While the EUR -7.0 billion net loss of Air France-KLM has come as a shock, International Airlines Group (IAG) hasn’t fared much better in 2020. On February 26, it reported an almost identical loss after tax of EUR -6.923 billion compared to a EUR 1.715 billion profit in the previous year. With the outlook beyond Q1 of this year highly uncertain, IAG isn’t ruling out further restructurings, furloughs, and debt funding actions. IAG produced 6.9 billion loss in 2020.
The operating loss for 2020 was EUR -7.426 billion compared to a EUR 2.613 billion profit in 2019. This includes a EUR 3.061 billion exceptional charge on the discontinuance of fuel and foreign exchange hedge accounting, employee costs, and impairment of EUR 837 million on the fleet. In Q4 alone, the charge was EUR 306 million. Revenues were down -69.4 percent to EUR 7.806 billion with cargo the exception at plus 16.9 percent. Thanks to belly-hold cargo, long-haul services had become viable. The Group’s airlines operated just over 4.000 cargo-only flights.
By airline, the pre exceptional operating result of British Airways was EUR -2.327 billion (down by 4.2 billion), Iberia EUR -759 million (down by 1.2 billion), Vueling EUR -623 million (-823 million), and Aer Lingus at EUR -361 million (-637 million). Not included in these results is LEVEL, which discontinued its European short-haul operations and only operates long-haul out of Spain and France now.
IAG ended the year with EUR 10.3 billion in liquidity, higher than before the Covid-crisis and expected to be sufficient for the coming year until March 2022. It includes EUR 2.7 billion through a capital increase and EUR 2.0 billion as a loan commitment through UK Export Finance. Net debt increased to EUR 9.7 billion from 7.5 billion. Net cash was down by EUR 766 million to EUR 5.917 billion but still is strong. IAG’s gross net debt increased from EUR 14.3 to 15.7 billion. The UK, Spanish, and Irish governments provided EUR 1.4 billion in Covid payroll support schemes.
As it weathered the Covid-crisis, IAG reduced its cash spending by half. It completed restructuring plans at British Airways and Aer Lingus that include new social contracts with pay cuts and more flexibility. Some 10.000 employees have left BA and 500 at Aer Lingus. No numbers are provided for its Spanish and French subsidiaries. At BA, it agreed on a GBP 450 million deferral in pension contributions until October this year. Total employee costs came down by some EUR 2.074 billion.
Capex slashed as IAG defers aircraft deliveries
IAG slashed its capital expenditures from EUR 2.7 to 1.9 billion, mainly by deferring the delivery of seven aircraft by one year until 2021. For this year, Capex is expected to be down to EUR 1.7 billion. IAG plans to take delivery of five short-haul and ten long-haul aircraft and about the same number next year, but this depends on the outcome of negotiations with Airbus and Boeing. BA retired all its 32 remaining Boeing 747s and Iberia 15 Airbus A340-600s, while another 37 aircraft were stood down earlier than planned and will likely be returned to lessors. During 2020, 34 new aircraft joined the Group’s airlines, almost half of the A320neo-family aircraft. This has brought the fleet to 533 down from 598. IAG has 121 aircraft on order, including 64 A320neo-family, 26 A350s, ten 787-10s, and eighteen 777-9s. It has the right to cancel deliveries if significant delays are caused by the OEMs but hasn’t exercised such rights yet.
IAG is given no guidance on FY21, as the outlook remains blurred. With new Covid-cases and the extension of travel restrictions, bookings are weak in Spain but briefly rose sharply last week in the UK after PM Boris Johnson provided some guidance for the remainder of the year. IAG hopes are on a reopening of markets based on vaccine verification and pre-departure testing, with governments agreeing on common standards on data exchange. This Q1, IAG expects to operate at just twenty percent capacity of 2019 levels.
