Aer Lingus Limited. Directors report and financial statements. Financial year ended 31 December 2017

Transcription

1 Aer Lingus Limited Directors report and financial statements Financial year ended 31 December

2 Contents Page Directors and other information 3 Directors report 4 to 10 Independent auditor s report 11 to 13 Income Statement 14 Statement of Other Comprehensive Income 15 Statement of Financial Position 16 Statement of Changes in Equity 17 Statement of Cash Flows 18 Notes to the financial statements 19 to 57 2

3 Directors and other information Board of Directors at 8 March 2018 Stephen Kavanagh (Chief Executive Officer) Rachel Izzard (Chief Financial Officer) Mike Rutter (Chief Operating Officer) Willie Walsh (Parent Company Executive) Robert Boyle (Parent Company Executive) Secretary and registered office Méabh Gallagher Dublin Airport Co. Dublin Ireland Registered number: 9215 Independent auditors Ernst & Young Chartered Accountants Harcourt Centre Harcourt Street Dublin 2 Ireland Bankers Ulster Bank Dublin Airport Branch Swords Road Cloghran Co. Dublin Ireland Legal advisors Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland 3

4 Directors report The Directors submit their report together with the audited financial statements for the year ended 31 December Directors' responsibility statement The Directors are responsible for preparing the Directors report and the financial statements in accordance with Irish law. Irish law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS). Under Irish law the Directors shall not approve the financial statements unless they are satisfied that they give a true and fair view of the Company s assets, liabilities and financial position as at the end of the financial year and of the profit or loss of the Company for the financial year. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether the financial statements have been prepared in accordance with IFRS and ensure that they contain the additional information required by the Companies Act 2014; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to: correctly record and explain the transactions of the Company; enable, at any time, the assets, liabilities, financial position and profit or loss of the Company to be determined with reasonable accuracy; and enable the Directors to ensure that the financial statements comply with the Companies Act 2014 and enable those financial statements to be audited. The Directors are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company s and the parent Company s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Audit Committee The Company does not have an Audit Committee of its Board in accordance with section 167 of the Companies Act 2014, but instead relies on the requirement of its ultimate parent, International Consolidated Airlines Group, S.A. ( IAG, together with its subsidiaries Group ), to have an independent Audit Committee in its compliance with its listing obligations. Directors Compliance Statement It is the policy of Aer Lingus Limited to comply with its relevant obligations as defined in section 225 of the Companies Act The Directors have drawn up a compliance policy statement as defined in section 225(3)(a) of the Companies Act Arrangements and structures have been put in place that are, in the Directors opinion, designed to secure a material compliance with the Company s relevant obligations. These arrangements and structures were reviewed during the financial year. As required by section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for the Company s compliance with the relevant obligations. In discharging their responsibilities under section 225, the Directors relied on the advice of third parties who the Directors believe have the requisite knowledge and experience to advise the Company on compliance with its relevant obligations. Accounting records The measures taken by the Directors to secure compliance with the Company s obligation to keep adequate accounting records are the use of appropriate systems and procedures and employment of competent persons. The books of account are kept at Dublin Airport, Co. Dublin, Ireland. Accounting policies The accounts are prepared under International Financial Reporting Standards as adopted by the EU. The principal accounting policies, together with the basis of preparation of the accounts are set out in Note 3 to the financial statements. Disclosure of information to the auditor The Directors confirm that: in so far as they are aware, there is no relevant audit information of which the Company s auditor is unaware; that they have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company s auditor is aware of such information. 4

5 Results for the year and state of affairs as at 31 December 2017 The Income Statement for the year ended 31 December 2017 and the Statement of Financial Position as at that date are set out on pages 14 and 16 respectively. The profit after taxation for the year amounted to million (2016: million). The movement in retained earnings for the year was as follows: Balance, 1 January Profit for the year Other comprehensive income for the year 0.1 Dividend paid (200.0) Balance, 31 December Total retained earnings increased by 35.9 million since 1 January The Directors propose no other transfers to or from reserves. Dividends A dividend was paid in three tranches during 2017 to Aer Lingus Group DAC for a total of million (2016: nil). Principal activities The principal activities of the Company during the year continued to be the provision of air travel services. Business overview and commercial developments It has been another successful year of profitable growth for Aer Lingus, with the Company recording an operating profit result in 2017 of million (2016: operating profit of million) and achieving high levels of guest satisfaction, demonstrating the competitiveness of the Aer Lingus value model. Our increase in operating profit has been driven by focused cost discipline and we have developed the growth opportunities enabled by a strong non-fuel unit cost performance and a clear focus on the needs of our guests. Overall, demand conditions in Ireland improved through 2017, with additional airlines flying across the Atlantic. We operated our busiest schedule to date during Our ambition is to be the leading value carrier across the North Atlantic, enabled by a profitable and sustainable short haul network. During 2017, we continued to expand our transatlantic service with a new gateway added, Miami, as well as additional frequency on a number of our existing routes. We introduced an additional Airbus A330 aircraft in May and took delivery of a further A330 aircraft in November, for entry into service in March We increased capacity by 12% (ASKs) with lower long haul yields offset by a strong cost performance. Load factors remained strong. In 2018, we will introduce a further A330 aircraft into our fleet, to add frequency and capacity across our 11 existing North American gateways, and to enable commencement of two new direct services from Dublin, to Philadelphia and Seattle. On short haul, we maintained fleet size and optimised our schedules to allow for re-assignment of certain short haul aircraft to higher yielding routes. We developed our connection propositions, leveraging Dublin as a hub into our American gateways, and increased our winter flying schedule. The short haul market continued to experience yield weakness, following on from 2016, with a number of airlines ceasing to trade in the Autumn. Aer Lingus now has a consistent fare and retail model across both short haul and long haul networks and we continue to build the direct digital platforms to empower and reward our guests. We continue to invest in AerClub, our loyalty programme which was introduced in December 2016, and other initiatives such as Priority Boarding and our Transatlantic Saver Fare product, introduced for guests flying from 1 October Our Saver Fare product offers our guests greater choice and more flexibility. In April, we launched our Maintenance and Engineering Apprentice Programme and in September our Graduate Programme commenced. We developed our diversity network in 2017, with our LGBT and LIFT network launch in June. The people at Aer Lingus are central to our service delivery and cost performance and a multi-year pay agreement was reached in 2017 that will reward their contribution and sustain Aer Lingus position into the future. We continue to be demand led, focused on the value offered to our guests and cost of production, offering a product that is fit for purpose and service that is consistently in line with that expected of a four star airline. We continue to have industry leading net promoter score metrics. We placed in the top 10 most punctual airlines globally and we use Voice of Guest surveys to drive our business and base investment decisions on guest feedback. We won two Irish Travel Industry Awards for Best Airline to Europe and Best Airline to North America. Aer Lingus continues to work towards joining the Atlantic Joint Business ( AJB ) with American Airlines, British Airways, Iberia, Openskies and Finnair. This is an opportunity to deliver significant customer benefits by achieving consistency in selling joint services and offering a wider choice of flights to our guests. Participation in the AJB remains subject to Anti-Trust Immunity Approval. In 2018, Aer Lingus will remain faithful to the strategy that has created sustainable value for its stakeholders; a commitment to the demand led value carrier model with continued focus on cost, product and service. m 5

6 Trading highlights In 2017, the Company generated revenue of 1,859 million representing a 5% increase compared with prior year (2016: 1,766 million). This revenue performance was mainly driven by growth in long haul passenger services and additional frequencies as detailed within the Business overview above. The key revenue statistics are as follows: Revenue statistics % increase/ (decrease) Passenger revenue ( million) 1, , % Passenger numbers ('000s) 10,884 10,442 4% Number of seats ( 000s) 13,905 13,349 4% ASKs (million) 26,386 23,531 12% Load factor RPK/ASK (%) 81.2% 81.6% 0% Passenger revenue per ASK ( cent) (6%) Total cargo revenue ( million) % Other revenue ( million) (8.5%) Revenues increased on 2016 by 5% in total, driven by growth on the transatlantic network. Passenger revenue per ASK decreased by 6% driven by a capacity growth on new routes and a mix change weighted more towards long haul. The key operating costs, and unit cost measures are as follows: Operating costs ( million unless otherwise stated) % increase/ (decrease) Fuel, oil costs and emissions charges (1%) Landing fees and en-route charges (1%) Employee costs % Other operating costs % Total operating costs 1, , % Operating cost per ASK ( cent) (8%) Non-fuel operating cost per ASK ( cent) (7%) 1 Other operating costs includes aircraft and property lease costs, handling fees, catering and selling costs, depreciation and amortisation. The decrease in non-fuel unit cost was driven by productivity improvements, scale benefits of additional flying, efficient growth and rigorous cost control. Unit costs (excluding fuel) are 7% lower than 2016, with absolute costs only growing 4% in the context of a capacity increase of 12%. 6

7 2017 balance sheet movements: The Company s balance sheet remains healthy with net assets of million at 31 December 2017 (December 2016: net assets of million). Cash increased by 31.5 million with gross debt increased by million, due to two new finance leases entered into during There were a number of significant balance sheet movements between 31 December 2016 and 31 December 2017: Property, Plant and Equipment and Intangible assets combined, increased by a net amount of 70.1 million, being the net effect of capital additions, less depreciation and amortisation, less disposals. Capital expenditure of million was incurred during the year (2016: 55.2 million), primarily relating to the acquisition of two A aircraft. The depreciation and amortisation charges for the year were 67.3 million and 9.7 million. The Company s 33.3% investment in its joint venture, Propius Holdings Limited was sold in February Other non-current assets comprise prepayments made for a period greater than one year, and USD denominated deposits with a maturity profile of greater than one year. Other non-current assets decreased by 46.0 million during 2017, due primarily to a transfer of US dollar deposits to current assets to match our current lease obligations in relation to leases maturing in Other current assets comprise prepayments, accrued income, and certain USD denominated deposits. The increase of 35.0 million is mainly due to an increase inter-company balance receivable as a result of higher volumes on intra-group trading and increase in insurance recoverable balances. Other reserves principally include cash flow hedging reserves, a capital contribution reserve, a capital conversion reserve fund and retained earnings. Movements within reserves are detailed within Note 29. The overall movement in reserves is mainly due to profit after tax of million, a decrease of 11.9 million in the cash flow hedging reserves, due to items having been reclassified to net profit, fair value movements in equity and dividend paid to Aer Lingus Group DAC of million. Overall, other reserves, and net assets, have increased by 24.0 million, with no change to issued share capital during the year. Interest-bearing long-term borrowings, amounting to million at the balance sheet date (2016: million), relate to finance lease obligations, a number of which are denominated in US dollars, and the remaining denominated in Euro. The movement during 2017 relates to two new finance arrangements were entered into, totalling 168 million, offset by scheduled repayments and a stronger USD rate at the year-end of 56.6 million. Employee benefit obligations decreased by 1.1 million mainly due to the cessation of the North American pension scheme. Deferred tax liability balance sheet position increased by 9.7 million. This increase mainly relates to the reduction of the deferred tax asset arising from losses carried forward in 2016, 8.9 million. Provisions increased by 7.1 million, with the main movement being increases in maintenance provisions and in certain legal provisions. Trade and other payables increased by 65.9 million. This was offset by a general increase in trade payables as a result of increased activity in the year. The net derivative hedging position amounted to a 53.2 million asset position at the end of 2017 (2016: a net asset position of 36.3 million). At the end of 2017 the hedging position comprises a significant mark to market gain on the Company s portfolio of both fuel and foreign exchange hedges. This was driven by an increase in market fuel prices during 2017 combined with a fluctuation in both the US dollar and GBP sterling rates giving rise to a mark to market gain on the Company s portfolio of foreign exchange hedges at the year end. The Financial Risk Management disclosures within Note 17 to these financial statements provide further background on the Company s positions. 7

8 Fleet summary A summary of our fleet as at 31 December 2017 was: By aircraft type and financing structure: Aircraft type Owned Finance lease Operating lease Wet lease Total A A A A B Total Our short haul fleet consists of 37 aircraft (2016: 37) with 16 aircraft in our long haul fleet (2016: 14). An A acquired in November 2017 was placed into a storage programme upon delivery and was not in service at year-end. The aircraft is scheduled to enter service in March A summary of our fleet as at 31 December 2016 was: By aircraft type and financing structure: Aircraft type Owned Finance lease Operating lease Wet lease Total A A A A B Total

9 Principal Risks and Uncertainties The Directors are responsible for oversight of the Company s risk management systems, which are designed to identify, manage and mitigate potential material risks to the Company s strategic and business objectives. The Company carries out detailed risk management reviews under the IAG risk management framework. A separate but parallel management system monitors flight safety risks. The principal corporate, non-flight risks that may threaten the Company s business model, future performance and solvency are described below. This list is not intended to be exhaustive. Airport Infrastructure Strategic Enablers Aer Lingus has proposed defined growth ambitions in its Business Plan, notably to develop and expand its value carrier model on the North Atlantic. This growth is significantly dependent on the timely delivery of appropriate facilities by the Dublin Airport Authority. Alliance Risk The cost/benefit analysis required to facilitate Aer Lingus entry into the Atlantic Joint Business with British Airways, American Airlines and other airlines on the North Atlantic, indicate that there continue to be both opportunities and significant cost implications to the Atlantic Joint Business. Business Continuity & Disaster Recovery Long term disruption or the inability to promptly recover from short term disruptions, can have an adverse material impact on the Company s business in terms of lost bookings and revenue, additional cost and damaged customer confidence. We have scenario based business continuity plans in place for all foreseeable contingencies, and a robust and independently validated Emergency Response Plan for aircraft related crisis events. Commodity Risk Aer Lingus operates in a sector where certain market parameters can strongly impact on our performance. Fuel and airport/en-route charges represented some 41% of the Company s total costs in Jet fuel prices and foreign exchange rates are volatile and airport charges are largely outside the Company s control. Aer Lingus is particularly vulnerable to increases in charges at Dublin, which is our hub airport. Fuel hedging is actively managed in accordance with treasury policy and Board approvals. Competition Risk Aer Lingus operates in an intensely competitive market across all our main route groups. Several new entrants have entered our key markets. Any failure to maintain our ability to compete so as to maintain and grow our market share in those key markets may result in erosion of our revenue and margins. We pro-actively manage our capacity, services, revenues and costs to optimise our ability to retain and grow market share. Fleet - Sourcing Maintaining the correct fleet specification for our business needs is critical to the success of our business model. We previously had identified an over-reliance on single suppliers for IT and commercial support, however this risk is diminished as mitigations are being implemented. IT infrastructure and Cyber Security The Company is dependent on IT systems for most of its primary business processes. The performance and reliability of these systems is critical to our ability to operate and compete effectively. Aer Lingus ensures that it is up to date with industry standards and addresses identified weaknesses. The fast moving nature of cyber security risk means that Aer Lingus will always retain a level of vulnerability. People - Industrial relations The Company has a largely unionised workforce and collective bargaining takes place on a regular basis across a range of issues. A successful relationship with our staff stakeholders is vital to our performance. Political and Economic Conditions Any uncertainty in the political and economic environment in the markets in which Aer Lingus operates may increase volatility in foreign exchange or pose a threat to continued economic recovery and growth. Regulatory Compliance Risk Aer Lingus continues to evaluate the potential changes relating to the UK Referendum vote to leave the EU to ensure that it can operate effectively during any transition and in the longer term. 9

10 Directors and Secretary The names of the current Directors appear on page 3. The Directors, who served during the entire year, are listed in the table below. Director Status Executive/Non-Executive Robert Boyle Current Parent Company Executive Rachel Izzard Current Executive Stephen Kavanagh Current Executive Mike Rutter Current Executive Willie Walsh Current Parent Company Executive Directors and Secretary s interests in shares and debentures The Directors and the Secretary were not interested in, at either the beginning of the financial year (or, if he or she was not then a Director, when he or she became a Director) or at the end of the financial year, any shares in or debentures of the Company or any group undertaking of the Company required to be recorded in the Company s register of interests under section 267 of the Companies Act Payment practices The Directors acknowledge their responsibility for ensuring compliance, in all material respects, with the provisions of the European Communities (Late Payments in Commercial Transactions) Regulations 2002 (the Regulations ). Procedures have been implemented to identify the dates upon which invoices fall due for payment and to ensure that payments are made by such dates. Such procedures provide reasonable assurance against material non-compliance with the Regulations. The payment policy throughout 2017 was to comply with the requirements of the Regulations. Research and Development The Company did not engage in any research and development activities during the year. Political contributions No political donations were made by the Company during the year. Subsidiary companies Details of the principal subsidiary companies are set out in Note 14 to the financial statements. Financial Risk Management Details regarding financial risk management are set out in Note 17 to the financial statements. Independent auditors The independent auditors, Ernst & Young, are prepared to continue in office in accordance with the provisions of section 383(2) of the Companies Act Events after the reporting date Events after the reporting date are disclosed in Note 34 to the financial statements. On behalf of the Board RACHEL IZZARD Director 8 March 2018 STEPHEN KAVANAGH Director 8 March

11 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF AER LINGUS LIMITED Opinion We have audited the financial statements of Aer Lingus Limited ( the Company ) for the year ended 31 December 2017, which comprise the Income Statement, the Statement of Other Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and notes to the financial statements, including the summary of significant accounting policies set out in note 3. The financial reporting framework that has been applied in their preparation is Irish Law and International Financial Reporting Standards (IFRS) as adopted by the European Union as applied in accordance with the provisions of the Companies Act In our opinion the financial statements: x give a true and fair view of the assets, liabilities and financial position of the company as at 31 December 2017 and of its profi for the year then ended; x have been properly prepared in accordance with IFRS as adopted by the European Union; and x have been properly prepared in accordance with the requirements of the Companies Act Basis for opinion We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard as applied to public interest entities issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters, in relation to which ISAs (Ireland) require us to report to you where: x the directors use of the going concern basis of accounting in the preparation of the financial statements is not appropriate: or x the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Company s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. 11

12 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF AER LINGUS LIMITED Other information The directors are responsible for the other information. The other information comprises the directors report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2014 Based solely on the work undertaken in the course of the audit, we report that: x in our opinion, the information given in the directors report is consistent with the financial statements; and x in our opinion, the directors report has been prepared in accordance with the Companies Act 2014 We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the Company statement of financial position is in agreement with the accounting records. Matters on which we are required to report by exception Based on the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors' report. The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors remuneration and transactions required by sections 305 to 312 of the Act are not made. We have nothing to report in this regard. 12

13 INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF AER LINGUS LIMITED Respective responsibilities Responsibilities of directors for the financial statements As explained more fully in the directors responsibilities statement set out on page 4, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the IAASA's website at: This description forms part of our auditor's report. The purpose of our audit work and to whom we owe our responsibilities Our report is made solely to the Company s members, as a body, in accordance with section 391 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members, as a body, for our audit work, for this report, or for the opinions we have formed. Dermot Daly for and on behalf of Ernst & Young Chartered Accountants and Statutory Audit Firm Dublin Date: 8 March

14 Income Statement Year to 31 December Note Passenger revenue 1,798,803 1,707,282 Cargo revenue 47,622 44,801 Other revenue 12,871 14,113 Total revenue 1,859,296 1,766,196 Employee costs 350, ,047 Fuel, oil costs and emission charges 316, ,565 Handling, catering and other operating costs 180, ,371 Landing fees and en-route charges 331, ,095 Engineering and other aircraft costs 97,464 83,973 Property, IT and other costs 58,456 55,129 Selling costs 79,207 73,856 Depreciation, amortisation and impairment 6 76,968 74,603 Aircraft operating lease costs 6 96,946 91,644 Currency differences 4,457 1,132 Total expenditure on operations 1,590,993 1,534,415 Operating profit 268, ,781 Finance costs 7 (10,032) (10,133) Finance income 7 4,015 6,103 Net currency retranslation credits/(charges) 6,589 (2,137) Gains on derivatives not qualifying for hedge accounting Net gain related to sale of property, plant, equipment and investments Net financing charge relating to pensions 7 (88) (356) Profit before taxation 270, ,264 Tax 10 (34,211) (20,749) Profit after taxation 235, ,515 Attributable to: Equity holders of the parent 235, ,515 All reported results arise from continuing operations. The notes on pages 19 to 57 form an integral part of these financial statements. Approved by the Board of Directors on 8 March

15 Statement of other comprehensive income Year to 31 December Note Items that may be reclassified subsequently to net profit/(loss) Cash flow hedges: Fair value movements in equity 29 43,777 46,959 Deferred tax impact 27 (5,472) (5,871) Reclassified and reported in net profit 29 (57,379) 81,601 Deferred tax impact 27 7,172 (10,200) Items that will not be reclassified to net profit/(loss) Re-measurements of post-employment benefit obligations ,547 Deferred tax impact 27 (17) (193) Total other comprehensive income for the year, net of tax (11,785) 113,843 Profit after tax for the year 235, ,515 Total comprehensive income for the year 224, ,358 Total comprehensive income is attributable to: Equity holders of the parent 224, ,358 All reported results arise from continuing operations. The Notes on pages 19 to 57 form an integral part of these financial statements. Approved by the Board of Directors on 8 March

16 Statement of financial position As at 31 December 2017 As at 31 December 2016 Note Non-current assets Property, plant and equipment , ,067 Intangible assets 12 34,853 33,138 Investment in subsidiaries , ,710 Employee benefit assets Loans and receivables Derivative financial instruments 17 13,503 11,214 Other non-current assets 19 89, , , ,033 Current assets Inventories 18 6,675 6,727 Trade receivables 19 23,432 36,182 Other current assets ,608 67,567 Derivative financial instruments 17 44,095 38,906 Other current interest bearing-deposits , ,782 Cash and cash equivalents , ,187 1,199,396 1,001,351 Assets classified as held for sale 15-14,598 Total assets 2,090,811 1,880,982 Shareholders' equity Issued share capital , ,991 Other reserves , ,484 Total shareholders' equity 528, ,475 Total equity 528, ,475 Non-current liabilities Interest-bearing long-term borrowings , ,523 Employee benefit obligations 24 2,299 3,355 Deferred tax liability 27 46,309 36,657 Provisions for liabilities ,563 87,400 Derivative financial instruments ,447 Other long-term liabilities , , , ,447 Current liabilities Current portion of long-term borrowings 21 82,249 31,809 Deferred revenue on ticket sales , ,158 Trade and other payables , ,891 Derivative financial instruments 17 3,716 10,398 Provisions for liabilities 25 66,777 75, , ,060 Total liabilities 1,562,294 1,376,507 Total equity and liabilities 2,090,811 1,880,982 The Notes on pages 19 to 57 form an integral part of these financial statements. On behalf of the Board RACHEL IZZARD STEPHEN KAVANAGH Director Director 8 March March

17 Statement of changes in equity Year ended 31 December 2017 Called-up share capital Capital conversion reserve fund Cash flow hedging reserve Capital contribution reserve Share based payment reserve Retained earnings Total equity Balance at 1 January ,991 1,705 (43,991) 13,207 - (123,795) 185,117 Profit for the year , ,515 Other comprehensive income for the year: Cash flow hedges reclassified and reported in net profit: , ,401 Net change in fair value of cash flow hedges , ,088 Re-measurement of post-employment benefit obligations ,354 1,354 Total comprehensive income/(loss) for the year 337,991 1,705 68,498 13,207-83, ,475 Share based payment vesting charge ,595-1,595 Share based payment intercompany settlement (1,595) - (1,595) Balance at 31 December ,991 1,705 68,498 13,207-83, ,475 Balance at 1 January ,991 1,705 68,498 13,207-83, ,475 Profit for the year , ,827 Other comprehensive income for the year: Cash flow hedges reclassified and reported in net profit: - - (50,207) ,305 Net change in fair value of cash flow hedges , (50,207) Re-measurement of post-employment benefit obligations Total comprehensive income/(loss) for the year 337,991 1,705 56,596 13, , ,517 Share based payment vesting charge ,780-1,780 Share based payment intercompany settlement (1,780) - (1,780) Dividends paid (200,000) (200,000) Balance at 31 December ,991 1,705 56,596 13, , ,517 The Notes on pages 19 to 57 form an integral part of these financial statements. 17

18 Statement of cash flows Year ended 31 December Note Cash flows from operating activities Cash generated from operations , ,554 Interest paid (5,709) (5,746) Taxation paid Net cash flows from operating activities 361, ,874 Cash flows from investing activities Acquisition of property, plant and equipment and intangible assets (168,174) (62,170) Proceeds from sales of property, plant and equipment and intangible assets 1,469 2,274 Refund of pre-delivery payments - 36,746 Proceeds from sale of investment in joint venture 15,415 - Increase in interest-bearing and other deposits (114,572) (82,073) Interest received 5,516 5,470 Net cash flows from investing activities (260,346) (99,753) Cash flows from financing activities Drawdown of long-term interest-bearing borrowings 168,413 - Repayments of loans from fellow group companies (15) (169,029) Repayments of long-term interest-bearing borrowings (37,062) (32,882) Dividends paid (200,000) - Net cash flows from financing activities (68,664) (201,911) Net increase in cash and cash equivalents 32,531 1,210 Net foreign exchange differences on cash and cash equivalents (1,012) 507 Cash and cash equivalents at 1 January , ,470 Cash and cash equivalents at year end , ,187 The Notes on pages 19 to 57 form an integral part of these financial statements. 18

19 Notes to the financial statements 1 General information Aer Lingus Limited ( the Company ) operates as an Irish airline primarily providing passenger and cargo transportation services from Ireland to the UK and Europe ( short haul ) and also to North America ( long haul ). The Company is a limited liability company incorporated and domiciled in Ireland. The address of its registered office is Dublin Airport, Co. Dublin, Ireland. The Company is a wholly owned subsidiary of Aer Lingus Group DAC, formerly Aer Lingus Group plc, a company incorporated and domiciled in Ireland. The address of its registered office is Dublin Airport, Co. Dublin, Ireland. Hereinafter, any references made to Aer Lingus Group DAC or Aer Lingus Group plc are made to the same entity. The ultimate parent of Aer Lingus Limited is International Consolidated Airlines Group, S.A. hereinafter IAG. IAG is a Spanish company registered in Madrid and was incorporated on April 8, 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 Exchanges Interconnection System (Mercado Continuo Español). 2 Basis of preparation The financial statements of the Company have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), IFRS Interpretations Committee (IFRIC) interpretations and the Companies Act 2014 applicable to companies reporting under IFRS. The financial statements presented are separate financial statements. Details of the principal subsidiary undertakings are included in Note 14. The Company has availed of an exemption from preparing consolidated financial statements, as set out under section 299 of the Companies Act 2014 and IAS 27 Consolidated and Separate Financial Statements, as it is a wholly owned subsidiary of Aer Lingus Group DAC, a company incorporated and domiciled in Ireland. The ultimate parent of the Company is International Consolidated Airlines Group, S.A. ( IAG ) which presents consolidated financial statements, including the results of the Company, prepared in accordance with the International Financial Reporting Standards as endorsed by the European Union (IFRSs as endorsed by the EU). The registered office of IAG is S.A El Caserío, Iberia Zona Industrial no 2 (La Munoza) Camino de La Munoza, s/n, Madrid, Spain and the consolidated financial statements are publicly available on the IAG s website at The financial statements are presented in euro, rounded to the nearest thousand unless otherwise stated. These financial statements have been prepared on a historical cost basis except for certain financial assets and liabilities, including derivative financial instruments and availablefor-sale financial assets that are measured at fair value. IFRS as adopted by the EU differ in certain respects from IFRS as issued by the IASB. References to IFRS hereafter should be construed as references to IFRS adopted by the EU. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimated. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. The Company s financial statements for the year to 31 December 2017 were authorised for issue, and approved by the Board of Directors on 8 March Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 3.1 Foreign currency translation (a) Functional and presentation currency The financial statements are presented in euro, which is the functional and presentation currency of the Company. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions, or at the reporting date where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income statement in either Currency differences or Net currency retranslation charges except when deferred in equity as qualifying cashflow hedges. Foreign exchange differences on long-term balances reported are included within Net currency retranslation charges whilst foreign exchange differences on short-term and working capital balances are included within Currency differences. 3.2 Property, plant and equipment Property, plant and equipment is held at cost. Depreciation is calculated to write off the cost less the estimated residual value on a straight line basis over the economic life of the asset. Residual values, where applicable, are reviewed annually against prevailing market values for equivalently aged assets and depreciation rates adjusted accordingly on a prospective basis. 19

20 (a) Capitalisation of interest on progress payments Interest attributed to progress payments, and related exchange movements on foreign currency amounts, made on account of aircraft and other qualifying assets under construction are capitalised and added to the cost of the asset concerned. All other borrowing costs are recognised in the Income statement in the year in which they are incurred. (b) Fleet All aircraft are stated at the fair value of the consideration given after taking account of manufacturers credits. Fleet assets owned or held on finance leases are depreciated at rates calculated to write down the cost to the estimated residual value at the end of their planned operational lives on a straight-line basis. Cabin interior modifications, including those required for brand changes and relaunches, are depreciated over the lower of five years and the remaining life of the aircraft. Aircraft and engine spares acquired on the introduction or expansion of a fleet, as well as rotable spares purchased separately, are carried as property, plant and equipment and generally depreciate in line with the fleet to which they relate. Major engine overhaul expenditure is capitalised and depreciated over the average expected life between major overhauls. The costs of replacement engine LLPs (life limited parts) are capitalised and depreciated over the remaining life of the fleet to which they relate. All other replacement spares and other costs relating to maintenance of fleet assets (including maintenance provided under pay-as-you-go contracts) are charged to the Income statement on consumption or as incurred respectively. (c) Other property, plant and equipment Provision is made for the depreciation of all property, plant and equipment. Property, with the exception of freehold land, is depreciated over its expected useful life over periods not exceeding 50 years, or in the case of leasehold properties, over the duration of the lease if shorter, on a straight-line basis. Equipment is depreciated over periods ranging from 2 to 20 years. (d) Leased assets Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership are transferred to the Company, the assets are treated as if they had been purchased outright. The amount included in the cost of property, plant and equipment represents the aggregate of the capital elements payable during the lease term. The corresponding obligation, reduced by the appropriate proportion of lease payments made, is included in borrowings. The amount included in the cost of property, plant and equipment is depreciated on the basis described in the preceding paragraphs on fleet and the interest element of lease payments made is included as an interest expense in the Income statement. Total minimum payments, measured at inception, under all other lease arrangements, known as operating leases, are charged to the Income statement in equal annual amounts over the period of the lease. In respect of aircraft, certain operating lease arrangements allow the Company to terminate the leases after a limited initial period, without further material financial obligations. In certain cases the Company is entitled to extend the initial lease period on predetermined terms; such leases are described as extendable operating leases. (e) Depreciation Depreciation is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives as follows: Flight equipment Aircraft fleet and major spares Useful lives Residual values¹ - short haul aircraft 21 years 7% of cost - long haul aircraft 20 years 10% of cost Rotable spares - short haul aircraft 21 years 7% of cost - long haul aircraft 20 years 10% of cost Modifications to leased aircraft No greater than 5 years Nil Property Freehold Principally 50 years Nil Leasehold Period of lease Nil Equipment Ground equipment 3 20 years Nil Other equipment 2 10 years Nil 1 The residual values and useful lives of assets are reviewed and adjusted if appropriate, at the end of each reporting period. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds received with the carrying amount written off. 20

21 3.3 Intangible assets The cost to purchase or develop computer software that is separable from an item of related hardware is capitalised separately and amortised on a straight-line basis over a period not exceeding five years. In 2011, as part of the surrender of the lease over its former head office building, the Company acquired a ten year license for the use of certain property owned by the Dublin Airport Authority. This license is held at cost and amortised over the ten year license term on a straight line basis. Landing rights are capitalised at fair value at the date of purchase. Subsequently they are accounted for at cost less any accumulated impairment losses. Landing rights are considered to have an indefinite life as they will remain available for use for the foreseeable future provided minimum utilisation requirements are met, and therefore they are not amortised. The carrying value of these rights is subject to impairment testing annually or when events or changes in circumstances indicate that carrying values may not be recoverable. Purchased emissions allowances are recognised at cost. Emissions allowances are considered to be indefinite lived assets and are not revalued or amortised but are tested for impairment whenever indicators exist that the carrying value may not be recoverable. 3.4 Impairment of non-financial assets Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Indefinite lived assets are tested for impairment at least annually. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less cost to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets that have been impaired are reviewed for possible reversal of the impairment at each reporting date. Refer to Note 11 and Note 12 for further detail. 3.5 Investment in subsidiaries The investments in subsidiaries are stated in the Company s financial statements at cost less impairment. On disposal of such an investment, the difference between the net disposal proceeds and its carrying amount is included in the Income statement. 3.6 Financial Instruments The Company classifies its financial assets and liabilities in those categories set out below. The classification depends on the purpose for which the financial assets or liabilities were acquired. Management determines the classification of its financial assets and liabilities at initial recognition. (a) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets except for those with maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. (b) Trade and other receivables Trade and other receivables are stated at cost less allowances made for doubtful receivables, which approximates fair value given the short dated nature of these assets and subsequently measured at amortised cost using the effective interest method. A provision for impairment of trade receivables (allowance for doubtful receivables) is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivable. Loans to third parties are initially measured at the fair value of the consideration given plus any directly attributable transaction costs, and measured thereafter at amortised cost using the effective interest method. (c) Other current and non-current interest-bearing deposits Other current interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried at amortised cost using the effective interest method. (d) Derivative financial instruments and hedging activities Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss arising from revaluation depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged (as detailed below under cash flow hedges). The gains or losses related to derivatives not used as effective hedging instruments are recognised in the Income statement. The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy, for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Exchange gains and losses on monetary assets and liabilities are taken to the Income statement unless the item has been designated and is assessed as an effective hedging instrument. Exchange gains and losses on non-monetary assets and investments are reflected in equity until the investment is sold when the cumulative amount recognised in equity is recognised in the Income statement. 21