INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A.
Notes to the financial statements continued
7
2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS continued
The key inputs and assumptions underlying the Base Case include:
• As part of the recovery, the Company and the Group have assumed a gradual easing of travel restrictions, by geographical
region, based on deployment of vaccines during the year. Travel restrictions, including testing and quarantine
requirements, between countries are assumed to continue to be scaled back and removed;
• Capacity recovery modelled by geographical region (and in certain regions, by key destinations) with capacity gradually
increasing from a reduction of 34 per cent in quarter 1 2022 (compared to the equivalent period in 2019) to pre-pandemic
levels by the end of the going concern period, with the average over the going concern period being 24 per cent down;
• Passenger unit revenue per ASK, although forecast to continue recovering, is assumed to still remain below levels of
2019 by the end of the going concern period, which is based on, amongst other assumptions, a greater weighting of
shorthaul versus longhaul, leisure versus business and economy versus premium compared to 2019. Specifically, the
Group’s assumption is that traffic related to domestic and leisure will recover faster than longhaul and business;
• The Company and the Group have assumed that the committed and undrawn general facilities of €2,9 billion will not be
drawn over the going concern period. The availability of certain of these facilities reduces over time, with €2,7 billion
being available to the Group at the end of the going concern period;
• The Company and the Group have assumed that of the committed and undrawn aircraft specific facilities of €1,1 billion,
€0,9 billion would be available to be drawn over the going concern period if required, of which €0,6 billion is expected to
be drawn under the EETC financing structure;
• €4,3 billion of capital commitments are due to be paid over the going concern period of which the Group has committed
aircraft financing of €0,6 billion, under the EETC financing structure, and the Company and the Group have forecast
securing 80 per cent, or €2,7 billion, of the aircraft financing required that is currently uncommitted, to align with the timing
and payments for these aircraft deliveries. This loan to value assumption is below the level of financing the Group has
been able to achieve recently, including over the course of the COVID-19 pandemic to date; and
• The Company and the Group has assumed that the €0,5 billion convertible bond that matures in November 2022 will be
refinanced.
The Downside Case applies stress to the Base Case to model a more prolonged downturn, with a more gradual recovery relative
to the Base Case. The Downside Case is representative of existing travel restrictions remaining in place and the gradual recovery
of capacity being delayed longer than in the Base Case. The Downside Case also models a more acute impact on the longhaul
sector, with the domestic sector and European shorthaul sectors recovering faster than longhaul. The result of which is that the
levels of capacity assumed under the Base Case are delayed by a quarter under the Downside Case and would reach those of the
Base Case at the end of the Going Concern period. In the Downside Case, over the going concern period capacity would be 17
per cent down on 2019. The Downside Case assumes that there would be no drawing on either of the RCF and the UKEF credit
facility. The Directors consider the Downside Case to be a severe but plausible scenario.
In addition, the Group has sensitised the Downside Case to incorporate the occurrence of a two-month lockdown, and associated
travel restrictions, during the second quarter of 2022, a scenario referred to as the Downside Lockdown Case. The Downside
Lockdown Case is representative of the emergence of more virulent strains of COVID-19 and/or strains for which the efficacy of
existing vaccines is reduced. The Downside Lockdown Case assumes that there would be full drawing on both the RCF and the
UKEF credit facility. Subsequent to this lockdown, capacity is assumed to recover gradually over the going concern period and to
only recover to the Base Case by the end of 2023. In this scenario, over the going concern period capacity would be 35 per cent
down on 2019. Consistent with the Downside Case, the Directors consider the Downside Lockdown Case to be an alternative
severe but plausible scenario.
Under all three scenarios modelled, the Group’s limited financial covenants are forecast to be met.
The Company and the Group have modelled the impact of further deteriorations in capacity operated and yield, but also considered
further mitigating actions, such as reducing operating and capital expenditure. The Company and the Group expect to be able to
continue to secure financing for future aircraft deliveries and in addition has further potential mitigating actions, including asset
disposals, it would pursue in the event of adverse liquidity experience.
Having reviewed the Base Case, Downside Case, Downside Lockdown Case and additional sensitivities, the Directors of the
Company have a reasonable expectation that the Company and the Group have sufficient liquidity to continue in operational
existence for the foreseeable future and hence continue to adopt the going concern basis in preparing the financial statements for
the year to December 31, 2021.
However, due to the uncertainty created by COVID-19, there are a number of significant factors that are outside of the control of
the Company and the Group, including: the status and impact of the pandemic worldwide; the emergence of new variants of the
virus and potential resurgence of existing strains of the virus; the speed at which vaccines deployed worldwide; the efficacy of those
vaccines; the availability of medicines to combat the impact of the virus and the restrictions imposed by national governments in
respect of the freedom of movement and travel. The Directors, therefore, are not able to provide certainty that there could not be
a more severe downside scenario than those they have considered, including the sensitivities in relation to the timing of recovery
from the COVID-19 pandemic, capacity operated, impact on yield, cost mitigations achieved and the availability of aircraft financing
to offset capital expenditure. In the event that a more severe scenario were to occur, the Company and the Group may need to
secure sufficient additional funding. Sources of additional funding are expected to include securing additional long-term financial
facilities. However, the Company’s and the Group’s ability to obtain this additional funding in the event of a more severe downside
scenario represents a material uncertainty at February 24, 2022 that could cast significant doubt upon the Company’s and the
Group’s ability to continue as a going concern and therefore, to continue to realise its assets and discharge its liabilities in the
normal course of business.