IAG Group: Six Months Results Announcement

“Unfortunately, French Air Traffic Control strikes continued to challenge our airlines’ operations causing disruption to our customers. Vueling was particularly affected and incurred an additional €20 million of disruption costs in the quarter. These strikes are also having a significant negative impact on the Spanish economy and tourism.

“In July, LEVEL started flights from Paris Orly to Montreal and Guadeloupe. We are committed to accelerating LEVEL’sgrowth and its fleet will increase to a total of seven A330-200 aircraft in Paris and Barcelona next year. Also, we launched LEVEL shorthaul operations from Vienna where it will have four A321 aircraft that will operate to 14 European destinations.”

Trading outlook

At current fuel prices and exchange rates, IAG still expects its operating profit for 2018 to show an increase year-on-year. Both passenger unit revenue and non-fuel unit costs are expected to improve at constant currency.

LEI: 959800TZHQRUSH1ESL13

This announcement contains inside information and is disclosed in accordance with the Company’s obligations under the Market Abuse Regulation (EU) No 596/2014.
Enrique Dupuy, Chief Financial Officer

Forward-looking statements:

Certain statements included in this report are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

Forward-looking statements can typically be identified by the use of forward-looking terminology, such as “expects”, “may”, “will”, “could”, “should”, “intends”, “plans”, “predicts”, “envisages” or “anticipates” and include, without limitation, any projections relating to results of operations and financial conditions of International Consolidated Airlines Group S.A. and its subsidiary undertakings from time to time (the ‘Group’), as well as plans and objectives for future operations, expected future revenues, financing plans, expected expenditure and divestments relating to the Group and discussions of the Group’s Business plan. All forward-looking statements in this report are based upon information known to the Group on the date of this report. Other than in accordance with its legal or regulatory obligations, the Group does not undertake to update or revise any forward-looking statement to reflect any changes in events, conditions or circumstances on which any such statement is based.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the forward-looking statements in this report to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2017; these documents are available on www.iagshares.com.

IAG Investor Relations Waterside (HAA2), PO Box 365, Harmondsworth, Middlesex,

UB7 0GB

Tel: +44 (0)208 564 2900 Investor.relations@iairgroup.com

2

FINANCIAL REVIEW

Operating profit overview

IAG’s operating profit for the six months to June 30, 2018 was €1,115 million before exceptional items, an improvement of€165 million from last year. British Airways made a profit of €868 million before exceptional items (2017 restated: €740million); Iberia made a profit of €102 million (2017 restated: €87 million); Aer Lingus made a profit of €104 million (2017 restated: €53 million) and Vueling’s loss was €11 million (2017 restated: loss €7 million).

Strategic overview

British Airways closed its New Airways Pension Scheme (NAPS) to future accrual and British Airways Retirement Plan (BARP) to future contributions from March 31, 2018. The schemes have been replaced by a flexible defined contribution scheme, the British Airways Pension Plan (BAPP). The changes resulted in a one-off reduction of the NAPS IAS 19 defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million.

British Airways successfully launched a $608.6 million EETC bond issue to fund aircraft deliveries. The bonds were combined with Japanese Operating Leases with Call Option (JOLCO) of $259 million, bringing the total raised to $868 million. The transaction includes Class AA and Class A Certificates with an underlying collateral pool consisting of 11 aircraft: two new Boeing 787-9, delivered between March and April 2018, one Boeing 787-8 delivered in September 2017, one new Boeing 787-8 delivered in June 2018 and seven new Airbus A320 NEO aircraft, scheduled for delivery between April and October 2018. The Class AA Certificates ($409.8 million) have an annual coupon, payable quarterly, of 3.800 per cent and the Class A Certificates ($198.8 million) have an annual coupon, payable quarterly, of 4.125 per cent.

On 28 June, IAG launched its new shorthaul low-cost Austrian subsidiary, branded as LEVEL with flights from Vienna starting on July 17, 2018. The new subsidiary has an Austrian Air Operator’s Certificate (AOC) and will base four Airbus A321 aircraft in Vienna from where it will fly to 14 European destinations.

Principal risks and uncertainties

We have continued to maintain and operate our structure and processes to identify, assess and manage risks. The principal risks and uncertainties affecting us, detailed on pages 29 to 34 of the December 31, 2017 Annual Report and Accounts, remain relevant for the remainder of the year.

Operating and market environment

Fuel prices rose significantly in the six-month period, partially offset by a weaker US dollar against both the euro and the pound sterling. The euro weakened against the pound sterling during the period, although to a lesser extent. Exchange rates were net negative for the Group.

IAG’s results are impacted by exchange rates used for the translation of British Airways’ and Avios’ financial results from sterling to the Group’s reporting currency of euro. For the six months, the net impact of translation was €26 million adverse with a decrease in revenues of €217 million and a decrease in costs of €191 million.

From a transactional perspective, the Group’s financial performance is impacted by fluctuations in exchange rates, primarily from the US dollar, euro and pound sterling. The Group generates a surplus in most currencies in which it does business, except for the US dollar, as capital expenditure, debt repayments and fuel purchases typically create a deficit. The Group hedges a portion of its transaction exposures. The net transaction impact on operating profit was positive by €18 million, decreasing revenues by €294 million and costs by €312 million.

The net impact of translation and transaction exchange for the Group was €8 million adverse.

Basis of preparation

The Group has adopted IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial Instruments’ from January 1, 2018. The prior year consolidated income statement has been restated. The main change arising on adoption of IFRS 15 is on the recognition and measurement of revenue associated with the Group’s loyalty programmes. Revenue associated with performance obligations arising on the sale of loyalty points, including revenue allocated to brand and marketing services and revenue allocated to Avios points, has been determined based on the relative stand-alone selling price of each performance obligation. Revenue associated with brand and marketing services is recognised as the points are issued. Revenue allocated to the Avios points is deferred and recognised when the points are redeemed. The impact of assessing the stand-alone selling prices of the individual performance obligations has resulted in a greater portion of revenue being deferred on issuance, because the stand-alone selling price of the points was higher than the fair value applied under IFRIC 13 ‘Customer loyalty programmes’. In addition, as required on implementation of IFRS 15, the Group reassessed all incomplete contracts at the date of initial application for any remaining performance obligations. This resulted in an increase in the number of points deferred in respect of incomplete contracts and which are expected to be redeemed in the future. The adjustment to opening retained earnings at January 1, 2017 arising from these loyalty revenue recognition changes amounted to €403 million.

Under IFRS 15, the Group’s previously reported revenues for the six month period to June 30, 2017 were reduced by €21million and operating expenditure increased by €4 million, resulting in a reduction in operating profit of €25 million. Under IFRS 9, a €77 million charge to net non-operating costs was reclassified to Other comprehensive income reflecting primarily the unrealised movement in the time value of derivative options which is now recognised in Other comprehensive income. The impact of the restatements in the income statement increased the tax charge by €12 million. For further information see note 2 of the condensed consolidated interim financial statements.

The Group’s performance for the six month period to June 30, 2018 includes LEVEL’s operations, the comparator period includes LEVEL’s operations since its inception on March 17, 2017.

5

FINANCIAL REVIEW

Capacity

In the first six months of 2018, IAG capacity, measured in available seat kilometres (ASKs) was higher by 5.0 per cent with increases across all regions except Asia Pacific.

Vueling continued its aim to reduce the seasonality of its network through growth in the first half of the year. However its plans were affected by a challenging operational environment due to French air traffic control strikes leading to significant level of cancellations. Iberia increased its capacity primarily through additional frequencies in its domestic market, to European cities and on its North American routes. Iberia also launched its new route to San Francisco. Aer Lingus growth reflects the full year impact of routes launched in 2017, and the impact of new routes to Philadelphia and Seattle. British Airways introduced flights to Nashville from London Heathrow, and also launched Canadian flights from Gatwick. LEVEL longhaul capacity growth reflected the full year impact of its second year in operation. Passenger load factor for the Group rose 1.5 points to 82.4 per cent.

Revenue

Passenger revenue increased 3.6 per cent versus last year. Passenger unit revenue (passenger revenue per ASK) increased 2.9 per cent at constant currency (‘ccy’) from both higher yields (passenger revenue/revenue passenger kilometre) and passenger load factor. For the six months to June 30, 2018 passenger revenue per ASK improved in all regions except for Asia Pacific which saw mixed performance. The Group’s revenue performance was strong in North America, Europe and Latin America. While the domestic market performance rose, quarter two was down due to the operational disruption at Vueling. In the six months to June 30, 2018 the Group carried over 52 million passengers up 8.0 per cent versus last year.

Cargo revenue increased 3.5 per cent, 10.2 per cent at constant currency versus last year. The cargo performance was strong with an increase in cargo yield (cargo revenue / cargo tonne kilometres) and an increase in tonnes carried. The Asia Pacific region performed well and mix improved from Constant Climate Critical products.

Other revenue was down 3.7 per cent, excluding currency impact up 3.5 per cent. Other revenue rose from higher BA Holidays revenue and from rental revenue at New York JFK, partially offset by a decrease in Iberia’s third party maintenance business.

Costs

Employee costs increased 0.1 per cent compared to last year. On a unit basis and at ccy, employee unit costs improved 2.4 per cent with salary awards primarily RPI linked, offset by efficiency and restructuring initiatives across the airlines. The replacement of British Airways NAPS and BARP plans with a flexible defined contribution scheme also led to a net reduction in pension costs. The average number of employees rose 0.4 per cent, while productivity increased 4.5 per cent with improvements at British Airways, Iberia, Vueling and Aer Lingus.

Fuel costs increased by 9.0 per cent with fuel unit costs up significantly at 12.8 per cent at ccy from average fuel prices net of hedging.

Handling, catering and other operating costs rose 1.1 per cent, excluding currency up 5.5 per cent. The year on year comparison is impacted by a €65 million charge in the base related to a power failure at British Airways in May 2017 causing operational disruption. Otherwise the Group’s Handling, catering and other operating costs rose c.10 per cent excluding currency, half of which is from an increase in passengers carried. The remaining increase in Handling, catering and other operating costs reflects higher volumes from BA Holidays c.1pt, additional investment in the customer (lounges, catering, service delivery) c.1pt and EU 261 compensation costs related to air traffic control strikes c.3pts. In the six months to June 30, 2018, air traffic control strikes and regulations have significantly impacted our operations, in particular Vueling’s.

Landing fees and en-route charges rose 0.6 per cent, excluding currency up 3.3 per cent. The rise is from an increase in flying hours up 4.5 per cent and in sectors flown up 4.9 per cent.

Engineering and other aircraft costs decreased 11.3 per cent, excluding currency down 2.9 per cent. The decrease is from the timing of third party maintenance activity at Iberia and engine compensation credits from a manufacturer.

Property, IT and other costs rose 1.8 per cent, excluding currency up 5.3 per cent. The increase primarily reflects higher IT costs and inflation on rent and rates.

Selling costs increased 8.1 per cent, excluding currency up 12.1 per cent due to higher volumes and distribution costs. The rise in distribution costs reflects the new business model introduced in November 2017 with a corresponding increase in passenger revenues and more direct access to customers.

Ownership costs decreased 0.9 per cent, excluding currency up 3.9 per cent. The increase reflects higher depreciation charges for the Boeing 747 fleet from lower expected residual values and incremental wet lease costs incurred to operate the acquired Monarch slots at London Gatwick airport. The Group had 565 aircraft in service at June 30, 2018 (2017: 549 aircraft in service).

At constant currency non-fuel costs per ASK decreased 1.5 per cent. Adjusted for non-airline businesses (such as MRO, handling, BA Holidays) and currency down 1.8 per cent. The improvement in cost performance was due to efficient growth and from management initiatives.

6

FINANCIAL REVIEW

Non-operating costs, taxation and profit after tax

The Group’s net non-operating costs for the six month period were €80 million compared to €115 million in 2017. The decrease is from unrealised gains on the revaluation of derivatives not qualifying for hedge accounting and a net financing credit related to pensions. The Group also recognised a loss on the sale and lease back of two aircraft and from a loss on disposal of inventory. The Group’s finance income and costs for the six month period are in line with last year.

The tax charge for the period was €200 million before exceptional items with an effective tax rate for the Group of 19 per cent (2017: 20 per cent). The tax charge on exceptional items in the period was €47 million with an effective tax rate of 8 per cent, impacted by the recognition of withholding tax on the reduction of the defined benefit liability (2017: 19 per cent).

The profit after tax before exceptional items for the six months’ period to June 30, 2018 was €835 million (2017 restated:€669 million), an increase of €166 million or 24.8 per cent versus last year.

Exceptional items

The changes noted in the strategic overview regarding the closure of the British Airways NAPS and BARP pension schemes resulted in a one-off reduction of the defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million. These items are presented net, as an exceptional item within the Income statement of €678 million.

In 2018, the Group also recognised an exceptional charge of €58 million (2017 restated: €77 million) related primarily to the continuation of British Airways’ transformation initiatives.

Cash and leverage

The Group’s cash position of €8,146 million was up €202 million over the same period last year while adjusted net debt decreased €826 million including a reduction in on-balance sheet debt. Adjusted net debt to EBITDAR was lower by 0.3 to 1.2 times.

7

INTERNATIONAL CONSOLIDATED AIRLINES GROUP S.A.

Unaudited Condensed Consolidated Interim Financial Statements January 1, 2018 – June 30, 2018

8

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Six months to June 30

€ million

Items that may be reclassified subsequently to net profit

Cash flow hedges:
Fair value movements in equity Reclassified and reported in net profit

Fair value movements on cost of hedging Currency translation differences

Items that will not be reclassified to net profit

Fair value movements on equity instruments Remeasurements of post-employment benefit obligations Total other comprehensive income for the period, net of tax Profit after tax for the period
Total comprehensive income for the period

Total comprehensive income is attributable to: Equity holders of the parent
Non-controlling interest

20172018 (restated)(1)

740 (470)(235) 71 (60)30 (114)

– 5- 184

536 (448)

1,408 6071,944 159

1,934 14910 10

1,944 159

(1)Restated for new accounting standards IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial instruments’; refer to note 2.

Items in the consolidated Statement of other comprehensive income above are disclosed net of tax.

10

CONSOLIDATED CASH FLOW STATEMENT

Six months to June 30

€ million

2018

2017 (restated)(1)

873

603 1,756(429)

2,185

(122) (569) 117 65 (63) 17 18

2,695

(687) 236 15 (887) 37

(1,286)

92 (59) (313) (198) (10) (43)

(531)

878 (141) 3,337

4,074

3,870

7,944

Cash flows from operating activities
Operating profit after exceptional items 1,735Depreciation, amortisation and impairment 618Movement in working capital 1,673

Increase in trade receivables, prepayments, inventories and other current (394) assets
Increase in trade and other payables, deferred revenue on ticket sales and 2,067 current liabilities

Payments related to restructuring (97)Employer contributions to pension schemes (655)Pension scheme service costs 52Provision and other non-cash movements (579)Interest paid (66)Interest received 14Taxation 26

Net cash flows from operating activities 2,721

Cash flows from investing activities
Acquisition of property, plant and equipment and intangible assets (1,266)Sale of property, plant and equipment and intangible assets 186Proceeds from sale of investments -Increase in other current interest-bearing deposits (185)Other investing movements 67

Net cash flows from investing activities (1,198)

Cash flows from financing activities
Proceeds from long-term borrowings 452Repayment of borrowings (53)Repayment of finance leases (441)Acquisition of treasury shares (132)Distributions made to holders of perpetual securities and other (10)Dividend paid (47)

Net cash flows from financing activities (231)

Net increase in cash and cash equivalents 1,292Net foreign exchange differences (15)Cash and cash equivalents at 1 January 3,292

Cash and cash equivalents at period end 4,569

Interest-bearing deposits maturing after more than three months 3,577

Cash, cash equivalents and other interest-bearing deposits 8,146

At June 30, 2018 Aer Lingus held €44 million of restricted cash (2017: €45 million) within interest-bearing deposits maturing after more than three months to be used for employee related obligations.

(1)Restated for new accounting standards IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial instruments’; refer tonote 2.

(2)Includes transitional arrangement cash costs associated with changes to the British Airways pension schemes. Refer to note 3‘Exceptional Items’.

12

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months to June 30, 2018

€ million

Issued
share Share

capital premium

TotalOther shareholders’

Non- controlling interest307-

307

10

– – – –

(10)

307

Non- controlling interest

308 –

308

10

– – – –

(10)

308

January 1, 2018 as reported 1,029 Restatement for adoption of new standards – At January 1, 2018 (restated) 1,029

Total comprehensive income for the period – (net of tax)

Cost of share-based payments – Vesting of share-based payment schemes – Acquisition of treasury shares – Dividend – Distributions made to holders of perpetual – securities

June 30, 2018 1,029

(1)Closing balance includes retained earnings of €3,401 million.For the six months to June 30, 2017

6,022 –

6,022

–

– – – – –

6,022

Treasury
shares reserves(1)

(77) 115 – (463)

(77) (348)

– 1,934

– 10 8 (10) (500) – – (295) – –

(569) 1,291

equity 7,089 (463)

6,626

1,934

10 (2) (500) (295) –

7,773

Total equity

7,396 (463)

6,933

1,944

10 (2) (500) (295) (10)

8,080

Total equity

5,664 (430)

5,234

159

18 (12) (500) (262)

(10)

4,627

€ million

January 1, 2017 as reported
Restatement for adoption of new standards

At January 1, 2017 (restated)

Total comprehensive income for the period (net of tax)

Cost of share-based payments
Vesting of share-based payment schemes Acquisition of treasury shares
Dividend
Distributions made to holders of perpetual securities

June 30, 2017

reserves(1)(1,719) (430)

(2,149)

149

18 (31) – (262)

–

(2,275)

equity 5,356 (430)

4,926

149

18 (12) (500) (262)

–

4,319

Issued
share Share

capital premium

1,066 6,105 – –

1,066 6,105

– –

– – – – – – – –

– –

1,066 6,105

Treasury shares

(96) –

(96)

–

– 19 (500) –

–

(577)

Total Other shareholders’

(1)Closing balance includes retained earnings of €991 million.

13

NOTES TO THE ACCOUNTS

For the six months to June 30, 2018

1. CORPORATE INFORMATION AND BASIS OF PREPARATION

International Consolidated Airlines Group S.A. (hereinafter ‘International Airlines Group’, ‘IAG’ or the ‘Group’) is a leading European airline group, formed to hold the interests of airline and ancillary operations. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 2010. On January 21, 2011 British Airways Plc and Iberia Líneas Aéreas de España S.A. Operadora (hereinafter ‘British Airways’ and ‘Iberia’ respectively) completed a merger transaction becoming the first two airlines of the Group. Vueling Airlines S.A. (‘Vueling’) was acquired on April 26, 2013, and Aer Lingus Group Plc (‘Aer Lingus’) on August 18, 2015.

IAG shares are traded on the London Stock Exchange’s main market for listed securities and also on the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (the ‘Spanish Stock Exchanges’), through the Spanish Stock ExchangesInterconnection System (Mercado Continuo Español).

The condensed consolidated interim financial statements were prepared in accordance with IAS 34 and authorised for issue by the Board of Directors on August 2, 2018. The condensed consolidated interim financial statements herein are not theCompany’s statutory accounts and are unaudited. The Directors consider that the Group has adequate resources to remainin operation for the foreseeable future and have therefore continued to adopt the going concern basis in preparing the interim financial statements.

The same basis of preparation and accounting policies set out in the IAG Annual Report and Accounts for the year to December 31, 2017 have been applied in the preparation of these condensed consolidated interim financial statements, except as adjusted for the implementation of IFRS 9 and IFRS 15 as described below. IAG’s financial statements for the yearto December 31, 2017 have been filed with the Registro Mercantil de Madrid, and are in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and with those of the Standing Interpretations issued by the IFRS Interpretations Committee of the International Accounting Standards Board (IASB). The report of the auditors on those financial statements was unqualified.

2. ACCOUNTING POLICIES

The Group has adopted IFRS 15 ‘Revenue from contracts with customers’ from January 1, 2018. The standard establishes a five-step model that applies to revenue arising from contracts with customers. Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for goods and services and at a point when the performance obligations associated with these goods and services have been satisfied.

The Group has identified the following changes to revenue recognition on adoption of the standard:

• Loyalty revenue – revenue associated with performance obligations arising on the sale of loyalty points, including revenue allocated to brand and marketing services and revenue allocated to Avios points, has been determined based on the relative stand-alone selling price of each performance obligation. Revenue associated with brand and marketing services is recognised as the points are issued. Revenue allocated to the Avios points is deferred and recognised when the points are redeemed. The impact of assessing the stand-alone selling prices of the individual performance obligations has resulted in a greater portion of revenue being deferred on issuance, because the stand- alone selling price of the points was higher than the fair value applied under IFRIC 13 ‘Customer loyalty programmes’.

  As required on implementation of IFRS 15, the Group reassessed all incomplete contracts at the date of initial application for any remaining performance obligations. This resulted in an increase in the number of points deferred in respect of incomplete contracts and which are expected to be redeemed in the future.

  The Group also changed the way that costs associated with the redemption of Avios points with third parties are presented. The revenue arising from these transactions is presented net of the related costs as IAG is considered to be an agent rather than principal.

• Passenger revenue – revenue associated with ancillary services that was previously recognised when paid, such as administration fees, is deferred to align with the recognition of revenue associated with the related travel.
• Cargo revenue – interline cargo revenue is presented gross rather than net of related costs as IAG is considered to be principal rather than agent in these transactions.
• Other revenue – revenue associated with maintenance activities and holiday revenue with performance obligations that are fulfilled over time, is recognised over the performance obligation period.

  The Group has applied the standard on a fully retrospective basis and restated prior year comparatives on adoption of IFRS 15. The adjustment to opening retained earnings at January 1, 2017 arising from the changes to loyalty revenue recognition amounted to €403 million. Deferred revenue on ticket sales increased by €497 million and the tax liability decreased by €94million. Other changes to revenue recognition resulted in a charge to retained earnings at January 1, 2017 of €27 million.

14

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

2. ACCOUNTING POLICIES continued

For the year ended December 31, 2017, adjustments to reflect IFRS 15 resulted in a reduction to revenue of €92 million and a reduction to operating costs of €27 million, resulting in a reduction in operating profit of €65 million.

The Group has adopted IFRS 9 ‘Financial Instruments’ from January 1, 2018. The standard amends the classification and measurement models for financial assets and adds new requirements to address the impairment of financial assets. It also introduces a new hedge accounting model to more closely align hedge accounting with risk management strategy and objectives.

The Group will continue to recognise most financial assets at amortised cost. Equity investments, previously classified as available-for-sale, are measured at fair value through Other comprehensive income, with no recycling of gains and losses. In addition, the Group has adopted a new impairment model for trade receivables and other financial assets, with no material adjustment to existing provisions.

The Group continues to undertake hedging activity in line with its financial risk management objectives and policies. Movements in the time value of options are now classified as cost of hedging and recognised in Other comprehensive income, with prior year comparatives restated. At January 1, 2017 there was a reclassification of €38 million of post-tax gains from retained earnings to unrealised gains and losses in Other reserves to reflect this reclassification. For the year ended December 31, 2017, adjustments to reflect IFRS 9 resulted in a post-tax charge of €42 million previously recognised in the Income statement being recognised in Other comprehensive income in the same period.

Impact on financial statements

The following tables summarise the impact of adopting IFRS 15 and IFRS 9 on the Consolidated income statement for the six months to June 30, 2017 and the Consolidated balance sheet as at December 31, 2017.

Consolidated income statement (extract for the six months to June 30, 2017)

Previously reported

9,575 516 797 10,888 1,357 915 7,718

9,990 898

(72)

2 (122) 706 (139) 567

IFRS 15 adjustments

16

22 (59) (21) (8) 12 –

4 (25)

–

–

– (25) 5 (20)

IFRS 9 adjustments Restated

– 9,591 – 538 – 738 – 10,867 – 1,349 – 927 – 7,718

– 9,994 – 873

66 (6)

11 13 – (122) 77 758 (17) (151) 60 607

15

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

3. EXCEPTIONAL ITEMS

€ million
Restructuring costs (1)
Employee benefit obligations (2)
Recognised in expenditure on operations Total exceptional (credit)/charge before taxTax on exceptional items
Total exceptional (credit)/charge after tax

(1) Restructuring costs

Six months to June 30

2018 2017

58 77(678) –

(620) 77

(620) 77

47 (15)

(573) 62

British Airways has embarked on a series of transformation proposals to develop a more efficient and cost effective structure. The overall costs of the programme primarily comprise employee severance costs. Costs incurred in the six months to June 30, 2018 in respect of this programme amount to €58 million (2017: €77 million), with a related tax credit of €11 million (2017:€15 million).

(2) Employee benefit obligations

British Airways closed its New Airways Pension Scheme (NAPS) to future accrual and British Airways Retirement Plan (BARP) to future contributions from March 31, 2018. The schemes have been replaced by a flexible defined contribution scheme, the British Airways Pension Plan (BAPP). The changes resulted in a one-off reduction of the NAPS IAS 19 defined benefit liability of €872 million and associated transitional arrangement cash costs of €192 million through employee costs. These items are presented net, together with BARP closure costs, as an exceptional item within the Income Statement of €678 million, with a related tax charge of €58 million.

4. SEASONALITY

The Group’s business is highly seasonal with demand strongest during the summer months. Accordingly higher revenues and operating profits are usually expected in the latter six months of the financial year than in the first six months.

5. SEGMENT INFORMATION

a Business segments

The Group has a number of entities which are managed as individual operating companies including airline and platform functions. Each airline operates its network operations as a single business unit and the IAG MC assesses performance based on measures including operating profit, and makes resource allocation decisions for the airlines based on network profitability, primarily by reference to the passenger markets in which the companies operate. The objective in making resource allocation decisions is to optimise consolidated financial results.

The Group has determined its operating segments based on the way that it treats its businesses and the manner in which resource allocation decisions are made. British Airways, Iberia, Vueling and Aer Lingus have been identified for financial reporting purposes as reportable operating segments. Avios and LEVEL are also operating segments but do not exceed the quantitative thresholds to be reportable and management has concluded that there are currently no other reasons why they should be separately disclosed.

The platform functions of the business primarily support the airline operations. These activities are not considered to be reportable operating segments as they either earn revenues incidental to the activities of the Group and resource allocation decisions are made based on the passenger business, or are not reviewed by the IAG MC and are included within Other Group companies.

17

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

5. SEGMENT INFORMATION continued

b Geographical analysis Revenue by area of original sale

Six months to June 30

€ million
UK 3,658Spain 1,716USA 1,916

2017 (restated)

3,503 1,637 1,969 3,758

10,867

Intangible assets

1,284 1,246 5 598

3,133

Intangible assets

1,171 1,241 6 600

3,018

2018

3,916

11,206

Property, plant

and equipmentUK 9,171Spain 2,245

Rest of world

Assets by area

USA
Rest of world

December 31, 2017

€ million
UK 9,013 Spain 2,050

June 30, 2018€ million

16 822

12,254

Property, plant

and equipment

USA
Rest of world

6. FINANCE COSTS AND INCOME

€ million

Finance costs

Interest payable on bank and other loans, finance charges payable under finance leases

Unwinding of discount on provisions Capitalised interest on progress payments Change in fair value of cross currency swaps Total finance costs

Finance income

Interest on other interest-bearing deposits Other finance income
Total finance income

7. TAX

18 765

11,846

Six months to June 30

2018 2017

(103) (106)

(14) (9)6 3- (1)

(111) (113)

14 157 –

21 15

The tax charge for the six months to June 30, 2018 is €247 million (2017 restated: €151 million), and the effective tax rate is 14.9 per cent (2017 restated: 19.9 per cent).

19

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

8. EARNINGS PER SHARE AND SHARE CAPITAL

Millions
Weighted average number of ordinary shares in issue Weighted average number for diluted earnings per share

€ cents
Basic earnings per share Diluted earnings per share

Six months to June 30

2018 2017

2,046 2,1112,135 2,202

Six months to June 30

20172018 (restated)

68.3 28.365.9 27.5

The number of shares in issue at June 30, 2018 was 2,057,989,294 (December 31, 2017: 2,057,989,294) ordinary shares with a par value of €0.50 each.

In February 2018, the Group announced its intention to carry out a share buyback programme of up to €500 million, as part of its corporate finance strategy to return cash to shareholders while reinvesting in the business and managing leverage. The programme started in May 2018 and will complete by December 28, 2018. During the period to June 30, 2018 the Group purchased 18,127,318 shares, amounting to €143 million. The outstanding payment obligation of the share buyback programme totalling €357 million is included in Trade and other payables in the consolidated balance sheet.

9. DIVIDENDS

The Directors propose that no dividend be paid for the six months to June 30, 2018 (June 30, 2017: nil).

The final dividend of 14.5 € cents per share for the year to December 31, 2017 was approved at the annual general meeting on June 14, 2018. This final dividend, amounting to €295 million, has been recognised as a liability at June 30, 2018 and was paid from July 2, 2018.

10. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS

Property, plant€ million and equipment

Net book value at January 1, 2018 11,846 Additions 1,113 Disposals (216)

Intangible assets

3,018 189 (18) (65) 9

3,133

Intangible assets

3,037 77 (16) (60) (48)

2,990

Depreciation, amortisation and impairment Exchange movements
Net book value at June 30, 2018

(553) 64

12,254

12,227

(543) (378)

11,725

€ million
Net book value at January 1, 2017
Additions 654 Disposals (235)

Property, plant and equipment

Depreciation, amortisation and impairment Exchange movements
Net book value at June 30, 2017

Capital expenditure authorised and contracted for but not provided for in the accounts amounts to €11,031 million (December 31, 2017: €12,137 million). The majority of capital expenditure commitments are denominated in US dollars, and as such are subject to changes in exchange rates.

11. IMPAIRMENT REVIEW

Goodwill and intangible assets with indefinite lives are tested for impairment annually (in the fourth quarter) and when circumstances indicate the carrying value may be impaired. The key assumptions used to determine the recoverable amount for the different cash generating units are disclosed in the Annual Report and Accounts for the year to December 31, 2017. For the six months to June 30, 2018 there are no indicators that the carrying value may exceed the recoverable amount.

20

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

12. FINANCIAL INSTRUMENTS
a. Financial assets and liabilities by category

The detail of the Group’s financial instruments at June 30, 2018 and December 31, 2017 by nature and classification for measurement purposes is as follows:

June 30, 2018

€ million

Non-current assets

Other equity investments Derivative financial instruments Other non-current assets

Current assets

Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits Cash and cash equivalents

€ million

Non-current liabilities

Interest-bearing long-term borrowings Derivative financial instruments
Other long-term liabilities

Current liabilities

Current portion of long-term borrowings Trade and other payables
Derivative financial instruments

Loans and receivables

–

– 134

1,738 358 – 3,577 4,569

Financial assets

Derivatives used for hedging

– 380 –

–

– 721 – –

Financial

Loans and payables

6,444 – 21

988 4,279 –

Equity Non-financial Investments assets

Total carrying amount by balance sheet item

73 380 274

1,738 1,215 721 3,577 4,569

Total carrying amount by balance sheet item

6,444 61 215

988 4,611 60

73 – – – – 140

– – – 857 – – – – – –

liabilities

Derivatives Non- used for financial hedging liabilities

– – 61 – – 194

– –

– 332 60 –

21

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

12. FINANCIAL INSTRUMENTS continued
a. Financial assets and liabilities by category continued

December 31, 2017

€ million

Non-current assets

Other equity investments

Derivative financial instruments Other non-current assets

Current assets
Trade receivables
Other current assets
Derivative financial instruments
Other current interest-bearing deposits Cash and cash equivalents

€ million

Non-current liabilities
Interest-bearing long-term borrowings Derivative financial instruments
Other long-term liabilities

Current liabilities
Current portion of long-term borrowings Trade and other payables
Derivative financial instruments

Loans and receivables

–

– 200

1,463 337 – 3,384 3,292

Financial assets

Derivatives used for hedging

– 145 –

–

– 405 – –

Financial

Loans and payables

6,401 – 15

930 3,411 –

Equity Non-financial Investments assets

Total carrying amount by balance sheet item

79 145 376

1,463 958 405 3,384 3,292

Total carrying amount by balance sheet item

6,401 114 222

930 3,723 111

79 – – – – 176

– – – 621 – – – – – –

liabilities

Derivatives Non- used for financial hedging liabilities

– – 114 – – 207

– –

– 312 111 –

b. Fair value of financial assets and financial liabilities

The fair values of the Group’s financial instruments are disclosed in hierarchy levels depending on the nature of the inputsused in determining the fair values as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, orregulatory agency, and those prices present actual and regularly occurring market transactions on an arm’s length basis;

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of financial instruments that are not traded in an active market is determined by valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates; and

Level 3: Inputs for the asset or liability that are not based on observable market data.

The fair value of cash and cash equivalents, other current interest-bearing deposits, trade receivables, other current assets and trade and other payables approximate their carrying value largely due to the short-term maturities of these instruments.

22

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

12. FINANCIAL INSTRUMENTS continued
b. Fair value of financial assets and financial liabilities continued

The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

Level 1: The fair value of listed asset investments classified as equity investments and listed interest-bearing borrowings is based on market value at the balance sheet date.

Level 2: The fair value of derivatives and other interest-bearing borrowings is determined as follows:

• Forward currency transactions and over-the-counter fuel derivatives are measured at the market value of instruments with similar terms and conditions at the balance sheet date using forward pricing models. Counterparty and own credit risk is deemed to be not significant.
• The fair value of the Group’s interest-bearing borrowings including leases is determined by discounting the remaining contractual cash flows at the relevant market interest rates at the balance sheet date.

  Level 3: The fair value of unquoted investments has been determined based on the most recent arm’s length transaction for an identical instrument.

  The carrying amounts and fair values of the Group’s financial assets and liabilities at June 30, 2018 are as follows:

€ million Level 1

Financial assets

Other equity investments 16Derivatives(1) –

Financial liabilities

Interest-bearing borrowings 1,115Derivatives(2) –

(1)Current portion of derivative financial assets is €721 million.(2)Current portion of derivative financial liabilities is €60 million.

Fair value

Level 2

– 1,101

6,426 121

Level 3

57 –

– –

Total

73 1,101

7,541 121

Carrying value

Total

73 1,101

7,432 121

The carrying amounts and fair values of the Group’s financial assets and liabilities at December 31, 2017 are set out below: Carrying

€ million Level 1

Fair value

Level 2

Level 3

56 –

– –

value

Total Total

79 79 550 550

–

–
7,458 7,331

225 225

Financial assets
Other equity investments 23Derivatives(1) – 550

Financial liabilities
Interest-bearing borrowings 1,079 6,379Derivatives(2) – 225

(1)Current portion of derivative financial assets is €405 million.(2)Current portion of derivative financial liabilities is €111 million.

–

There have been no transfers between levels of fair value hierarchy during the period.

The financial instruments listed in the previous table are measured at fair value for reporting purposes with the exception of the interest-bearing borrowings.

23

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

12. FINANCIAL INSTRUMENTS continued
c. Level 3 financial assets reconciliation
The following table summarises key movements in Level 3 financial assets:

€ million
Opening balance for the period
Additions 1 1 Exchange movements – (3)

Closing balance for the period 57 56

For unquoted investments, fair value has been determined based on the most recent arm’s length transaction for an identical instrument. The Group monitors transactions of these instruments on a regular basis to ensure the fair value is based on the most recent arm’s length price.

December 31,June 30, 2018 2017

56 58

13. BORROWINGS

€ million

Current

Bank and other loans Finance leases

Non-current

Bank and other loans Finance leases

14. SHARE BASED PAYMENTS

June 30, December 31,2018 2017

209 183779 747

988 930

1,579 1,6414,865 4,760

6,444 6,401

During the period 4,614,568 nil-cost options were awarded under the Group’s Performance Share Plan (PSP) to key senior executives and selected members of the wider management team. The Group settles the employees’ tax obligations arising from the issue of the shares directly with the relevant tax authority in cash and an equivalent number of shares is withheld by the Group upon vesting. The fair value of equity-settled share awards granted is estimated at the date of the award using the Monte-Carlo model, taking into account the terms and conditions upon which the options were awarded, or based on the share price at the date of grant, dependent on the performance criteria attached. The following are the inputs to the model for the PSP awards granted in the period:

Expected share price volatility: 35 per cent Expected life of options: 4.6 years Weighted average share price (£): £6.91

The Group also made awards under the Group’s Incentive Award Deferral Plan during the period, under which 1,986,531 conditional shares were awarded.

15. EMPLOYEE BENEFIT OBLIGATIONS

The principal funded defined benefit pension schemes within the Group are the Airways Pension Scheme (‘APS’) and the New Airways Pension Scheme (‘NAPS’).

NAPS was closed to future accrual from 31 March 2018, resulting in a reduction of the defined benefit obligation. Following closure members’ deferred pensions will now be increased annually by inflation up to five per cent per annum (measured using CPI), which is generally lower than the previous assumption for pay growth which included pay rises and promotions. NAPS members were offered a choice of transition arrangements, including non-cash options to increase their NAPS pensions prior to closure. The net financial effect of the closure offset by the non-cash transition arrangements was a past service gain of €872 million. Transition costs of €192 million were paid either directly to members or into their pension accounts. British Airways currently makes deficit contributions to NAPS of €341 million per annum, plus additional contributions of up to €171 million per year depending on the cash balance at the end of March each year. As part of the closure of NAPS, British airways agreed to make certain additional transition payments to NAPS members, if the deficit had reduced more than expected at either the 2018 or 2021 valuations. No allowance for such payments has been made in the valuation of the defined benefit obligation at half year.

24

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

15. EMPLOYEE BENEFIT OBLIGATIONS continued

€ million
Scheme assets at fair value
Present value of scheme liabilities Net pension asset/(liability)
Effect of the asset ceiling
Other employee benefit obligationsJune 30, 2018

Represented by:
Employee benefit assets Employee benefit obligations

€ million
Scheme assets at fair value
Present value of scheme liabilities Net pension asset/(liability)
Effect of the asset ceiling
Other employee benefit obligations December 31, 2017

Represented by:
Employee benefit assets Employee benefit obligations

APS

9,020 (7,318)

1,702 (609) –

1,093

APS

9,185 (7,606)

1,579 (570) –

1,009

NAPS

19,774 (18,056) 1,718 (1,062) – 656

NAPS 19,558 (20,060) (502) – – (502)

Other

584 (852) (268) – (9) (277)

June 30, 2018

Total

29,378 (26,226)

3,152 (1,671) (9)

1,472

1,763 (291)

1,472

December 31, 2017

Other 429 (697) (268) – (8) (276)

Total

29,172 (28,363)

809 (570) (8)

231

1,023 (792)

231

At 30 June 2018, the assumptions used to determine the obligations under the APS and NAPS were reviewed and updated to reflect market conditions at that date. Key assumptions were as follows:

APS

NAPS

Per cent per annum Inflation (CPI) Inflation (RPI) Salary increases Discount rate

June 30, 2018

2.00 3.10 3.10 2.65

December 31, 2017

2.05 3.15 3.15 2.45

June 30, 2018

1.95 3.05 n/a 2.80

December 31, 2017

2.05 3.15 3.15 2.55

Further information on the basis of the assumptions is included in note 31 of the Annual Report and Accounts for the year to 31 December 2017.

Pension contributions for APS and NAPS were determined by actuarial valuations made as at 31 March 2012 and 31 March 2015 respectively, using assumptions and methodologies agreed between the Company and Trustees of each scheme.

The triennial valuation as at 31 March 2015 for APS was deferred as a result of legal proceedings (note 17).

25

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

16. PROVISIONS FOR LIABILITIES AND CHARGES

€ million

Net book value January 1, 2018 Provisions recorded during the period Utilised during the period
Release of unused amounts Unwinding of discount
Exchange differences

Net book value June 30, 2018

other employee related provisions

599

209 (192) – 8 1

625

60 565

625

claims Other provisions provisions

140 69 18 30 (22) (32) (18) (4) – – 2 (1)

120 62

79 26 41 36

120 62

Total

2,660 505 (430) (62) 14 23

2,710

582 2,128

2,710

Restoration and

handback Restructuring provisions provisions

1,125 727 185 63 (87) (97) (36) (4) 4 2 21 –

1,212 691

Employee leaving indemnities and Legal

Analysis:
Current 126 291 Non-current 1,086 400

1,212 691

17. CONTINGENT LIABILITIES

The Group has certain contingent liabilities which at June 30, 2018 amounted to €100 million (December 31, 2017: €93million). No material losses are likely to arise from such contingent liabilities. The Group also has the following claims:

Cargo

The European Commission issued a decision in which it found that British Airways, and 10 other airline groups, had engaged in cartel activity in the air cargo sector (Original Decision). British Airways was fined €104 million. Following an appeal, the decision was subsequently partially annulled against British Airways (and annulled in full against the other appealing airlines) (GC Judgment), and the fine was refunded in full. British Airways appealed the partial annulment to the Court of Justice, but that appeal was rejected.

In parallel, the European Commission chose not to appeal the GC Judgment, and instead adopted a new decision in March 2017 (New Decision). The New Decision re-issued fines against all the participating carriers, which match those contained in the Original Decision. British Airways has therefore again been fined €104 million. British Airways has appealed the New Decision to the GC again (as have other carriers).

A large number of claimants have brought proceedings in the English courts, to recover damages from British Airways which, relying on the findings in the Commission decisions, they claim arise from the alleged cartel activity. It is not possible at this stage to predict the outcome of the proceedings, which British Airways will vigorously defend. British Airways has joined the other airlines alleged to have participated in cartel activity to these proceedings to contribute to such damages, if any are awarded.

British Airways is also party to similar litigation in a number of other jurisdictions including Germany, the Netherlands and Canada together with a number of other airlines. At present, the outcome of the proceedings is unknown. In each case, the precise effect, if any, of the alleged cartelising activity on the claimants will need to be assessed.

Pensions

The Trustee of the Airways Pension Scheme (APS) had proposed an additional discretionary increase above CPI for pensions in payment for the year ended March 31, 2014. British Airways challenged the decision and initiated legal proceedings to determine the legitimacy of the discretionary increase. The High Court issued a judgment in May 2017, which determined that the Trustee had the power to grant discretionary increases, whilst reiterating the Trustee must take into consideration all relevant factors, and ignore irrelevant factors. British Airways appealed the judgment to the Court of Appeal. On July 5, 2018 the Court of Appeal released its judgment, upholding British Airways’ appeal, concluding the Trustee did not have the power to introduce a discretionary increase rule. British Airways will not have to reflect the increase in liabilities of €14million that would have applied had the proposed increase for the 2013/14 scheme year been paid by the Trustee. Following the judgment, the Trustee was allowed permission to appeal to the Supreme Court; whether an appeal will be made is not yet certain.

26

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

17. CONTINGENT LIABILITIES continued

Guarantees

British Airways has provided collateral on certain payments to its pension scheme, APS and NAPS, which at June 30, 2018 amounted to €285 million (December 31, 2017: €283 million). This amount would be payable in the event that the pension schemes are not fully funded on a conservative basis with a gilts based discount rate on January 1, 2019 and will be determined by the scheme actuary.

In addition, a guarantee amounting to €262 million (2017: €260 million) was issued by a third party in favour of APS, triggered in the event of British Airways’ insolvency.

The Group also has other guarantees and indemnities entered into as part of the normal course of business, which at June 30, 2018 are not expected to result in material losses for the Group.

18. RELATED PARTY TRANSACTIONS
The Group had the following transactions in the ordinary course of business with related parties. Sales and purchases of goods and services:

€ million

Sales of goods and services

Sales to associates
Sales to significant shareholders

Purchases of goods and services

Purchases from associates
Purchases from significant shareholders

Period end balances arising from sales and purchases of goods and services:

€ million

Receivables from related parties

Amounts owed by associates
Amounts owed by significant shareholders

Payables to related parties

Amounts owed to associates
Amounts owed to significant shareholders

Six months to June 30

2018 2017

4 315 24

25 2452 42

June 30, December 31,2018 2017

8 22 1

1 31 3

For the six months to June 30, 2018 the Group has not made any provision for doubtful debts arising relating to amounts owed by related parties (2017: nil).

Board of Directors and Management Committee remuneration

Compensation received by the Group’s key management personnel is as follows:

€ million

Base salary, fees and benefits

Board of Directors’ remunerationManagement Committee remuneration

Six months to June 30

2018 2017

2 24 3

At June 30, 2018 the Board of Directors includes remuneration for two Executive Directors (June 30, 2017: two Executive Directors). The Management Committee includes remuneration for 11 members (June 30, 2017: ten members).

The Company provides life insurance for all Executive Directors and the Management Committee. For the six months to June 30, 2018 the Company’s obligation was €30,000 (2017: €16,000).

At June 30, 2018 the transfer value of accrued pensions covered under defined benefit obligation schemes, relating to the Management Committee totalled €5 million (2017: €4 million).

No loans or credit transactions were outstanding with Directors or officers of the Group at June 30, 2018 (2017: nil).27

NOTES TO THE ACCOUNTS continued For the six months to June 30, 2018

19. POST BALANCE SHEET EVENTS
There are no post balance sheet events.

28

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

LIABILITY STATEMENT OF COMPANY DIRECTORS FOR THE PURPOSES ENVISAGED UNDER ARTICLE 11.1.b OF SPANISH ROYAL DECREE 1362/2007 OF 19 OCTOBER (REAL DECRETO 1362/2007).

At a meeting held on August 2, 2018, the Directors of International Consolidated Airlines Group, S.A. (the “Company”) state that, to the best of their knowledge, the condensed consolidated financial statements for the six months to June 30, 2018, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and of the companies that fall within the consolidated group taken as a whole, and that the interim management report includes a fair review of the information required.

August 2, 2018

Antonio Vázquez Romero Chairman

Marc Jan Bolland

Enrique Dupuy de Lôme Chávarri

María Fernanda Mejía Campuzano

Emilio Saracho Rodríguez de Torres

Lucy Nicola Shaw

William Matthew Walsh Chief Executive Officer

Patrick Jean Pierre Cescau

Deborah Linda Kerr

Kieran Charles Poynter

Marjorie Morris Scardino

Alberto Terol Esteban

29

REPORT ON LIMITED REVIEW OF THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS To the Shareholders of International Consolidated Airlines Group, S.A. at the request of management:
Report on the condensed consolidated interim financial statements
Introduction

We have carried out a limited review of the accompanying condensed consolidated interim financial statements (hereinafter the interim financial statements) of INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A. (hereinafter the parent) and subsidiaries (hereinafter the Group), which comprise the balance sheet at June 30, 2018, the income statement, the statement of other comprehensive income, the cash flow statement, the statement of changes in equity, and the explanatory notes, all of which have been condensed and consolidated for the six-month period then ended. The parent’s directors are responsible for the preparation of said interim financial statements in accordance with the requirements established by IAS 34, «Interim Financial Reporting”, adopted by the European Union for the preparation of interim condensed financial reporting in conformity with article 12 of Royal Decree 1362/2007 and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority. Our responsibility is to express a conclusion on these interim financial statements based on our limited review.

Scope of review

We have performed our limited review in accordance with the International Standard on Review Engagements 2410, “Reviewof Interim Financial Reporting Performed by the Independent Auditor of the Entity”. A limited review of interim financial statements consists of making enquiries, primarily of personnel responsible for financial and accounting matters, and applying analytical and other review procedures. A limited review is substantially less in scope than an audit carried out in accordance with regulations on the auditing of accounts in force in Spain and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion on the accompanying interim financial statements.

Conclusion

During the course of our limited review, which under no circumstances can be considered an audit of accounts, no matter came to our attention which would lead us to conclude that the accompanying interim financial statements for the six-month period ended June 30, 2018 have not been prepared, in all material respects, in accordance with the requirements established by International Accounting Standard 34, «Interim Financial Reporting”, as adopted by the European Union in conformity with article 12 of Royal Decree 1362/2007 for the preparation of interim financial statements and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.

Emphasis paragraph

We draw attention to the matter described in the accompanying explanatory Note 1 in the interim financial statements, which indicates that the abovementioned accompanying interim financial statements do not include all the information that would be required for complete consolidated financial statements prepared in accordance with International Financial Reporting Standards, as adopted by the European Union. Therefore, the accompanying interim financial statements should be read in conjunction with the Group’s consolidated financial statements for the year ended December 31, 2017.

Report on other legal and regulatory reporting requirements

The accompanying consolidated interim management report for the six-month period ended June 30, 2018 contains such explanations as the parent’s directors consider necessary regarding significant events which occurred during this period and their effect on these interim financial statements, of which it is not an integral part, as well as on the information required in conformity with article 15 of Royal Decree 1362/2007. We have checked that the accounting information included in the abovementioned report agrees with the interim financial statements for the six-month period ended on June 30, 2018. Our work is limited to verifying the consolidated interim management report in accordance with the scope described in this paragraph, and does not include the review of information other than that obtained from the accounting records of INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A. and its subsidiaries.

30

Paragraph on other issues

This report has been prepared at the request of management with regard to the publication of the semi-annual financial report required by article 119 of Royal Legislative Decree 4/2015, of October 23, which approves the consolidated text of the Securities Market Law developed by Royal Decree 1362/2007, of October 19 and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.

3 August 2018

31

ERNST & YOUNG, S.L.

____________________ Hildur Eir Jónsdóttir

ALTERNATIVE PERFORMANCE MEASURES

The performance of the Group is assessed using a number of alternative performance measures (APMs). The Group’s results are presented both before and after exceptional items. Exceptional items are those that in management’s view need to be separately disclosed by virtue of their size and incidence. Exceptional items are disclosed in note 3 of the condensed consolidated interim financial statements. In addition, the Group’s results are described using certain measures that are not defined under IFRS and are therefore considered to be APMs. These APMs are used to measure the outcome of the Group’s strategy based on ‘Unrivalled customer proposition’, ‘Value accretive and sustainable growth’ and ‘Efficiency and innovation’. The definition of each APM presented in this report, together with a reconciliation to the nearest measure prepared in accordance with IFRS is presented below.

Adjusted earnings per share

Earnings are based on results before exceptional items after tax and adjusted for earnings attributable to equity holders and interest on convertible bonds, divided by the weighted average number of ordinary shares, adjusted for the dilutive impact of the assumed conversion of the bonds and employee share schemes outstanding.

€ million
Earnings attributable to equity holders of the parent
Exceptional items
Earnings attributable to equity holders of the parent before exceptional itemsInterest expense on convertible bonds
Adjusted earnings

Weighted average number of shares used for diluted earnings per share Weighted average number of shares used for basic earnings per share

Adjusted earnings per share (€ cents)
Basic earnings per share before exceptional items (€ cents)

June 30,June 30, 20172018 (restated)(1)1,398 597(573) 62

825 659

9 9

834 668

2,135 2,2022,046 2,111

39.1 30.3

40.3 31.2

(1)Restated for new accounting standards IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial instruments’;refer to note 2.

EBITDAR

EBITDAR is calculated as the rolling four quarter operating profit before exceptional items, depreciation, amortisation and impairment and aircraft operating lease costs.

€ million
Operating profit before exceptional items Depreciation, amortisation and impairment Aircraft operating lease costs

June 30, 2018

3,115 1,199 864

December 31, 2017 (restated)(1)2,950 1,184 888

5,022

June 30, 2017 (restated)(1)

2,735 1,232 868

4,835

EBITDAR 5,178

(1)Restated for new accounting standards IFRS 15 ‘Revenue from contracts with customers’refer to note 2.

Adjusted net debt to EBITDAR

and IFRS 9 ‘Financial instruments’;

Adjusted net debt is calculated as long-term borrowings, less cash and cash equivalents and other current interest-bearing deposits, plus annual aircraft operating lease costs multiplied by 8. This is divided by EBITDAR to arrive at adjusted net debt to EBITDAR.

€ million
Interest-bearing long-term borrowings
Cash and cash equivalents
Other current interest-bearing deposits
Net debt
Aircraft operating lease costs multiplied by 8Adjusted net debt

June 30, 2018 7,432 (4,569) (3,577)

(714) 6,912

6,198

December 31, 2017 (restated)(1)7,331 (3,292) (3,384)

655 7,104

7,759

5,022

June 30, 2017 (restated)(1)

8,024 (4,074) (3,870)

80 6,944

7,024

4,835

1.5

EBITDAR 5,178

Adjusted net debt to EBITDAR 1.2 1.5

(1)Restated for new accounting standards IFRS 15 ‘Revenue from contracts with customers’ and IFRS 9 ‘Financial instruments’; referto note 2.

32

AIRCRAFT FLEET

On balance sheet fixed assets

Off balance sheet operating leases

Total June 30, 2018

Total December 31, 2017

Changes since December 31, 2017

Future deliveries

Options

Number in service with Group companies

AirbusA318 1-11

—

Airbus A319

Airbus A320

Airbus A321

Airbus A330-200

Airbus A330-300

Airbus A340-600

22 41 76 156 27 24

7 12

6 10 11 6

63 64

232 218

51 51

19 17

16 15

17 17

1 –

12 12

36 36

1 3

8 8

46 46

12 12

10 9

18 16

– –

6 6

16 15

565 546

(1) 14 – 2 1 – 1 – – (2) – – – 1 2 – – 119

– –

83 128

22 –

3 –

– –

– –

42 52

– 7

– –

– –

– –

– –

3 –

2 –

– 18

12 –

– –

– –

167 205

AirbusA350 1 –

AirbusA380

Boeing 747-400

Boeing 757-200

Boeing767-300

Boeing 777-200

Boeing 777-300

Boeing787-8

12 – 36 – – 1 8 – 41 5 9 3 10 –

Boeing787-9 9 9

Boeing787-10 – –

EmbraerE170 6 –

EmbraerE190 9 7

Group total 291 274

As well as those aircraft in service the Group also holds 9 aircraft (2017: 5) not in service. The above table excludes 4 Boeing 757-200 on wet leases until 2019.

33