

 

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations, including, without limitation, discussions of the Company's Business Plan programmes, expected future revenues, financing plans and expected expenditures and divestments. All forward-looking statements in this report are based upon information known to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Company's forward looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on some of the most important risks in this regard is given in the Company's Annual Report and Accounts, which will be available at our webite www.bashares.com from June 10, 2010. 

 

Investor Relations - Waterside (HAA3), PO Box 365, Harmondsworth, Middlesex, UB7 0GB

Tel: +44 (0) 20 8738 6947

Fax: +44 (0) 20 8738 9602 


2010 

2009 

(Worse)

ATKs per MPE (000)


566.0 

537.5 

5.3 %







TOTAL EXPENDITURE ON OPERATIONS

8,225 

9,212 

10.7 %

OPERATING LOSS

(231)

(220)

(5.0)%

Tax

106 

43 

nm

LOSS AFTER TAX

(425)

(358)

(18.7)%

nm: Not meaningful








CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME









Year ended 31 March

£ million


2010 

2009 

Other comprehensive income:




 Net gains/(losses) on cash flow hedges


587 

(988)

 Share of other movements in reserves of associates


34 

(26)

 Net gain on available-for-sale financial assets


17 


 Available-for-sale assets - realisation of fair value gains



(4)

 Held-to-maturity investments marked-to-market


5 

(5)





Total comprehensive income/(loss) for the year (net of tax)


200 

(1,343)







200 

(1,343)







£ million

2010 


2009 

(Worse)

CASH AND CASH EQUIVALENTS AT 31 MARCH

786 


402 

384 


£ million

capital

premium

shares

reserves

equity

interest

equity

Total comprehensive income for the year (net of tax)




182 

182 

18 

200 

Equity portion of convertible bond**




84 

84 


84 

Cost of share-based payment




1 

1 


1 

Exercise of share options



5 

(5)




Distributions made to holders of perpetual securities






(18)

(18)

* Closing balance includes retained earnings of £741 million.

** After deduction of transaction costs of £2 million.

£ million

capital

premium

shares

reserves

equity

interest

equity









 Adoption of IFRIC 13




(206)

(206)


(206)

 Adoption of IFRIC 14




235 

235 


235 

At 1 April 2008 (restated)

288 

937 

(10)

1,847 

3,062 

200 

3,262 

Total comprehensive (loss)/income for the year (net of tax)




(1,360)

(1,360)

17 

(1,343)

Cost of share-based payment




1 

1 


1 

Exercise of share options



2 

(2)




Purchase of own shares



(1)


(1)


(1)

Net dividends




(56)

(56)


(56)

Distributions made to holders of perpetual securities






(17)

(17)

At 31 March 2009

288 

937 

(9)

430 

1,646 

200 

1,846 

* Closing balance includes retained earnings of £1,154 million.


NOTES TO THE ACCOUNTS

For the year ended 31 March 2010

 

1.     Corporate Information

 

The Group's summary consolidated financial statements for the year ended 31 March 2010 were authorised for issue by the Board of Directors on 20 May 2010, and the balance sheet signed on the Board's behalf by Willie Walsh and Keith Williams. British Airways Plc (the Company) is a public limited company incorporated and domiciled in England and Wales. The summary consolidated financial statements herein are not the Company's statutory accounts. The Group's auditors issued an unqualified audit report, containing no statements under Section 498(2) of the Companies Act 2006, on the Group's annual financial statements on 20 May 2010. The Group and Company's annual financial statements have not been lodged with the Registrar as at 20 May 2010. The Company's ordinary shares are traded on the London Stock Exchange.


 

2.     BASIS OF PREPARATION

 

The basis of preparation and accounting policies set out in the Annual Report and Accounts for the year ended 31 March 2010 have been applied in the preparation of these summary consolidated financial statements. These are in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs)* as adopted by the European Union (EU) and with those of the Standing Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the International Accounting Standards Board (IASB). References to 'IFRS' hereafter should be construed as references to IFRSs as adopted by the EU.

 

* For the purposes of these statements IFRS also includes International Accounting Standards.


 

3.     Accounting Policies

 

The accounting policies and methods of calculation adopted are consistent with those of the annual financial statements for the year ended 31 March 2009, as described in those annual financial statements, except as discussed below.

 

IFRS 7 (Amendment), 'Financial instruments - Disclosures' (Amendment); effective for periods beginning on or after 1 January 2009. The amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of hierarchy.

 

IAS 1 (Revised), 'Presentation of financial statements'; effective for periods beginning on or after 1 January 2009. The revised standard prohibits the presentation of items of income and expenses, that are not classified as transactions with owners, in the statement of changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in equity in a statement of other comprehensive income, which will be produced in addition to the income statement. Comparative information has been re-presented so that it conforms to the revised standard, although the Group has chosen not to adopt the revised names for the financial statements.

 

IAS 1 (Amendment), 'Presentation of financial statements'; effective for periods beginning on or after 1 January 2010. The amendment provides clarification on the classification between current and non-current liabilities that can potentially be settled through the issue of equity. The amendment permits a liability to be classified as non-current provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period, even though the entity could be required by the counterparty to settle through the issue of shares at any time.

 

See the Annual Report and Accounts for the year ended 31 March 2010 for disclosure of new standards, amendments and interpretations not yet effective as well as those that were adopted during the year but which do not have a significant impact on the accounting policies and methods of calculation used in the current financial statements.


4.     SEGMENT INFORMATION

 

a.     Business segments

 

The Group's network passenger and cargo operations are managed as a single business unit. The Management Team makes resource allocation decisions based on route profitability, which considers aircraft type and route economics, based primarily by reference to passenger economics with limited reference to cargo demand. The objective in making resource allocation decisions is to optimise consolidated financial results. While the operations of OpenSkies SASU and BA Cityflyer Limited are considered to be separate operating segments, their activities are considered to be sufficiently similar in nature to aggregate the two segments and report them together with the network passenger and cargo operations. Therefore, based on the way the Group treats the network passenger and cargo operations, and the manner in which resource allocation decisions are made, the Group has only one reportable operating segment for financial reporting purposes, reported as the 'airline business'.

 

Financial results from other operating segments are below the quantitative threshold for determining reportable operating segments and consist primarily of The Mileage Company Limited, British Airways Holidays Limited and Speedbird Insurance Company Limited.

 

£ million

Airline business

All other segments

Unallocated

Total


Revenue






Sales to external customers

7,802 

192 


7,994 


Inter-segment sales

52 



52 


Segment revenue

7,854 

192 


8,046 


Segment result

(252)

21 


(231)


Other non-operating income

15 



15 


(Loss)/profit before tax and finance costs

(237)

21 


(216)


Net finance costs

(96)


(171)

(267)


Loss on sale of assets

(16)



(16)


Share of associates' losses

(32)



(32)


Tax



106 

106 


(Loss)/profit after tax

(381)

21 

(65)

(425)


Assets and liabilities






Segment assets

10,364 

116 


10,480 


Investment in associates

197 



197 


Total assets

10,561 

116 


10,677 


Segment liabilities

3,413 

373 


3,786 


Unallocated liabilities *



4,778 

4,778 


Total liabilities

3,413 

373 

4,778 

8,564 


Other segment information






Property, plant and equipment - additions (note 12)

553 

1 


554 


Non-current assets held for sale (note 8)

30 



30 


Intangible assets - additions

13 



13 


Depreciation, amortisation and impairment

731 

1 


732 


Exceptional items:






   Restructuring (note 5)

85 



85 


  





 

* Unallocated liabilities consist of current taxes of £2 million, deferred taxes of £774 million and borrowings of £4,002 million which are managed on a Group basis.

 

 

4.     SEGMENT INFORMATION continued

 

a.     Business segments continued

 

£ million

Airline business

All other segments

Unallocated

Total


Revenue






Sales to external customers

8,840 

152 


8,992 


Inter-segment sales

18 



18 


Segment revenue

8,858 

152 


9,010 


Segment result

(240)

20 


(220)


Other non-operating expense

(30)



(30)


(Loss)/profit before tax and finance costs

(270)

20 


(250)


Net finance income/(costs) *

78 


(241)

(163)


Profit on sale of assets

8 



8 


Share of associates' profit

4 



4 


Tax



43 

43 


(Loss)/profit after tax

(180)

20 

(198)

(358)


Assets and liabilities






Segment assets

10,164 

115 


10,279 


Investment in associates

209 



209 


Total assets

10,373 

115 


10,488 


Segment liabilities

3,842 

381 


4,223 


Unallocated liabilities **



4,419 

4,419 


Total liabilities

3,842 

381 

4,419 

8,642 


Other segment information






 Property, plant and equipment - additions (note 12)

643 

2 


645 


 Intangible assets - additions (excluding L'Avion)

21 



21 


 Purchase of subsidiary (net of cash acquired)

34 



34 


 Depreciation, amortisation and impairment

693 

1 


694 


 Impairment of available-for-sale financial assets - Flybe

13 



13 


 Exceptional items:






   Restructuring (note 5)

78 



78 


   Unused tickets

(109)



(109)


   Impairment of OpenSkies goodwill

5 



5 







 

* Reclassified to more accurately reflect the nature of the expense.

 

** Unallocated liabilities consist of current taxes of £4 million, deferred taxes of £652 million and borrowings of £3,763 million which are managed on a Group basis.


4.     SEGMENT INFORMATION continued

 

b.     Geographical segments - by area of original sale

 

Far East and Australasia

721 

781 


Revenue

7,994 

8,992 







Total of non-current assets excluding available-for-sale financial assets, employee benefit assets, prepayments and accrued income and derivative financial instruments located in the UK is £7,060 million (2009: £7,337 million) and the total of these non-current assets located in other countries is £340 million (2009: £372 million).





 

5.     OPERATING LOSS

 

The operating result includes restructuring charges of £85 million mainly relating to severance (2009: £78 million).


 

6.     FINANCE COSTS AND INCOME

 




Finance costs:


Interest payable on bank and other loans and finance charges payable under finance leases and hire purchase contracts

(141)

(169)


Total finance costs

(157)

(182)






Bank interest receivable

20 

95 


Total finance income

20 

95 






Pensions financing:


Net financing expense relating to pensions


Net amortisation of actuarial (losses)/gains on pensions


Effect of the APS asset ceiling

85 



Total financing expense relating to pensions

(116)

(17)






Retranslation charges on currency borrowings

(14)

(59)

 

* Unwinding of discount on the competition investigation provision and restoration and handback provisions.


 

7.     (LOSS)/PROFIT ON SALE OF PROPERTY, PLANT AND EQUIPMENT AND INVESTMENTS

 





Year ended 31 March


£ million

2010 

2009 


Net (loss)/profit on sale of property, plant and equipment

(16)

2 


Net profit on the disposal of investments


6 


(Loss)/profit on sale of property, plant and equipment and investments

(16)

8 


8.     NON-CURRENT ASSETS HELD FOR SALE

 

In April 2009, the Group agreed to the sale of 11 Boeing 757 aircraft, these aircraft will exit the business between June 2010 and April 2012. The economic lives and residual values of the aircraft were adjusted in April 2009 to reflect the terms of the sale agreement. Aircraft which are due to exit the business within 12 months are classified as non-current assets held for sale.


 

9.     Tax

 

The tax credit for the year ended 31 March 2010 is £106 million (2009: £43 million). This consists of a current tax credit of £2 million (2009: £9 million) and a deferred tax credit of £104 million (2009: £34 million). Excluding prior year adjustments, pension fund accounting and the change in foreign profits legislation the tax rate for the year would have been 24 per cent (2009: 28 per cent).

 

   10.    EARNINGS PER SHARE
 
  Basic earnings per share for the year ended 31 March 2010 are calculated on a weighted average of 
  1,152,088,000 ordinary shares (2009: 1,151,230,000) and adjusted for shares held for the purposes 
  of Employee Share Ownership Plans including the Long Term Incentive Plan. Diluted earnings per 
  share for the period ended 31 March 2010 are calculated on a weighted average of 1,274,083,000 
  ordinary shares (2009:1,153,932,000).
 
  The number of shares in issue at 31 March 2010 was 1,153,674,000 (2009: 1,153,628,000) ordinary shares of 25 
  pence each. 

 

11.    DIVIDENDS

 

The Directors recommend that no dividend be declared for the year ended 31 March 2010 (2009: £nil).  The Company declared a dividend of 5 pence per share (totalling £58 million) for the year ended 31 March 2008. The dividend was paid in July 2008 and was accounted for as a reduction in shareholders' equity for the year ended 31 March 2009.

 

In the prior year, the Group reversed £2 million of previously declared dividends, relating to historic unclaimed dividends that are no longer expected to be collected.


 

12.    PROPERTY, PLANT AND EQUIPMENT

 

During the year ended 31 March 2010, the Group acquired assets with a cost of £554 million (2009: £651 million). Included in the acquisition of assets are the delivery of two Airbus A318 aircraft, three Airbus A320 aircraft, three Boeing 777-200 aircraft and seven Embraer E-jets aircraft.

 

Property, plant and equipment with a net book value of £118 million was disposed of by the Group during the year ended 31 March 2010 (2009: £3 million) resulting in a net loss on disposal of £16 million (2009: gain £2 million).

 

Assets with a net book value of £30 million were transferred to non-current assets held for sale during the year ended 31 March 2010 (2009: £nil).


 

13.    Reconciliation of net cash flow to movement in net debt

 

Decrease/(increase) in net debt during the year

94 

(1,072)


Net debt at 31 March

(2,288)

(2,382)

 

Net debt comprises the current and non-current portions of long-term borrowings less cash and cash equivalents and other current interest-bearing deposits.


14.    Long-term Borrowings

 






31 March

31 March


£ million

2010 

2009 


a     Current





556 

689 


b     Non-current





3,446 

3,074 


* Includes £269 million relating to the liability portion of the convertible bond (2009: £nil).

 

The Group issued a £350 million fixed rate convertible bond in August 2009, raising cash of £341 million (net of issue costs), which holds a coupon rate of 5.8 per cent and is convertible into ordinary shares at the option of the holder before or upon maturity in August 2014. Conversion into ordinary shares will occur at a premium of 38 per cent on the Group's share price on the date of issuance. The Group hold an option to redeem the convertible bond at its principal amount, together with accrued interest, upon fulfilment of certain pre-determined criteria. The equity portion of the convertible bond issue is included in other reserves.


 

15.    SHARE OPTIONS

 

During the year, the Group made awards under the Performance Share Plan (PSP) to key senior executives and selected members of the wider management team, under which 7,312,824 conditional shares were awarded. No payment is due upon vesting the shares.  The fair value of equity-settled share options granted is estimated as at the date of award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded.  The following are the inputs to the model, calculated on an average basis for the three PSP options granted during the year:

 

 

Expected share price volatility 38%

Historical volatility 54%

Expected life of options three years

Weighted average share price £1.85

 

For further details of the plan, refer to the Annual Report and Accounts for the year ended 31 March 2010. 


16.    PENSION COSTS

 

The Company operates two funded principal defined benefit pension schemes in the UK, the Airways Pension Scheme (APS) and the New Airways Pension Scheme (NAPS) both of which are closed to new members. The results of the accounting valuation at the year ended 31 March 2010 are summarised below:

 




APS



NAPS




31 March

31 March


31 March

31 March




2010 

2009 


2010 

2009 


Fair value of scheme assets

6,443 

5,925 


8,024 

6,049 


Present value of scheme liabilities

(6,247)

(5,065)


(9,969)

(7,216)


Net pension asset/(liability)

196 

860 


(1,945)

(1,167)










Net pension asset/(liability) represented by:








Net pension asset recognised

317 

304 


158 

26 



Restriction on APS surplus due to the asset ceiling

50 

135 






Cumulative actuarial (losses)/gains not recognised

(171)

421 


(2,103)

(1,193)


Net pension asset/(liability)

196 

860 


(1,945)

(1,167)

 

At 31 March 2010 both APS and NAPS were recognised on the balance sheet as employee benefit assets, representing £475 million of the £483 million disclosed (2009: £330 million of the £340 million). The £208 million employee benefit obligations at 31 March 2010 relates to other schemes (2009: £191 million).

 

The accounting valuation was performed after updating key assumptions at 31 March 2010 as follows:

 




APS



NAPS




31 March

31 March


31 March

31 March


Per cent per annum

2010 

2009 


2010 

2009 


Inflation (RPI)

3.6 

2.7 


3.7 

3.0 


Salary increases (as RPI)

3.6 

2.7 


3.7 

3.0 


Discount rate

5.5 

7.1 


5.6 

6.9 










 

17.    PROVISIONS FOR LIABILITIES AND CHARGES

 

Litigation

There are ongoing investigations into the Group's passenger and cargo surcharges by the European Commission and other jurisdictions. These investigations are likely to continue for some time. The Company is also subject to related class action claims. The final amount required to pay the remaining claims and fines is subject to uncertainty.

 

Restructuring

       The Group recognised a restructuring provision of £28 million at 31 March 2010 (2009: £21 million) in respect of items including targeted voluntary severance schemes announced during the year. This provision is expected to be paid during the next financial year.


18.    CONTINGENT LIABILITIES

 

There were contingent liabilities at 31 March 2010 in respect of guarantees and indemnities entered into as part of the ordinary course of the Group's business. No material losses are likely to arise from such contingent liabilities.  A number of other lawsuits and regulatory proceedings are pending, the outcome of which in the aggregate is not expected to have a material effect on the Group's financial position or results of operations.

 

The Group has guaranteed certain borrowings, liabilities and commitments, which at 31 March 2010 amounted to £119 million (2009: £185 million).

 

 


 

19.    RELATED PARTY TRANSACTIONS

 

The Group has had transactions in the ordinary course of business during the year under review with related parties.

 

 





Year ended 31 March


£ million

2010 

2009 











Year ended 31 March


£ million

2010 

2009 

 

Associates

Iberia, Lineas Aéreas de España, S.A. (Iberia)

The Group has a 13.15 per cent investment in Iberia.  Areas of opportunity for cooperation have been identified and work continues to pursue and implement these. Sales and purchases between related parties are made at normal market prices and outstanding balances are unsecured and interest free.  Cash settlement is expected within the standard settlement terms specified by the IATA Clearing House.

 

During the year the Company contracted with Iberia to purchase five new Airbus A320 aircraft, the commitment arising has been included in capital expenditure commitments (note 20).

 

As at 31 March 2010 the net trading balance owed to Iberia by the Group amounted to £1 million (2009: £1 million).

 

Other associates

There was a remaining net trading balance under £1 million as at 31 March 2010 due to transactions between the Group and Dunwoody Airline Services (Holdings) Limited (2009: under £1 million).

 

Directors' and officers' loans and transactions

No loans or credit transactions were outstanding with Directors or officers of the Company at 31 March 2010 or arose during the year that need to be disclosed in accordance with the requirements of Sections 412 and 413 to the Companies Act 2006.

 

In addition to the above, the Group also has transactions with related parties that are conducted in the normal course of airline business. These include the provision of airline and related services.

 

The Group has not provided or benefited from any guarantees for any related party receivables or payables. During the year ended 31 March 2010 the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2009: £nil).

 


 

20.    CAPITAL EXPENDITURE COMMITMENTS

 

Capital expenditure authorised and contracted for but not provided for in the accounts amounts to £4,267 million for the Group commitments (2009: £4,805 million). The majority of capital expenditure commitments are denominated in US dollars, as such the commitments are subject to exchange movements.

      

The outstanding commitments include £4,253 million for the acquisition of two Boeing 777s (from 2010 to 2012), 24 Boeing 787s (from 2012 to 2016), 12 Airbus A320s (from 2010 to 2014), 12 Airbus A380s (from 2012 to 2014) and four Embraer E-jets (all in 2010).


 

21.    OTHER EVENTS

 

Merger with Iberia

 

In April 2010, British Airways and Iberia signed a merger agreement to create a new leading airline group and are on track to complete the merger by the end of 2010.  The terms of the merger agreement are consistent with the binding memorandum of understanding signed between the two airlines in November 2009.  The merger will create a new holding company called International Consolidated Airlines Group SA, which will be known as International Airlines Group.  Both airlines will retain their separate operations and individual brands.

 

The British Airways and Iberia Boards believe that the principle benefits of the merger will include significant customer benefits from a larger combined network with better frequencies and connections, more competitive prices, access to more VIP lounges and enhanced frequent flyer benefits. In addition, the joint business will improve the strategic positioning of both British Airways and Iberia combining British Airways' strong presence in North America, Asia-Pacific and Africa with Iberia's strong Latin American presence. The combined business is expected to deliver approximately €400m of annual synergy benefits, by year five.

 

 

Joint Business Agreement with American Airlines and Iberia

 

In August 2008, the Company agreed to seek regulatory approval for a new venture to join forces with American Airlines and Iberia on flights between North America and Europe.  The Joint Business Agreement will cover flights between the United States, Mexico and Canada, and the European Union, Switzerland and Norway.  It will also expand the Company's codeshare arrangements on flights within and beyond the European Union and the United States, significantly increasing the number of destinations the Company will offer to customers.

 

Following extensive consultation with both the United States Department of Transport and the European Commission, the Company is at an advanced stage in the regulatory approval process required to implement the agreement.

 


       STATEMENT OF DIRECTORS' RESPONSIBILITIES

      

The Directors of British Airways Plc, who are listed in the Group's Annual Report and Accounts for the year ended 31 March 2010, confirm that, to the best of each person's knowledge:

 

·     The condensed set of consolidated financial statements have been prepared in accordance with IFRS as adopted by the EU, IFRIC interpretation and those parts of the Companies Act 2006 applicable to companies reporting under IFRS, give a true and fair view of the assets, liabilities, financial position and (loss)/profit of the Company and Group taken as a whole.

·     The management report contained in this report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

By order of the Board

 

Willie Walsh

Chief Executive

 

Keith Williams

Chief Financial Officer

 

20 May 2010

     AIRCRAFT FLEET

 

 


Number in service with Group companies at 31 March 2010
















On Balance Sheet

Off Balance Sheet

Total

Total

Changes Since


Future deliveries

Options



Fixed Assets

Operating Leases

March 2010

March 2009

March 2009


(Note 12)

(Note 13)


AIRLINE OPERATIONS (note 1)



















Airbus A318 (Note 2)

2 


2 


2 





Airbus A319

31 

2 

33 

33 






Airbus A320 (Note 3)

22 

16 

38 

35 

3 


12 

31 


Airbus A321

11 


11 

11 






Airbus A380







12 

7 


Avro RJ85


2 

2 

2 






Avro RJ100 (Note 4)


1 

1 

9 

(8)





Boeing 737-300 (Note 5)




1 

(1)





Boeing 737-400

19 


19 

19 






Boeing 737-500 (Note 6)




2 

(2)





Boeing 747-400 (Note 7)

49 


49 

55 

(6)





Boeing 757-200 (Note 8)

7 

2 

9 

15 

(6)





Boeing 767-300

21 


21 

21 






Boeing 777-200 (Note 9)

42 

4 

46 

42 

4 





Boeing 777-300







6 

4 


Boeing 787







24 

28 


Embraer E170 (Note 10)

6 


6 


6 





Embraer E190 (Note 11)

1 


1 


1 


4 

18 


GROUP TOTAL

211 

27 

238 

245 

(7)


58 

88 

 

Note:

 

1.

Includes those operated by British Airways Plc, BA Cityflyer Limited and OpenSkies SASU.


2.

Delivery of two Airbus A318 aircraft.


3.

Includes three Airbus A320 aircraft deliveries and one additional Airbus A320 aircraft operating leased in during the year. Excludes one Airbus A320 aircraft stood down pending return to lessor. Certain future deliveries and options include reserved delivery positions, and may be taken as any A320 family aircraft.


4.

Four Avro RJ100 returned to lessor and four stood down pending return to lessor. Excludes six Avro RJ100 aircraft sub-leased to Swiss International Air Lines.


5.

Boeing 737-300 aircraft returned to lessor.


6.

Two Boeing 737-500 aircraft returned to lessor.


7.

Excludes six Boeing 747-400 aircraft temporarily stood down out of service during the year and two Boeing 747-400 aircraft stood down in the previous year.


8.

Six Boeing 757-200 aircraft stood down for sale.


9.

Includes three Boeing 777-200 aircraft deliveries during the year and one Boeing 777-200 delivered March 2009 now entered into service.


10.

Six Embraer E170 aircraft deliveries entered into service at London City Airport.


11.

One Embraer E190 aircraft delivery entered into service at London City Airport.


12.

Future deliveries have decreased by two Airbus A318 aircraft, three Airbus A320 aircraft, three Boeing 777-200 aircraft, six Embraer E170 aircraft and one Embraer E190 aircraft delivered during the year, offset by newly contracted purchases of five A320 aircraft.


13.

There have been no movements in future year options during the year.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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