3rd Feb 2006 07:00
British Airways PLC03 February 2006 THIRD QUARTER RESULTS 2005-2006 (unaudited) OPERATING AND FINANCIAL STATISTICS (unaudited) Three months ended Nine months ended December 31 Better/ December 31 Better/ 2005 2004 (Worse) 2005 2004 (Worse) Revenue £m 2,129 1,957 8.8% 6,393 5,897 8.4% Operating profit £m 175 136 28.7% 612 510 20.0% Profit before tax £m 164 151 8.6% 529 519 1.9% Profit after tax £m 123 118 4.2% 384 386 (0.5)% Net assets £m 1,953 1,387 40.8% 1,953 1,387 40.8% Basic earnings per share p 10.3 10.7 (3.7)% 33.4 35.1 (4.8)% Three months ended Nine months ended December 31 Better/ December 31 Better/ 2005 2004 (Worse) 2005 2004 (Worse) TOTAL GROUP OPERATIONS TRAFFIC AND CAPACITY RPK (m) 27,499 25,999 5.8% 85,079 81,831 4.0%ASK (m) 37,119 35,723 3.9% 111,277 108,512 2.5%Passenger load factor (%) 74.1 72.8 1.3pts 76.5 75.4 1.1ptsCTK (m) 1,325 1,321 0.3% 3,693 3,740 (1.3)%RTK (m) 4,076 3,921 4.0% 12,187 11,910 2.3%ATK (m) 5,815 5,607 3.7% 17,384 16,968 2.5%Overall load factor (%) 70.1 69.9 0.2pts 70.1 70.2 (0.1)ptsPassengers carried (000) 8,530 8,428 1.2% 27,474 27,538 (0.2)%Tonnes of cargo carried (000) 211 232 (9.1)% 593 661 (10.3)% FINANCIAL Operating margin (%) 8.2 6.9 1.3pts 9.6 8.6 1.0ptsPassenger revenue per RPK (p) 6.11 6.20 (1.5)% 6.07 6.04 0.5%Passenger revenue per ASK (p) 4.53 4.52 0.2% 4.64 4.56 1.8%Cargo revenue per CTK (p) 10.19 10.14 0.5% 10.13 9.89 2.4%Total traffic revenue per RTK (p) 44.53 44.55 (0.0)% 45.43 44.61 1.8%Total traffic revenue per ATK (p) 31.21 31.16 0.2% 31.85 31.31 1.7%Net operating expenditureper RTK (p) 40.24 41.09 2.1% 40.40 40.33 (0.2)%Net operating expenditureper ATK (p) 28.20 28.73 1.8% 28.32 28.31 (0.0)%Average fuel price before hedging(US cents/US gallon) 200.47 156.57 (28.0)% 187.73 134.08 (40.0)% TOTAL AIRLINE OPERATIONS (Note 1) OPERATIONS Average Manpower Equivalent (MPE) 45,624 45,888 0.6% 45,949 46,116 0.4%ATKs per MPE (000) 127.5 122.2 4.3% 378.3 367.9 2.8%Aircraft in service atperiod end 289 293 (4) 289 293 (4) Note 1: Excludes non airline activity companies, principally, Airmiles TravelPromotions Ltd, BA Holidays Ltd, BA Travel Shops Ltd, Speedbird Insurance Company Ltd and The London Eye Company Ltd. CHAIRMAN'S STATEMENT Group Performance Group profit before tax for the three months to December 31 was £164 million;this compares with a profit of £151 million last year. Operating profit - - at £175 million - - was £39 million better than last year.The operating margin of 8.2% was 1.3 points higher than last year. Theimprovement in operating profit primarily reflects improvements in revenue,partially offset by increased fuel costs (up 28% in the quarter). Group profit before tax for the nine months to December 31 was £529 million, £10million better than last year; operating profit - - at £612 million - - was up£102 million on the same period a year ago. The improvement in operating profitprimarily reflects improvements in turnover, including fuel surcharges,partially offset by higher costs, mainly fuel. Cash inflow from operating activities was £809 million for the nine months, withthe closing cash, cash equivalents and short-term deposits at £2,109 millionrepresenting a £427 million increase versus March 31, 2005. Net debt fell by£744 million from March 31, 2005 to £2,178 million. Turnover For the three month period, Group turnover - - at £2,129 million - - was up 8.8%on a flying programme 3.7% larger in ATKs. The improvement in ATKs includes a 2point increase due to temporary reductions in the flying programme in Quarter 3last year. Passenger yields were down 1.5% per RPK; seat factor was up 1.3points at 74.1% on capacity 3.9% higher in ASKs. For the nine month period, turnover improved by 8.4% to £6,393 million on aflying programme 2.5% larger in ATKs. Passenger yields were up 0.5% per RPK withseat factor up 1.1 points at 76.5% on capacity 2.5% higher in ASKs. Cargo volumes for the quarter (CTKs) were up 0.3% compared with last year, withyields (revenue/CTK) up 0.5%. For the nine month period, cargo volumes were down1.3%, with yields up 2.4%. Overall load factor for the quarter was up 0.2 points at 70.1%, and for the ninemonths down 0.1 points at 70.1%. Costs For the quarter, unit costs (pence/ATK) reduced by 1.8% on the same period lastyear as a result of a net cost increase of 1.8% on capacity 3.7% higher in ATKs. Operating expenditure in the quarter increased by 7.3%. Fuel costs increased by28.2% due to the increase in fuel price net of hedging, a larger flyingprogramme and a stronger US dollar. Employee costs increased by 8.3% as wageawards and increased pension service costs were only partially offset bymanpower reductions. In addition, a £10 million restructuring provision wasincluded in the quarter to support the first phase of the managementrestructuring programme announced in December 2005. Selling costs were up 7.8%due to additional promotional spend as a result of the expansion of flights toIndia, the timing of marketing campaigns this year versus last year and anadverse exchange impact. Engineering spend was up 20.4% in the quarter primarilydriven by the non-recurrence of one-off recoveries last year, additionalmaintenance costs due to the timing of minor overhauls versus last year and anadverse exchange impact. For the nine months, unit costs (pence/ATK) were unchanged versus last year.This reflects a net cost increase of 2.5% on capacity 2.5% higher in ATKs. Non Operating Items Interest expense for the quarter reduced by £7 million from last year to £51million reflecting the impact of lower debt. Interest income at £24 million was£9 million higher than last year, reflecting higher cash balances. Theretranslation of currency borrowings generated a charge of £3 million, comparedwith a credit of £59 million last year. The movement results from changes inaccounting treatment following the adoption of IAS39 whereby unhedged currencyborrowings are now hedged against future cash flows. The share of profits inassociates at £25 million was £24 million higher than last year due to our shareof Iberia's profit on its disposal of its investment in Amadeus. For the nine month period, interest expense was £164 million, £28 million lowerthan last year due to the impact of lower debt levels. The retranslation ofcurrency borrowings generated a charge of £13 million, compared with a credit of£70 million last year. This is due to the changes in accounting treatment asabove. Profit on sale of fixed assets and investments was £82 million lower thanlast year, reflecting the non-recurrence of the £86 million profit on disposalof our investment in Qantas last year. The share of profits in associatesincludes our share of Iberia's profit on its disposal of its investment inAmadeus. Earnings Per Share The earnings attributable to shareholders for the three months was equivalent to10.3 pence per share, compared with last year's earnings per share of 10.7pence. For the nine month period, the profit attributable to shareholders was £371million, equivalent to 33.4 pence per share, compared with earnings of 35.1pence per share last year. Net Debt / Total Capital Ratio Borrowings, net of cash and short term loans and deposits, were £2,178 millionat December 31, down £744 million since the start of the year, partly due to theconversion of the £112 million of bonds from debt to equity. The net debt/totalcapital ratio reduced by 15.0 points from March 31 to 52.7%. The net debt/totalcapital ratio including operating leases was down 12.5 points from March 31 to59.9%. Cash Flow During the nine months we generated a positive cash flow from operatingactivities of £809 million, £126 million higher than last year. Includingcurrent interest bearing deposits, the cash position at December 31, 2005 was£2,109 million, an increase of £427 million compared with March 31, 2005. Aircraft Fleet Compared to September 30, 2005, the Group fleet in service increased by 1aircraft to 289. Subsidiaries In a major drive to improve profitability we are re-launching our regionalsubsidiary, British Airways CitiExpress, under the new name of BA Connect. BAConnect will bring significant benefits to regional air travellers by offeringmore choice, greater business traveller benefits and even lower fares withprices reduced by up to 40%. Pensions Tackling our pension deficit continues to be a key driver in making our costbase competitive for the future. We have come to the end of a staff awarenessprogramme on the implications of the significant deficit and we are reviewingthe feedback before starting consultations with the trades unions and trusteesby the end of March. Outlook Some yield improvement is still expected for this financial year. Consequently,revenue is now expected to grow by more than 8%. Despite the improved revenue outlook, market conditions remain broadly unchangedas significant promotional activity is required to maintain seat factors. Underlying costs excluding fuel are now expected to be some 1% higher than theguidance we gave at the beginning of the year, which was flat. Fuel costs continue to be a challenge for the industry, but our guidance isunchanged with total fuel costs expected to be up by £525 million this year. Our focus remains on preparing for the move to Terminal 5 in 2008, investing inproducts for our customers and continuing to drive simplification to deliver acompetitive cost base. 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 2005. CONSOLIDATED INCOME STATEMENT (unaudited) Three months ended Nine months ended December 31 Better/ December 31 Better/ 2005 £m 2004 £m (Worse) 2005 £m 2004 £m (Worse)Traffic RevenuePassenger 1,680 1,613 4.2% 5,162 4,943 4.4%Cargo 135 134 0.7% 374 370 1.1% 1,815 1,747 3.9% 5,536 5,313 4.2%Other revenue 314 210 49.5% 857 584 46.7%TOTAL REVENUE 2,129 1,957 8.8% 6,393 5,897 8.4%Employee costs 576 532 (8.3)% 1,714 1,623 (5.6)%Depreciation and amortisation 184 183 (0.5)% 533 542 1.7%Aircraft operating lease costs 26 28 7.1% 82 81 (1.2)%Fuel and oil costs 423 330 (28.2)% 1,188 859 (38.3)%Engineering and other aircraft costs 118 98 (20.4)% 353 309 (14.2)% Landing fees and en route charges 139 140 0.7% 426 426 Handling charges, catering andother operating costs 247 231 (6.9)% 729 701 (4.0)%Selling costs 110 102 (7.8)% 324 375 13.6%Currency differences (12) 28 nm (15) 16 nmAccommodation, ground equipmentand IT costs 143 149 4.0% 447 455 1.8% TOTAL EXPENDITURE FROM OPERATIONS 1,954 1,821 (7.3)% 5,781 5,387 (7.3)% OPERATING PROFIT 175 136 28.7% 612 510 20.0% Fuel derivative (losses)/gains* (4) nm 9 nmInterest expense (51) (58) 12.1% (164) (192) 14.6%Interest income 24 15 60.0% 67 55 21.8%Other financing income 8 nm 8 nmFinancing income and expenserelating to pensions (4) (11) 63.6% (12) (33) 63.6%Retranslation (charges)/creditson currency borrowings (3) 59 nm (13) 70 nmProfit on sale of fixedassets and investments 2 1 100.0% 82 nmShare of profits in associates 25 1 nm 28 18 55.6% Income relating to fixed assetinvestments nm 2 1 100.0% PROFIT BEFORE TAX 164 151 8.6% 529 519 1.9% Tax (41) (33) (24.2)% (145) (133) (9.0)%PROFIT AFTER TAX 123 118 4.2% 384 386 (0.5)% Attributable to:Equity holders of the parent 117 115 371 376Minority interest 6 3 13 10 123 118 4.2% 384 386 (0.5)% Earnings per share:Basic 10.3 10.7 (3.7)% 33.4 35.1 (4.8)%Fully diluted 10.3 10.4 (1.0)% 32.8 34.1 (3.8)% nm: Not meaningful * Fuel derivative gains and losses reflect the ineffective portion of unrealisedgains and losses on fuel derivative hedges required to be recognised through theincome statement under IAS 39. CONSOLIDATED BALANCE SHEET (unaudited) December 31 December 31 March 31 2005 £m 2004 £m 2005 £m NON-CURRENT ASSETSProperty, plant and equipmentFleet 6,703 7,056 6,944Property 949 1,021 1,000Equipment 366 414 385 8,018 8,491 8,329 Goodwill 72 72 72Landing rights 117 104 122Other intangible assets 48 47 60Investments in associates 130 122 126Long term investments 29 30 30 Available-for-sale financial assets 4Employee benefit assets 138 125 137Other financial assets 105 44 38 TOTAL NON-CURRENT ASSETS 8,661 9,035 8,914 NON-CURRENT ASSETS HELD FOR SALE 1 4 5 CURRENT ASSETS AND RECEIVABLESExpendable spares and other inventories 98 95 84Trade receivables 589 586 685Other current assets 480 312 301Other current interest bearing deposits 1,164 1,408 1,134Cash and cash equivalents 945 406 548 2,109 1,814 1,682 TOTAL CURRENT ASSETS AND RECEIVABLES 3,276 2,807 2,752 TOTAL ASSETS 11,938 11,846 11,671 SHAREHOLDERS' EQUITY AND LIABILITIESSHAREHOLDERS' EQUITYIssued share capital 283 271 271Treasury shares (2) (27) (26)Other reserves 1,459 932 940 TOTAL SHAREHOLDERS' EQUITY 1,740 1,176 1,185 MINORITY INTEREST 213TOTAL EQUITY 1,953 Equity minority interest 11 12Non-equity minority interest 200 200MINORITY INTERESTS 211 212 PROVISIONSEmployee benefit obligations 1,808 1,828 1,820Provisions for deferred tax 912 845 816Other provisions 39 35 34TOTAL PROVISIONS 2,759 2,708 2,670 NON-CURRENT LIABILITIESInterest bearing long-term borrowings 3,794 4,405 4,045Other long term liabilities 364 307 306TOTAL LONG-TERM LIABILITIES 4,158 4,712 4,351 CURRENT LIABILITIESCurrent portion of long-term borrowings 493 491 447Convertible long-term borrowings 112 112Trade and other payables 2,498 2,409 2,658Current tax payable 77 27 36TOTAL CURRENT LIABILITIES 3,068 3,039 3,253 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 11,938 11,846 11,671 CONSOLIDATED CASHFLOW STATEMENT (unaudited) Nine months ended December 31 Better/ 2005 £m 2004 £m (Worse) CASHFLOWS FROM OPERATING ACTIVITIESOperating profit 612 510 102Depreciation and amortisation 533 542 (9)Operating cashflow before working capital changes 1,145 1,052 93Decrease in inventories and other receivables 52 15 37Decrease in trade and other payables and provisions (208) (210) 2Other non-cash movements 9 6 3 Cash generated from operations 998 863 135Interest paid (149) (181) 32Taxation (40) 1 (41) NET CASHFLOW FROM OPERATING ACTIVITIES 809 683 126 CASHFLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (184) (312) 128Purchase of intangible assets (3) (13) 10Purchase of interest in associated undertakings (5) (5)Proceeds from sale of associated undertaking 427 (427)Proceeds from sale of trade investment 1 1Proceeds from sale of property, plant and equipment 9 56 (47)Costs of disposal of subsidiary undertakings (6) (11) 5Interest received 55 54 1Dividends received 22 20 2Increase in interest bearing deposits (29) (770) 741 NET CASHFLOW FROM INVESTING ACTIVITIES (140) (549) 409 CASHFLOWS FROM FINANCING ACTIVITIESProceeds from long term borrowings 47 (47)Repayment of borrowings (40) (104) 64Payment of finance lease liabilities (241) (688) 447Exercise of share options 18 4 14Distributions made to holders of perpetual securities (10) (6) (4) NET CASH USED IN FINANCING ACTIVITIES (273) (747) 474 Net increase/(decrease) in cash and cash equivalents 396 (613) 1,009Net foreign exchange difference 1 (8) 9Cash and cash equivalents at March 31 548 1,027 (479) CASH AND CASH EQUIVALENTS AT DECEMBER 31 945 406 539 These summary financial statements were approved by the Directors on February 2, 2006. NOTES TO THE ACCOUNTS (unaudited) For the period ended December 31, 2005 1 BASIS OF PREPARATION These summary financial statements have been prepared in accordance with therecognition and measurement criteria of International Financial ReportingStandards (IFRS)* issued by the International Accounting Standards Board (IASB)and with those of the Standing Interpretations issued by the InternationalFinancial Reporting Interpretations Committee (IFRIC) of the IASB with theexception of the disclosure requirements of IAS 34 - 'Interim Reporting'. The accounting policies and basis of preparation differ from those set out inthe Report and Accounts for the year ended March 31, 2005 which were prepared inaccordance with United Kingdom accounting standards and the Companies Act 1985(UK GAAP). A summary of the significant accounting policies used in the preparation ofthese financial statements under IFRS and a summary of the impact of the changefrom UK GAAP to IFRS on comparative periods as required by IFRS 1 - 'First-timeadoption of International Financial Reporting Standards' were included in thegroup's 'Release of financial information for 2004/05 under InternationalFinancial Reporting Standards' published on July 4, 2005. The release includedthe quarterly results for quarters ended June 30, 2004, September 30, 2004,December 31, 2004 and March 31, 2005 restated under the recognition andmeasurement rules of IFRS and a summary of the significant differences to UKGAAP. The release also included restated balance sheets at those dates inaddition to the restated balance sheet at April 1, 2004, the group's transitiondate to IFRS. As permitted under IFRS 1, the group elected to apply the requirements of IAS 32- 'Financial Instruments - Disclosure and Presentation' and IAS 39 - 'FinancialInstruments - Recognition and Measurement' from April 1, 2005. As a consequencecertain assets and liabilities are required to be recognised and measured atfair value. As a result of the application of IAS 39 the opening net assets ofthe group increased by £183 million at April 1, 2005. The increase representsthe fair value of financial instruments and available for sale financial assets(£193 million, net of deferred tax), partially offset by the impact of thegroup's share of the opening reserves adjustments of associated undertakings(£10 million). The adoption of IAS 32 had no impact on the reserves or netassets of the group except for minor presentational differences. The £200million Euro Perpetual Preferred securities, issued by British Airways Finance(Jersey) L.P. in 1999, (in which the general partner is British Airways HoldingsLimited, a wholly owned subsidiary of British Airways Plc) have been classifiedas Minority Interest. In previous quarters this has been shown within otherreserves. Under IAS 39, financial instruments are recorded initially at fair value.Subsequent measurement of those instruments at the balance sheet date reflectsthe designation of the financial instrument. Listed investments (other than interests in associates) are designated asavailable-for-sale assets and are recorded at fair value. Any change in the fairvalue is reported in reserves until the investment is sold when the cumulativereserves movement is recognised in income. Any provisions for impairment of the carrying value are reflected in income whenthey arise. Exchange gains and losses on monetary items are taken to income unless the itemhas been designated as a hedging instrument. Exchange gains and losses onnon-monetary investments are reflected in reserves until the investment is soldwhen the balance is recognised in income. Derivative financial instruments, comprising interest rate swap agreements,foreign exchange derivatives and fuel hedging derivatives (including options,swaps and collars) are measured at fair value on the group balance sheet.Changes in the fair value are reported through operating income or financingaccording to the nature of the derivative financial instrument unless thederivative financial instrument has been designated as a hedge of a highlyprobable expected future cashflow. Gains and losses on forward exchangecontracts to hedge capital expenditure commitments are recognised as part of thetotal sterling carrying cost of the relevant tangible asset as the contractsmature or are closed out. Gains and losses on derivative financial instrumentsdesignated as hedging instruments that are expected to be highly effective atinception and were highly effective for the period are taken to reserves andreflected in the income statement when the cashflow either occurs or ceases tobe highly probable. Certain loan repayment instalments denominated in US dollars and Japanese yenare designated as hedges of highly probable future foreign currency revenues.Exchange differences arising from the translation of these loan repaymentinstalments are taken to reserves until the future revenue occurs when thecumulative exchange difference is recognised in income. The hedging relationships are tested for effectiveness in accordance with IAS 39- 'Financial Instruments'. Long term borrowings, finance leases and hire purchase agreements are recordedat amortised cost. Certain leases contain interest rate swaps that are closelyrelated to the underlying financing and, as such, are not accounted for as anembedded derivative. The carrying value of the interest rate swap is reflectedwithin the carrying value of the long-term borrowing. The financial information presented has been prepared on the basis of thoseStandards and Interpretations of the International Financial ReportingInterpretations Committee (IFRIC). NOTES TO THE ACCOUNTS (unaudited) (Continued) For the period ended December 31, 2005 BASIS OF PREPARATION (continued) and Standard Interpretations Committee (SIC) that are expected to be applicableto 2005/06 financial reporting. These are subject to ongoing review andendorsement by the European Commission, whilst the application of the Standardscontinues to be subject to interpretation by IFRIC as well as emerging industryconsensus. As a consequence, further adjustments to the accounting policies andtreatments may need to be made in the first complete set of IFRS financialstatements for 2005/06 for the year ending March 31, 2006. These financial statements have been prepared on a historical cost conventionexcept for certain financial assets and liabilities, including derivativefinancial instruments and available-for-sale financial assets, that are measuredat fair value. The carrying value of recognised assets and liabilities that arehedged are adjusted to record changes in the fair values attributable to therisks that are being hedged. • 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 2005 £m 2004 £m 2005 £m 2004 £m FINANCE COSTS Interest payable on bank and other loans and finance charges payable under finance leases and hire purchase contracts 51 58 164 192 Interest capitalised Total finance costs 51 58 164 192 FINANCE INCOME Bank interest receivable 24 15 67 55 Total finance income 24 15 67 55 FINANCING INCOME AND EXPENSE RELATING TO PENSIONS Net financing expense/(income) relating to pensions 4 11 12 33 Amortisation of actuarial (gains)/losses on pensions Total financing income and expense relating to pensions 4 11 12 33 Retranslation (charges)/credits on currency borrowings (3) 59 (13) 70 3 PROFIT/(LOSS) ON SALE OF FIXED ASSETS AND INVESTMENTS Three months ended Nine months ended December 31 December 31 2005 £m 2004 £m 2005 £m 2004 £m Net profit on disposal of investment in Qantas 86 Net profit/(loss) on the disposal of property, plant and equipment 2 1 (4) 2 1 82 4 TAX The tax charge for the quarter is £41 million of which £11 million representsdeferred tax in the UK and £30 million current UK tax. 5 EARNINGS/(LOSS) PER SHARE Basic earnings per share for the quarter ended December 31, 2005 are calculatedon a weighted average of 1,128,475,000 ordinary shares (December 2004:1,071,112,000; March 2005: 1,071,126,000) as adjusted for shares held for thepurposes of employee share ownership plans including the Long Term IncentivePlan. Diluted earnings per share for the quarter ended December 31, 2005 arecalculated on a weighted average of 1,138,143,000 ordinary shares (December2004: 1,119,111,000; March 2005: 1,126,485,000). The number of shares in issue at December 31, 2005 was 1,130,882,000 (December31, 2004: 1,082,903,000; March 31, 2005: 1,082,903,000) ordinary shares of 25pence each. NOTES TO THE ACCOUNTS (unaudited) (Continued)For the period ended December 31, 2005 6 RECONCILIATION OF MOVEMENT IN NET DEBT TO CHANGES IN CASH FLOWS Nine months ended December 31 2005 £m 2004 £m Increase/(decrease) in cash and cash equivalents during the period 396 (613) Net cash used in repayment of long-term borrowings 281 745 Increase in interest bearing deposits 29 770 Change in net debt resulting from cash flows 706 902 New finance leases taken out and hire purchase arrangements made (7) (8) Conversion of Convertible Capital Bonds 2005 112 Exchange movements (67) 70 Movement in net debt during the period 744 964 Net debt at April 1 (2,922) (4,158) Net debt at period end (2,178) (3,194) Net debt comprises the current and non-current portions of long-term borrowings,convertible long-term borrowings and overdrafts, less cash and cash equivalentsplus interest-bearingshort-term deposits. 7 ANALYSIS OF LONG-TERM BORROWINGS December 31 December 31 March 31 2005 £m 2004 £m 2005 £m Interest bearing long-term borrowings comprise: Loans 1,081 1,064 1,105 Finance Leases 1,452 1,762 1,493 Hire purchase arrangements 1,261 1,579 1,447 3,794 4,405 4,045 Current portion of long-term borrowings comprise: Loans 62 95 63 Finance Leases 121 105 96 Hire purchase arrangements 310 291 288 493 491 447 8 RESERVES December 31 December 31 March 31 2005 £m 2004 £m 2005 £m Balance at April 1 940 557 557 Transitional effects from the adoption of IAS 39 and IAS 32 183 Profit for the period 384 386 392 Distributions to perpetual preferred security holders (10) (10) (14) Conversion of Convertible Capital Bonds 2005 100 Exchange and other movements (138) (1) 5 1,459 932 940 9 The figures for the three months and nine months ended December 31, 2005 and2004 are unaudited and do not constitute full accounts within the meaning ofSection 240 of the Companies Act 1985. The financial statements for the yearended March 31, 2005 have been delivered to the Registrar of Companies and onwhich the auditors have issued an unqualified audit report and did not contain astatement under Section 237 of the Companies Act 1985. INDEPENDENT REVIEW REPORT TO BRITISH AIRWAYS Plc Introduction We have been instructed by the Company to review the financial information forthe three months and nine months ended December 31, 2005, which comprises theConsolidated Income Statement, Consolidated Balance Sheet, Consolidated CashFlow Statement and Notes to the Accounts. We have read the other informationcontained in the interim results and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with guidance containedin Bulletin 1999/4 'Review of Interim Financial Information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept or assume responsibility to anyone other than the Company, for our work,for this report, or for the conclusions we have formed. Directors' responsibilities The interim results, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directors intend touse in the next financial statements. There is, however, a possibility that thedirectors may determine that some changes to these policies are necessary whenpreparing the full annual financial statements for the first time in accordancewith those IFRS adopted for use by the European Union. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4'Review of interim financial information' issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies have been applied. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsand nine months ended December 31, 2005. Ernst & Young LLP London February 2, 2006 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. The comparatives have been restated to recognise the adoption of IFRS by thegroup. The adjusted net income/(loss) and shareholders' equity applying US GAAP are setout below: Three months ended Nine months ended December 31 December 31 2005 £m 2004 £m 2005 £m 2004 £m Profit for the period attributable to equityholders of the parent as reported in theGroup income statement 117 115 371 376US GAAP adjustments (130) (132) (257) (150)Net income/(loss) as so adjusted toaccord with US GAAP (13) (17) 114 226 Net income/(loss) per Ordinary Shareas so adjustedBasic (1.2)p (1.6)p 10.3p 21.1pDiluted (1.2)p (1.6)p 10.2p 20.7p Net income/(loss) per American Depositary Shareas so adjustedBasic (12)p (16)p 103p 211pDiluted (12)p (16)p 102p 207p December 31 March 31 2005 £m 2004 £m 2005 £m Shareholders' equityas reported in the Group balance sheet 1,740 1,176 1,185US GAAP adjustments 436 852 759Shareholders' equityas so adjusted to accord with US GAAP 2,176 2,028 1,944 Net income for the three months ended December 31, 2004 and the nine monthsended December 31, 2004, as reported under US GAAP, has been adjusted byapproximately £(2) million and £16 million respectively, to reflect thequarterly impact of adjustments made during the 4th quarter of the year. Shareholders' equity as at December 31, 2004 as reported under US GAAP has beenadjusted by £16 million which reflects the cumulative impact of the adjustments. AIRCRAFT FLEET(unaudited and for information only) Number in service with Group companies at December 31, 2005 On Balance Sheet Off Balance Total Changes Since Future Options aircraft Sheet Aircraft December September 2005 deliveries 2005AIRLINE OPERATIONS (Note 1) (Note 7) Boeing 747-400 57 57Boeing 777 40 3 43Boeing 767-300 21 21Boeing 757-200 13 13Airbus A319 (Note 2) 21 12 33 36Airbus A320 (Note 3) 9 18 27 1 7Airbus A321 7 7 3Boeing 737-300 5 5Boeing 737-400 (Note 4) 19 19 1Boeing 737-500 9 9Turboprops (Note 5) 8 8Embraer RJ145 16 12 28Avro RJ100 (Note 6) 15 15 (1)British Aerospace 146 4 4GROUP TOTAL 207 82 289 1 10 36 Notes: 1. Includes those operated by British Airways Plc and British Airways CitiExpress Ltd. 2. Certain future deliveries and options include reserved delivery positions, and may be taken as any A320 family aircraft. 3. Includes 1 Airbus A320 returned to service from sub-lease to GB Airways. 4. Includes 1 Boeing 737-400 returned to service from sub-lease to Air One. 5. Comprises 8 de Havilland Canada DHC-8s. Excludes 5 British Aerospace ATPs stood down pending return to lessor and 12 Jetstream 41s sub-leased to Eastern Airways. 6. Excludes 1 Avro RJ100 sub-leased to Swiss. 7. Future deliveries have increased by 4 to 10 to replace 10 A320 aircraft due to leave the fleet from 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
International Airlines