LONDON, England – International Consolidated Airlines Group (IAG) on May 7, 2020, presented Group consolidated results for the three months to March 31, 2020; while planning a meaningful return to service in July with a planning scenario that could see an overall reduction in passenger capacity of 50 percent in 2020, but these plans are highly uncertain and subject to the easing of lockdowns and travel restrictions.
“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,” the report indicated.
COVID-19 situation and management actions:
- Passenger capacity has been reduced by 94 per cent 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 programme which is subject to consultation.
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 Groupwide 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.”
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 April 28, 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.
Cash and leverage
The Group’s cash position of €6,945 million was €262 million higher than December 31, 2019, despite adverse translation impacts on sterling balances of €329 million since the end of 2019. Net debt at the end of the quarter, including the debt associated with right of use assets, was €7,508 million and net debt to EBITDA, based on the 12 months to March 31, 2020, was 1.6 times.