2nd Feb 2007 07:01
British Airways PLC02 February 2007 THIRD QUARTER RESULTS 2006-2007 (unaudited) OPERATING AND FINANCIAL STATISTICS - CONTINUING OPERATIONS (unaudited) Three months ended Nine months ended December 31 Better/ December 31 Better/ 2006 2005 (Worse) 2006 2005 (Worse) Restated Restated Revenue £m 2,068 2,058 0.5% 6,560 6,159 6.5% Operating profit £m 129 176 (26.7)% 571 596 (4.2)% Profit before tax £m 113 166 (31.9)% 584 518 12.7% Profit after tax £m 107 124 (13.7)% 509 376 35.4% (Loss)/profit from discontinuedoperations £m (1) (1) nm (81) 8 nm Net assets £m 2,490 1,953 27.5% 2,490 1,953 27.5% Basic earnings per share p 9.1 10.5 (13.3)% 43.8 32.7 33.9% Three months ended Nine months ended December 31 Better/ December 31 Better/ 2006 2005 (Worse) 2006 2005 (Worse) Restated RestatedTOTAL GROUP OPERATIONS TRAFFIC AND CAPACITY RPK (m) 27,073 27,032 0.2% 86,848 83,362 4.2%ASK (m) 36,563 36,265 0.8% 111,916 108,299 3.3%Passenger load factor (%) 74.0 74.5 (0.5)pts 77.6 77.0 0.6ptsCTK (m) 1,208 1,324 (8.8)% 3,611 3,691 (2.2)%RTK (m) 3,957 4,032 (1.9)% 12,384 12,031 2.9%ATK (m) 5,629 5,730 (1.8)% 17,332 17,084 1.5%Overall load factor (%) 70.3 70.4 (0.1)pts 71.5 70.4 1.1ptsPassengers carried (000) 7,878 7,794 1.1% 25,799 24,962 3.4%Tonnes of cargo carried (000) 198 211 (6.2)% 585 593 (1.3)% FINANCIAL Operating margin (%) 6.2 8.6 (2.4)pts 8.7 9.7 (1.0)ptsPassenger revenue per RPK (p) 6.49 6.37 1.9% 6.49 6.26 3.7%Passenger revenue per ASK (p) 4.81 4.75 1.3% 5.04 4.82 4.6%Cargo revenue per CTK (p) 13.41 13.37 0.3% 13.46 12.98 3.7%Total traffic revenue per RTK (p) 48.50 47.07 3.0% 49.43 47.34 4.4%Total traffic revenue per ATK (p) 34.09 33.12 2.9% 35.32 33.34 5.9%Total expenditure on operationsper RTK (p) 49.00 46.68 (5.0)% 48.36 46.24 (4.6)%Total expenditure on operationsper ATK (p) 34.45 32.84 (4.9)% 34.55 32.56 (6.1)%Average fuel price before hedging(US cents/US gallon) 196.03 200.47 2.2% 212.89 187.73 (13.4)% TOTAL AIRLINE OPERATIONS (Note 1) OPERATIONS Average Manpower Equivalent (MPE) 42,197 43,718 3.5% 42,882 43,980 2.5%ATKs per MPE (000) 133.4 131.1 1.8% 404.2 388.4 4.0% Aircraft in service at period end 243 289 (46) 243 289 (46) Note 1: Excludes non airline activity companies, principally, Airmiles Travel Promotions Ltd,BA Holidays Ltd, BA Travel Shops Ltd and Speedbird Insurance Company Ltd. SUMMARY Turnover For the three month period, Group turnover - - at £2,068 million - - was up 0.5%on a flying programme 1.8% smaller in ATKs. Passenger yields were up 1.9% perRPK; seat factor was down 0.5 points at 74.0% on capacity 0.8% higher in ASKs. Cargo volumes for the quarter (CTKs) were down 8.8% compared with last year,with yields (revenue/CTK) up 0.3%. The reduction in CTKs is partially due to asmaller freighter programme this year versus last. For the nine month period, turnover improved by 6.5% to £6,560 million on aflying programme 1.5% larger in ATKs. Passenger yields were up 3.7% per RPK withseat factor up 0.6 points at 77.6% on capacity 3.3% higher in ASKs. Theimprovements versus last year are driven by the longhaul operation. Longhaulpremium point-to-point traffic in particular has seen improvements in bothvolume and yield. For the nine month period, cargo volumes were down 2.2%, with yields up 3.7%. Overall load factor for the quarter was down 0.1 points at 70.3%, and for thenine months up 1.1 points at 71.5%. Costs For the quarter, unit costs (pence/ATK) increased by 4.9% on the same periodlast year as a result of a total cost increase of 3.0% on capacity 1.8% lower inATKs. The reduction in ATKs was partly due to one less freighter in the thirdquarter this year versus last, and the total cost increase is mainly driven bythe increase in the cost of fuel. Excluding fuel, unit costs were up 2.6%. The 3.0% increase in costs is primarily driven by a fuel cost increase of 11.2%due to the increase in fuel price net of hedging, partially offset by a smallerflying programme and a weaker US dollar. Employee costs increased by 2.0%,primarily due to redundancy costs in the quarter supporting the managementrestructuring programme announced in December 2005 and higher pension servicecosts this year versus last. These costs were partially offset by manpowerreductions and efficiency initiatives. Selling costs were down 1.9% duepredominantly to favourable exchange movements. Engineering spend was down 8.2%in the quarter primarily driven by favourable exchange movements as a result ofthe weaker dollar, in addition to cost savings from a reduced freighteroperation. Non Operating Items Interest income at £34 million in the quarter was £10 million higher than lastyear reflecting higher cash balances and the impact of changes in interestrates. The loss of £4 million on the sale of fixed assets and investmentsprimarily relates to scrappage costs as a result of the lease termination ofJubilee House at Gatwick. The share of profits in associates at £5 million was£20 million lower than last year. The £25 million profit last year included ourshare of the profit of Iberia following the disposal of its investment inAmadeus. For the nine month period, interest expense was £117 million, £42 million lowerthan last year due to the impact of lower debt levels. Interest income was £97million, £30 million higher than last year, reflecting the higher cash balances.The retranslation of currency borrowings generated a credit of £12 million,compared with a charge of £12 million last year. This is primarily due to theweakening of the US dollar this year versus a strengthening US dollar last year.Profit on sale of fixed assets and investments was £45 million, mainlyreflecting the £48 million profit on sale of the Groups' holding in WorldNetwork Services. Tax The tax charge for the three month period, on profits from continuing operationsof £113 million, was £6 million giving an effective rate of 5%. The tax rate inthe three month period benefited from the recognition of an advance corporationtax asset of £20 million which was previously written off. The tax credit forthe three month period on the loss from discontinuing operations of £2 millionis £1 million. The charge for the nine month period on profits from continuing operations of£584 million was £75 million. Excluding the effects of provision releases, theeffective rate for the nine month period is 15% compared with 17% for the halfyear to September 30, 2006. The credit for the nine month period on losses fromdiscontinued operations of £102 million is £21 million. UK corporation tax payments in the quarter totalled £35 million and in the ninemonth period £91 million. Earnings Per Share The total earnings attributable to shareholders for the three months was £103million, equivalent to 9.0 pence per share, compared with last year's earningsper share of 10.4 pence. For the nine month period, the profit attributable to shareholders was £418million, equivalent to 36.7 pence per share, compared with earnings of 33.4pence per share last year. Net Debt / Total Capital Ratio Borrowings, net of cash and short term loans and deposits, were £866 million atDecember 31, down £775 million since the start of the year. The net debt/totalcapital ratio reduced by 18.4 points from March 31 2006 to 25.8%. The net debt/total capital ratio including operating leases was down 15.9 points from March31 to 37.1%. Cash Flow During the nine months the Group generated a positive cash flow from operatingactivities of £608 million, £201 million lower than last year. Including currentinterest bearing deposits, the cash position at December 31, 2006 was £2,643million, an increase of £203 million compared with March 31, 2006. Aircraft Fleet The continuing operations Group fleet in service at December 31, 2006 was 243.Future deliveries have increased by 4 following the conversion of 4 Airbusoptions into orders for 4 A320s to replace 4 A320 aircraft due to leave thefleet from 2008. The planned disposal of the regional business of BA Connect will result in thetransfer of the Turboprops, Embraer RJ145 and British Aerospace 146 fleets toFlybe. This will further simplify the BA Group fleet. BA Connect In accordance with IFRS 5, the disposal of BA Connect has been treated asdiscontinued operations. This is due to the fact that BA Connect represents aseparate major line of business and the operations and cashflows can be clearlydistinguished for financial reporting purposes. The loss from discontinued operations in the nine month period was £81 million,which includes the £106 million impairment charge partially offset by a taxcredit of £21 million. Pensions Having concluded 9 months' consultation with the Trades Unions, the BA Forumagreed to recommend changes to the New Airways Pension Scheme (NAPS) to addressits £2.1 billion actuarial deficit. The company has agreed to make a one-offcontribution of £800 million into the scheme subject to acceptance of benefitchanges. Together with a one-off employee saving of £400 million and changes tofuture benefits, the NAPS pension deficit will be reduced by more than half,from an existing £2.1 billion to £0.9 billion and the company's annualcontributions will be around £280 million a year for the next ten years. Thisshared solution will secure the pensions of the scheme's members and bring thedeficit and ongoing company contributions to an affordable level. Terminal 5 Construction of the £4.3 billion state of the art Terminal 5 remains on time andwithin budget and the terminal is now 90 per cent complete. The terminal, whichwill be capable of handling 30 million customers a year, will enable us toprovide new levels of customer experience and well as unrivalled opportunitiesto modernise and grow our business. The main lounge areas and two importantairfield areas have now been handed over to BA. Our schedule to beginoperational testing is on track for September this year ahead of opening inMarch 2008. Competition Investigations Investigations by competition authorities in the USA, Europe, Canada and NewZealand into alleged anti-competitive activity in relation to the cargobusiness, and in the UK and USA into alleged anti-competitive activity inrelation to passenger transportation pricing, including longhaul fuelsurcharges, are ongoing. As these investigations have not been completed, it isnot possible to assess the outcome and, as a result, no provision has been made. Operational Disruption The operation continued to see an impact from the August security measures ascommon EU baggage standards were not agreed until mid-way through the quarter,and more restrictive rules on hand baggage continue to apply in the UK. As aresult, transfer volumes at Heathrow are still down. The baggage system operatedby the BAA at Heathrow's Terminal 4 failed twice in December, and severe fog ledto the cancellation of 800 flights in the pre-Christmas peak period. The impactof all these external factors is estimated at £40 million. We are now re-focussing on delivering excellent customer service and regainingour customers' loyalty. Industrial Relations On January 29, an agreement was reached with the T&G and planned strikes wereaverted. Agreements were reached on a range of issues, including a new two-yearpay deal for all cabin crew. Both parties also recognized that a fresh start isneeded to the relationship, and work will begin on developing a constructive andprofessional relationship. Outlook The market continues to show good demand in premium cabins. The weakness in somenon-premium segments is also still a feature. The revenue outlook for the fourthquarter has been impacted by the threat of industrial action by the T&G inrespect of some 11,000 cabin crew. While the strike was averted, the estimatedrevenue loss is still some £80 million. Revenue guidance for the full year isnow 3.25 - 3.75% growth. While cost control remains strong, full year costs excluding fuel are expectedto be some £50 million higher than last year. This reflects higher costs in thefirst quarter. Our full year fuel guidance has been revised down by £40 millionreflecting the reduction in fuel prices. The fuel bill will now be accounted foron a continuing operations basis, and is expected to be some £1.95 billion. Certain information included in these statements is forward-looking and involvesrisks and uncertainties that could cause actual results to differ materiallyfrom those expressed or implied by the forward looking statements. Forward-looking statements include, without limitation, projections relating toresults of operations and financial conditions and the Company's plans andobjectives for future operations, including, without limitation, discussions ofthe Company's Business Plan programs, expected future revenues, financing plansand expected expenditures and divestments. All forward-looking statements inthis report are based upon information known to the Company on the date of thisreport. The Company undertakes no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information, future eventsor otherwise. It is not reasonably possible to itemize all of the many factors and specificevents that could cause the Company's forward looking statements to be incorrector that could otherwise have a material adverse effect on the future operationsor results of an airline operating in the global economy. Information on somefactors which could result in material difference to the results is available inthe Company's SEC filings, including, without limitation the Company's Report onForm 20-F for the year ended March 2006. The estimated impacts of the disruption in Quarter 3 and the averted strikes inQuarter 4 reflect the direct costs of the measures and the estimated revenueimpacts, both direct and indirect. The estimates of £40 million and £80 millionrespectively, are based on assumptions the company considers reasonable, but arejudgemental. CONSOLIDATED INCOME STATEMENT (unaudited) Three months ended Nine months ended December 31 Better/ December 31 Better/ 2006 £m 2005 £m (Worse) 2006 £m 2005 £m (Worse) Restated RestatedTraffic Revenue*Passenger 1,757 1,721 2.1% 5,635 5,217 8.0%Cargo 162 177 (8.5)% 486 479 1.5% 1,919 1,898 1.1% 6,121 5,696 7.5%Other revenue 149 160 (6.9)% 439 463 (5.2)%TOTAL REVENUE 2,068 2,058 0.5% 6,560 6,159 6.5% Employee costs 566 555 (2.0)% 1,717 1,649 (4.1)%Depreciation, amortisation and impairment 174 180 3.3% 530 535 0.9%Aircraft operating lease costs 19 21 9.5% 61 66 7.6%Fuel and oil costs 457 411 (11.2)% 1,476 1,150 (28.3)%Engineering and other aircraft costs 101 110 8.2% 309 329 6.1% Landing fees and en route charges 123 130 5.4% 397 394 (0.8)% Handling charges, catering andother operating costs 232 238 2.5% 708 697 (1.6)%Selling costs 106 108 1.9% 305 318 4.1%Currency differences (12) (100.0)% 23 (15) nmAccommodation, ground equipmentand IT costs 161 141 (14.2)% 463 440 (5.2)% TOTAL EXPENDITURE ON OPERATIONS 1,939 1,882 (3.0)% 5,989 5,563 (7.7)% OPERATING PROFIT 129 176 (26.7)% 571 596 (4.2)% Fuel derivative (losses)/gains** (5) (4) (25.0)% (30) 9 nmFinance costs (46) (50) 8.0% (117) (159) 26.4%Finance income 34 24 41.7% 97 67 44.8%Financing income and expenserelating to pensions (4) (4) (12) (12)Retranslation credits/(charges)on currency borrowings 3 (2) nm 12 (12) nm(Loss)/profit on sale of fixed assetsand investments (4) 1 nm 45 nmShare of profits in associates 5 25 (80.0)% 5 27 (81.5)%Income relating to fixed assetinvestments 1 nm 13 2 nm PROFIT BEFORE TAX 113 166 (31.9)% 584 518 12.7% Tax (6) (42) 85.7% (75) (142) 47.2%PROFIT AFTER TAX FROMCONTINUING OPERATIONS 107 124 (13.7)% 509 376 35.4% (Loss)/profit from Discontinued Operations(including tax) (1) (1) nm (81) 8 nm PROFIT AFTER TAX 106 123 (13.8)% 428 384 11.5% Attributable to:Equity holders of the parent 103 117 (12.0)% 418 371 12.7%Minority interest 3 6 (50.0)% 10 13 (23.1)% 106 123 (13.8)% 428 384 11.5% nm: Not meaningful* Fuel surcharges of £148 million for the quarter and £375 million for the nine months previously presented within 'other revenue' in the December 2005 income statement, have been reclassified and included within traffic revenue.** Fuel derivative (losses)/gains reflect the ineffective portion of unrealised gains and losses on fuel derivative hedges required to be recognised through the income statement under IAS 39. Three months ended Nine months ended December 31 Better/ December 31 Better/ 2006 £m 2005 £m (Worse) 2006 £m 2005 £m (Worse) Restated RestatedEarnings per share(continuing operations):Basic 9.1p 10.5p (13.3)% 43.8p 32.7p 33.9%Fully diluted 9.0p 10.4p (13.5)% 43.4p 32.1p 35.2% Earnings per share(discontinuing operations):Basic (0.1)p (0.1)p nm (7.1)p 0.7p nmFully diluted (0.1)p (0.1)p nm (7.1)p 0.7p nm Earnings per share (Total):Basic 9.0p 10.4p (13.5)% 36.7p 33.4p 9.9%Fully diluted 8.9p 10.3p (13.6)% 36.3p 32.8p 10.7% nm: Not meaningful CONSOLIDATED BALANCE SHEET (unaudited) December 31 December 31 March 31 2006 £m 2005 £m 2006 £mNON-CURRENT ASSETS RestatedProperty, plant and equipmentFleet 6,204 6,703 6,606Property 931 949 974Equipment 281 366 302 7,416 8,018 7,882 Goodwill 40 72 72Landing rights 126 117 115Other intangible assets 37 48 46 203 237 233 Investments in associates 108 130 131Other investments 50 33 33Employee benefit assets 123 138 137Other financial assets 32 105 89 TOTAL NON-CURRENT ASSETS 7,932 8,661 8,505 CURRENT ASSETS AND RECEIVABLESExpendable spares and other inventories 72 98 83Trade receivables 526 589 685Other current assets 339 480 458 Assets held for sale 98 1 3 Other current interest bearing deposits 1,118 1,164 1,533Cash and cash equivalents 1,525 945 907 2,643 2,109 2,440 TOTAL CURRENT ASSETS AND RECEIVABLES 3,678 3,277 3,669 TOTAL ASSETS 11,610 11,938 12,174 SHAREHOLDERS' EQUITY AND LIABILITIESSHAREHOLDERS' EQUITYIssued share capital 288 283 283Share Premium 929 888 888Investment in own shares (11) (2)Other reserves 1,084 571 690 TOTAL SHAREHOLDERS' EQUITY 2,290 1,740 1,861 MINORITY INTEREST 200 213 213 TOTAL EQUITY 2,490 1,953 2,074 NON-CURRENT LIABILITIESInterest bearing long-term borrowings 3,014 3,794 3,602Employee benefit obligations 1,777 1,808 1,803Provisions for deferred tax 776 912 896Other provisions 154 125 135Other long-term liabilities 204 253 232 TOTAL NON-CURRENT LIABILITIES 5,925 6,892 6,668 CURRENT LIABILITIESCurrent portion of long-term borrowings 495 493 479Trade and other payables 2,374 2,483 2,822Current tax payable 124 77 75Short-term provisions 25 40 56 Liabilities associated with assets held for sale 177 TOTAL CURRENT LIABILITIES 3,195 3,093 3,432 TOTAL EQUITY AND LIABILITIES 11,610 11,938 12,174 CONSOLIDATED CASHFLOW STATEMENT (unaudited) Nine months ended December 31 Better/ 2006 £m 2005 £m (Worse) RestatedCASH FLOWS FROM OPERATING ACTIVITIESOperating profit 571 596 (25)(Loss)/profit from discontinued operations (81) 8 (89)Depreciation, amortisation and impairment 648 541 107Operating cashflow before working capital changes 1,138 1,145 (7)Decrease in inventories and other receivables 168 52 116Decrease in trade and other payables and provisions (460) (208) (252)Other non-cash movements (21) 9 (30) Cash generated from operations 825 998 (173)Interest paid (126) (149) 23Taxation (91) (40) (51) NET CASH FLOW FROM OPERATING ACTIVITIES 608 809 (201) CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (208) (184) (24)Purchase of intangible assets (18) (3) (15)Purchase of interest in associates (13) (5) (8)Proceeds from the sale of trade investments 52 52Proceeds from sale of property, plant and equipment 7 9 (2)Costs of disposal of subsidiary companies (6) 6Proceeds from disposal of interests in associates 3 1 2Interest received 70 55 15Interest income from other investments 4 4Dividends received 3 22 (19)Decrease/(increase) in interest bearing deposits 394 (29) 423 NET CASH FLOW FROM INVESTING ACTIVITIES 294 (140) 434 CASH FLOWS FROM FINANCING ACTIVITIESRepayment of borrowings (47) (40) (7)Payment of finance lease liabilities (260) (241) (19)Exercise of share options 45 18 27Purchase of own shares (12) (12)Distributions made to holders of perpetual securities (10) (10) NET CASH FLOW FROM FINANCING ACTIVITIES (284) (273) (11) Net increase in cash and cash equivalents 618 396 222Net foreign exchange difference 1 (1)Cash and cash equivalents at April 1 907 548 359 CASH AND CASH EQUIVALENTS AT DECEMBER 31 1,525 945 580 These summary financial statements were approved by the Directors on February 1, 2007. NOTES TO THE ACCOUNTS (unaudited)For the period ended December 31, 2006 1 BASIS OF PREPARATION The basis of preparation and accounting policies set out in the Report and Accounts for the year ended March 31, 2006 have been applied in the preparation of these summary financial statements. These are in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS)* issued by the International Accounting Standards Board (IASB) and with those of the Standing Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB. These interim financial statements have not been prepared in accordance with IAS 34 - 'Interim Reporting' as permitted under IFRS. The comparative information presented for the quarter and nine months ended December 31, 2005 has been restated to reclassify the operations of BA Connect as a discontinued operation. In addition, the comparative information has been restated to reflect fuel surcharges of £148 million and £375 million respectively, previously presented within 'other revenue', reclassified and included within 'traffic revenue'. In accordance with the Group's first full IFRS financial statements for the year ended March 31, 2006, certain presentational changes have been made to the comparative information for the quarter and nine months ended December 31, 2005. Provisions with a value of £25 million, previously shown within 'other provisions' have been re-presented in 'short-term provisions'. In addition, £111 million and £15 million of accruals have been reclassified from other long-term liabilities to other provisions and trade and other payables to short-term provisions respectively. * For the purposes of these statements IFRS also include International Accounting Standards (IAS). 2 FINANCE COSTS / INCOME Three months ended Nine months ended December 31 December 31 2006 £m 2005 £m 2006 £m 2005 £m FINANCE COSTS Interest payable on bank and other loans and finance charges payable under finance leases and hire purchase contracts 47 50 135 159 Release of prior year provisions (15) Interest capitalised (1) (3) Total finance costs 46 50 117 159 FINANCE INCOME Bank interest receivable 34 24 97 67 Total finance income 34 24 97 67 Total financing income and expense relating to pensions 4 4 12 12 Retranslation credits/(charges) on currency borrowings 3 (2) 12 (12) 3 PROFIT/(LOSS) ON SALE OF FIXED ASSETS AND INVESTMENTS Three months ended Nine months ended December 31 December 31 2006 £m 2005 £m 2006 £m 2005 £m Net profit on the disposal 48 of WNS Net (loss)/profit on the disposal of property, plant and equipment (4) 1 (2) Net loss on disposal of interest in associates (1) (4) 1 45 4 TAX The tax charge for the quarter on profits from continuing operations of £113 million is £6 million; £36 million of which represents current tax payable and £(30) million is a deferred tax credit. The charge benefited from the recognition of £20 million of Advance Corporation Tax that was previously written off to the income statement. The tax credit for the quarter on the loss from discontinuing operations of £2 million is £(1) million. 5 DISCONTINUED OPERATIONS On November 3, 2006 the Group publicly announced the decision of its Board of Directors to sell the regional operations of BA Connect to Flybe. BA Connect was previously reported in the Group's Regional airline business segment. BA Connect also operates from London City Airport and between Manchester and New York City. These services will not form part of the proposed sale nor will the regional ground handling business, British Airways Regional Ltd. In accordance with IFRS 5 " Non-current Assets Held for Sale and Discontinued Operations", costs and expenses that are expected to continue subsequent to the disposal of BA Connect, along with previously allocated corporate overheads, have not been included in discontinued operations. Further disposal costs are anticipated in the next quarter. The results from the discontinued operations, excluding previously allocated corporate overheads, which have been included in the consolidated income statement, are as follows: Three months ended Nine months ended December 31 December 31 2006 £m 2005 £m 2006 £m 2005 £m Revenue 59 72 197 235 Total expenditure on operations (60) (72) (190) (219) Impairment (106) Operating (loss)/profit (1) (99) 16 Net finance costs (1) (2) (3) (5) (Loss)/profit before tax for the year (2) (2) (102) 11 Tax 1 1 21 (3) (Loss)/profit from discontinued operations (1) (1) (81) 8 The cash flows relating to the discontinued operations are as follows: Nine months ended December 31 2006 £m 2005 £m Operating cash flows (12) (24) Investing cash flows (1) 1 Financing cash flows (10) (14) Cash and cash equivalents at December 31 (23) (37) 6 EARNINGS PER SHARE Basic earnings per share for the quarter ended December 31, 2006 are calculated on a weighted average of 1,144,186,000 ordinary shares (December 2005: 1,128,475,000; March 2006: 1,116,178,000) as adjusted for shares held for the purposes of employee share ownership plans including the Long Term Incentive Plan. Diluted earnings per share for the quarter ended December 31, 2006 are calculated on a weighted average of 1,156,405,000 ordinary shares (December 2005: 1,138,143,000; March 2006: 1,138,545,000). The number of shares in issue at December 31, 2006 was 1,150,128,000 (December 31, 2005: 1,130,882,000; March 31, 2006: 1,130,882,000) ordinary shares of 25 pence each. 7 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS Nine months ended December 31 2006 £m 2005 £m Increase in cash and cash equivalents during the period 618 396 Net cash used in repayment of long-term borrowings 307 281 Decrease in interest bearing deposits (394) 29 Reclassification to Liabilities associated with assets held for sale 89 Change in net debt resulting from cash flows 620 706 New finance leases taken out and hire purchase arrangements made (6) (7) Conversion of Convertible Capital Bonds 2005 112 Exchange and other non cash movements 161 (67) Movement in net debt during the period 775 744 Net debt at April 1 (1,641) (2,922) Net debt at December 31 (866) (2,178) Net debt comprises the current and non-current portions of long-term borrowings, convertible long-term borrowings and overdrafts, less cash and cash equivalents plus interest-bearing short-term deposits. 8 ANALYSIS OF LONG-TERM BORROWINGS December 31 December 31 March 31 2006 £m 2005 £m 2006 £m Interest bearing long-term borrowings comprise: Loans 899 1,081 1,030 Finance Leases 1,288 1,452 1,418 Hire purchase arrangements 827 1,261 1,154 3,014 3,794 3,602 Current portion of long-term borrowings comprise: Loans 93 62 86 Finance Leases 96 121 105 Hire purchase arrangements 306 310 288 495 493 479 9 RESERVES December 31 December 31 March 31 2006 £m 2005 £m 2006 £m Restated Balance at April 1 690 152 152 Transitional effects from the adoption of IAS 39 and IAS 32 183 183 Profit for the period 418 374 451 Exchange and other movements (24) (138) (96) 1,084 571 690 10 COMPETITION INVESTIGATIONS Investigations by competition authorities in the USA, Europe, Canada and New Zealand into alleged anti-competitive activity in relation to the cargo business, and in the UK and USA into alleged anti-competitive activity in relation to passenger transportation pricing, including longhaul fuel surcharges, are ongoing. As these investigations have not been completed, it is not possible to assess the outcome and, as a result, no provision has been made. 11 The figures for the three months and nine months ended December 31, 2006 and 2005 are unaudited and do not constitute full accounts within the meaning of Section 240 of the Companies Act 1985. The financial statements for the year ended March 31, 2006 which have been delivered to the Registrar of Companies and on which the auditors have issued an unqualified audit report, did not contain a statement under Section 237 of the Companies Act 1985. INDEPENDENT REVIEW REPORT TO BRITISH AIRWAYS Plc IntroductionWe have been instructed by the Company to review the financial information for the three monthsand nine months ended December 31, 2006, which comprises the Consolidated Income Statement,Consolidated Balance Sheet, Consolidated Cash Flow Statement and the related notes 1 to 11. Wehave read the other information contained in the Interim Results and considered whether itcontains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with guidance contained inBulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing PracticesBoard. To the fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the Company, for our work, for this report, or for the conclusionswe have formed. Directors' responsibilitiesThe Interim Results, including the financial information contained therein, is the responsibilityof, and has been approved by, the directors. The directors are responsible for preparing theInterim Results in accordance with the Listing Rules of the Financial Services Authority whichrequire that the accounting policies and presentation applied to the interim figures should beconsistent with those applied in preparing the preceeding annual accounts except where any changes,and the reasons for them, are disclosed. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review ofinterim financial information' issued by the Auditing Practices Board for use in the UnitedKingdom. A review consists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial data, and basedthereon, assessing whether the accounting policies and presentation have been consistentlyapplied, unless otherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It is substantiallyless in scope than an audit performed in accordance with International Standards on Auditing(UK and Ireland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusionOn the basis of our review we are not aware of any material modifications that should be made to thefinancial information as presented for the three months and nine months ended December 31, 2006. Ernst & Young LLPLondon February 1, 2007 UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP) INFORMATION(unaudited and for information only) The accounts have been prepared in accordance with the measurement andrecognition requirements of International Financial Reporting Standards (IFRS)which differ in certain respects from those generally accepted in the UnitedStates. Comparative information for the quarter and nine months ended December31, 2006 has been restated and reflects the changes described in Note 1 to theaccounts above. The adjusted net income and shareholders' equity applying US GAAP are set out below: Three months ended Nine months ended December 31 December 31 2006 £m 2005 £m 2006 £m 2005 £m Restated Restated Profit for the period attributable to equity holders ofthe parent as reported in the Group income statement 103 117 418 371US GAAP adjustments (49) (130) (145) (257)Net income as so adjusted toaccord with US GAAP 54 (13) 273 114 Net income per Ordinary Shareas so adjustedBasic 4.7p (1.2p) 24.0p 10.3pDiluted 4.7p (1.2p) 23.8p 10.2p Net income per American Depositary Shareas so adjustedBasic 47p (12p) 240p 103pDiluted 47p (12p) 238p 102p Three months ended Nine months ended December 31 December 31 2006 £m 2005 £m 2006 £m 2005 £m Profit from the period pertaining to Continuing Operations: 104 118 499 363US GAAP adjustments (49) (130) (177) (257)Net income as so adjusted toaccord with US GAAP 55 (12) 322 106 Net income per share from Continuing Operations as so adjustedBasic 4.8p (1.1p) 28.2p 9.6pDiluted 4.7p (1.1p) 28.0p 9.5p Net income per American Depositary Share from Continuing Operationsas so adjustedBasic 48p (11p) 282p 96pDiluted 47p (11p) 280p 95p (Loss)/Profit from the period pertaining to Discontinued (1) (1) (81) 8OperationsUS GAAP adjustments 32Net income as so adjusted to accord with US GAAP (1) (1) (49) 8 Net income per share from Discontinued Operations as so adjustedBasic (0.1p) (0.1p) (4.2p) 0.7pDiluted (0.0p) (0.1p) (4.2p) 0.7p Net income per American Depositary Share from Discontinued Operationsas so adjustedBasic (1p) (1p) 42p 7pDiluted (0p) (1p) 42p 7p December 31 March 31 2006 £m 2005 £m 2006 £m RestatedShareholders' equity as reported in the Group balance sheet 2,290 1,740 1,861US GAAP adjustments 252 436 445Shareholders' equityas so adjusted to accord with US GAAP 2,542 2,176 2,306 AIRCRAFT FLEET(unaudited and outwith the scope of the Independent Review) Number in service with Group companies at December 31, 2006 On Balance Sheet Off Balance Total December Changes Future Options aircraft Sheet Aircraft 2006 Since deliveries September 2006 (Note 4) (Note 5)AIRLINE OPERATIONS (Note 1) Boeing 747-400 57 57Boeing 777 40 3 43Boeing 767-300 21 21Boeing 757-200 13 13Airbus A319 (Note 1) 21 12 33 28Airbus A320 8 18 26 (1) 10Airbus A321 7 7 4Boeing 737-300 5 5Boeing 737-400 19 19Boeing 737-500 9 9Avro RJ100 (Note 2) 10 10CONTINUING TOTAL (Note 3) 186 57 243 (1) 14 28 Turboprops 7 7Embraer RJ145 16 12 28British Aerospace 146 4 4DISCONTINUED TOTAL 20 19 39 GROUP TOTAL 206 76 282 (1) 14 28 Notes:1. Certain future deliveries and options include reserved delivery positions, and may be taken as any A320 family aircraft.2. Excludes 6 Avro RJ100 sub-leased to Swiss International Airlines.3. Includes those operated by British Airways Plc and BA Cityflyer.4. Future year deliveries have increased by 4 to 14 to replace 4 A320 aircraft due to leave the fleet from 2008.5. Excludes 10 secured delivery positions for Boeing 777 aircraft. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Airlines