Cost savings counter revenue decline

PRELIMINARY RESULTS ANNOUNCEMENT

Year April 1, 2009 - March 31, 2010

COST SAVINGS COUNTER REVENUE DECLINE

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

Period highlights:

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

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

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

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

· Full year fuel costs down £597 million

· Other operating costs down £390million

· Underlying unit costs down 10.8per cent

British Airways' chief executiveWillie Walsh said:

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

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

"We signed our merger agreement with Iberia in early April and areon track to complete the merger by the end of 2010. The merger will create a newleading airline group known as International Airlines Group. Both airlines will retaintheir separate operations and individual brands. The group will generate enhancedcustomer benefits with a larger combined network and continued investment in newcustomer products and services. It will deliver annual synergies of €400 millionby year five.

"Also, we have received conditional approvalfrom the US Department of Transportation for our transatlantic joint business withAmerican Airlines and Iberia on condition that we divest up to four daily slot pairsfor our competitors to use on transatlantic services. While we don't agree withthe US DOT on every aspect of their decision, we are keen for them to reach theirdecision 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 testingon them. If our competitors operate the schedules between London and New York insummer 2012 that they have announced, the effect of the EU commitments will be broadlysimilar to the DOT conditions. We look forward to receiving final approval from theDOT and EU by the summer.

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

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

"The current financial year could hardly have had a worse start withthe unprecedented closures of UK airspace following the eruption of the volcano inIceland. This added to the aviation industry's current financial woes while highlightingits crucial contribution to the economy. We are pleased that the European Commissionhas 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 bythe airspace closure which was something completely out of our control.

"In 2007 the Office of Fair Trading had agreedthat it would be prepared to resolve its investigation into alleged price fixingbetween British Airways and Virgin Atlantic under the Competition Act 1998 if certainconditions were met. Given the collapse of the criminal trial on May 10 2010, theacquittal of the four defendants, and in light of potential new evidence, we areconsidering whether the settlement terms the company was offered by the OFT, includingthe 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 wetake heart from the fact that, while our revenue has fallen by £1 billion, so haveour costs. I would like to thank everyone who has worked diligently and made sacrificesin order to produce this excellent cost performance.

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

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

Financial review:

Group revenue in quarter 4 was down 4.7 per cent to just under £1.9billion with operating costs down 11.4 per cent to £2 billion. This results in anoperating loss for the quarter of £145 million, an improvement of £164 million fromquarter 4 in the previous year. Excluding fuel the operating costs were down 5.9per cent. Loss before tax for quarter 4 was £189 million. Passenger revenue for quarter4 was down 3.2 per cent. Yields were up 3.2 per cent, 5.8 per cent excluding theimpact of exchange. The quarter's operating loss includes seven days of strikeaction with a net cost of £43 million.

For the full year, revenue at £8 billion was down 11.1 per cent, 14.5per 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 returnedto year on year growth in December 2009 some three months behind a pick up in generalglobal economic activity. It was the first such increase in 18 months.

Global freight markets were affected materially by the economic downturnreaching a low point in early 2009. Since November 2009 both the market and theairlines have seen a return to positive year on year growth. Overall volumes, measuredin cargo tonne kilometres, for the year down only 2.2 per cent against capacity down4.6 per cent. Cargo revenue for the full year decreased by 18.3 per cent mainlydue 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 costsreduced by £390 million as a direct result of our robust cost initiative programmesimplemented from October 2008. Non-fuel costs include a charge of £85 million forrestructuring (£78 million last year). Despite the reduced capacity, unit costs excludingfuel, 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 remainsstrong, up £333 million since March 2009. In addition we have £2 billion of committedaircraft facilities and some £450 million of general facilities. Net debt reducedby £94 million to £2.3 billion, including £85 million of exchange and other non-cashmovements. Gross debt increased by £368 million.

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

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

Business review:

We launched our new First class cabin in February and the majorityof 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 Boeing747 and 777 aircraft.

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

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

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

Capacity this year has reduced by 4.9 per cent (4.4 per cent excludingthe 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 thiswinter and will keep capacity under review as market conditions develop.

Our thorough review of our cost base, including working closely withour 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 achievedby natural attrition combined with voluntary redundancy, overtime reductions, parttime working and unpaid leave. Overall, since September 2008, our manpower has reducedby more than 6,000.

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

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

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

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

Principal risks and uncertainties

The principal risks and uncertainties affectingthe 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-termnetwork disruption. Example scenarios include a significant failure of the publictransport system, the complete or partial loss of the use of terminals at LondonHeathrow Airport, adverse weather conditions (such as snow, fog or volcanic ash),war, civil unrest or terrorism. A long-term network disruption may result in significantlost revenue and additional cost. The management has robust business continuityplans to mitigate these risks to the extent feasible.

Failure of a critical IT system

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

Pandemic

If there is a significant outbreak of Swine Fluor other infectious disease, staff absence will increase which may seriously impactthe operation. Key corporate clients may discourage travel, significantly impactingsales. As part of the recent outbreak of Swine Flu we fully rehearsed our contingencyplans.

Related parties

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

Trading Outlook

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

On the basis of these market improvements we aretargeting revenue growth of some 6 per cent and breakeven at the profit before taxlevel.

ends

May 21, 2010 043/LG/10

Note to Editors:

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

Certain information included in these statementsis forward-looking and involves risks and uncertainties that could cause actual resultsto 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'splans and objectives for future operations, including, without limitation, discussionsof the Company's Business Plan programmes, expected future revenues, financing plansand expected expenditures and divestments. All forward-looking statements in thisreport 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-lookingstatement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all ofthe many factors and specific events that could cause the Company's forward lookingstatements to be incorrect or that could otherwise have a material adverse effecton 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 inthe Company's Annual Report and Accounts, which will be available at our webitewww.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 

NOTES TO THE ACCOUNTS

For the year ended 31 March 2010

1. Corporate Information

The Group's summary consolidated financial statementsfor the year ended 31 March 2010 were authorised for issue by the Board of Directorson 20 May 2010, and the balance sheet signed on the Board's behalf by Willie Walshand Keith Williams. British Airways Plc (the Company) is a public limited companyincorporated and domiciled in England and Wales. The summary consolidated financialstatements herein are not the Company's statutory accounts. The Group's auditorsissued 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 May2010. The Group and Company's annual financial statements have not been lodged withthe Registrar as at 20 May 2010. The Company's ordinary shares are traded on theLondon Stock Exchange.

2. BASIS OF PREPARATION

The basis of preparation and accounting policiesset out in the Annual Report and Accounts for the year ended 31 March 2010 have beenapplied in the preparation of these summary consolidated financial statements. Theseare in accordance with the recognition and measurement criteria of InternationalFinancial Reporting Standards (IFRSs)* as adopted by the European Union (EU) andwith those of the Standing Interpretations issued by the International FinancialReporting Interpretations Committee (IFRIC) of the International Accounting StandardsBoard (IASB). References to 'IFRS' hereafter should be construed as referencesto IFRSs as adopted by the EU.

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

3. Accounting Policies

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

IFRS 7 (Amendment), 'Financial instruments -Disclosures' (Amendment); effective for periods beginning on or after 1 January2009. The amendment requires enhanced disclosures about fair value measurement andliquidity risk. In particular, the amendment requires disclosure of fair value measurementsby level of hierarchy.

IAS 1 (Revised), 'Presentation of financial statements';effective for periods beginning on or after 1 January 2009. The revised standardprohibits the presentation of items of income and expenses, that are not classifiedas transactions with owners, in the statement of changes in equity. 'Non-owner changesin equity' are to be presented separately from owner changes in equity in a statementof 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 revisedstandard, although the Group has chosen not to adopt the revised names for the financialstatements.

IAS 1 (Amendment), 'Presentation of financialstatements'; effective for periods beginning on or after 1 January 2010. The amendmentprovides clarification on the classification between current and non-current liabilitiesthat can potentially be settled through the issue of equity. The amendment permitsa liability to be classified as non-current provided that the entity has an unconditionalright to defer settlement by transfer of cash or other assets for at least 12 monthsafter the accounting period, even though the entity could be required by the counterpartyto settle through the issue of shares at any time.

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

4. SEGMENT INFORMATION

a. Business segments

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

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

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

4. SEGMENT INFORMATION continued

a. Business segments continued

* Reclassified to more accurately reflect thenature of the expense.

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

4. SEGMENT INFORMATION continued

b. Geographical segments - by area of originalsale

5. OPERATING LOSS

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

6. FINANCE COSTS AND INCOME

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

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

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 economiclives and residual values of the aircraft were adjusted in April 2009 to reflectthe terms of the sale agreement. Aircraft which are due to exit the business within12 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: £9million) and a deferred tax credit of £104 million (2009: £34 million). Excludingprior year adjustments, pension fund accounting and the change in foreign profitslegislation the tax rate for the year would have been 24 per cent (2009: 28 per cent).

11. DIVIDENDS

The Directors recommend that no dividend be declaredfor the year ended 31 March 2010 (2009: £nil). The Company declared a dividend of 5 pence per share (totalling £58million) for the year ended 31 March 2008. The dividend was paid in July 2008 andwas accounted for as a reduction in shareholders' equity for the year ended 31 March2009.

In the prior year, the Group reversed £2 millionof previously declared dividends, relating to historic unclaimed dividends that areno longer expected to be collected.

12. PROPERTY, PLANT AND EQUIPMENT

During the year ended 31 March 2010, the Group acquired assets witha cost of £554 million (2009: £651 million). Included in the acquisition of assetsare the delivery of two Airbus A318 aircraft, three Airbus A320 aircraft, three Boeing777-200 aircraft and seven Embraer E-jets aircraft.

Property, plant and equipment with a net bookvalue of £118 million was disposed of by the Group during the year ended 31 March2010 (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 weretransferred to non-current assets held for sale during the year ended 31 March 2010(2009: £nil).

13. Reconciliation of net cash flow to movementin net debt

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

14. Long-term Borrowings

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

15. SHARE OPTIONS

During the year, the Group made awards underthe Performance Share Plan (PSP) to key senior executives and selected members ofthe 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 shareoptions 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 thethree 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 theAnnual Report and Accounts for the year ended 31 March 2010.

16. PENSION COSTS

The Company operates two funded principal defined benefit pensionschemes 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 valuationat the year ended 31 March 2010 are summarised below:

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

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

17. PROVISIONS FOR LIABILITIES AND CHARGES

Litigation

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

Restructuring

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

18. CONTINGENT LIABILITIES

There were contingent liabilities at 31 March 2010 in respect ofguarantees and indemnities entered into as part of the ordinary course of the Group'sbusiness. No material losses are likely to arise from such contingent liabilities. A number of other lawsuits and regulatory proceedings are pending, the outcome ofwhich in the aggregate is not expected to have a material effect on the Group'sfinancial 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 ordinarycourse of business during the year under review with related parties.

Associates

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

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

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

As at 31 March 2010 the net trading balance owedto 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 DunwoodyAirline Services (Holdings) Limited (2009: under £1 million).

Directors' and officers' loans and transactions

No loans or credit transactions were outstandingwith Directors or officers of the Company at 31 March 2010 or arose during the yearthat need to be disclosed in accordance with the requirements of Sections 412 and413 to the Companies Act 2006.

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

The Group has not provided or benefited fromany guarantees for any related party receivables or payables. During the year ended31 March 2010 the Group has not made any provision for doubtful debts relating toamounts owed by related parties (2009: £nil).

20. CAPITAL EXPENDITURE COMMITMENTS

Capital expenditure authorised and contracted forbut 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 denominatedin US dollars, as such the commitments are subject to exchange movements.

The outstanding commitments include £4,253 millionfor the acquisition of two Boeing 777s (from 2010 to 2012), 24 Boeing 787s (from2012 to 2016), 12 Airbus A320s (from 2010 to 2014), 12 Airbus A380s (from 2012 to2014) and four Embraer E-jets (all in 2010).

21. OTHER EVENTS

Merger with Iberia