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Annual report and accounts 2016

116 Notes to the

116 Notes to the consolidated financial statements continued 5 Exceptional items € million 2016 2015 Employee costs 1 93 – Pre-acquisition cash flow hedge impact 2 (42) (51) Business combination costs 3 – 33 Litigation provision 4 – 35 Recognised in expenditure on operations 51 17 Total exceptional charge before tax 51 17 Tax on exceptional items (13) 6 Total exceptional charge after tax 38 23 1 Employee costs 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 principally comprise employee severance costs. The costs incurred in the year to December 31, 2016 in respect of these projects amount to €144 million, with a related tax credit of €27 million. During the year the Group made changes to the US PRMB (Post-Retirement Medical Benefits) to further bring the level of benefits in line with national trends seen in the US. This scheme is accounted for in a similar way to a defined benefit plan, so any reduction in benefit results in the recognition of a past service gain when the plan amendment occurs. This change has resulted in a one-off gain in employee costs of €51 million in the year to December 31, 2016, and a related tax charge of €9 million. 2 Pre-acquisition cash flow hedge impact Under IFRS 3 Business combinations, gains or losses on cash flow hedges acquired should not be recycled to the income statement but recognised in equity. Following the acquisition of Aer Lingus, IAG continued to unwind the cash flow fuel hedges acquired in reported fuel expense. For the year to December 31, 2016, a credit of €42 million (2015: €51 million) was recognised as an exceptional item, reversing the impact of unwinding the cash flow hedges to arrive at the total Fuel, oil costs and emissions charges. A related tax charge of €5 million (2015: €6 million) was also recognised. In the year to December 31, 2015: 3 Business combination costs Transaction expenses of €33 million were recognised in relation to the Aer Lingus Business combination in the year to December 31, 2015. 4 Litigation provision The litigation provision represents the continuation of the civil claims brought against British Airways in 2006. This provision represents a settled case against British Airways in the cargo claim for a total of €35 million. The final amount required to pay the remaining claims detailed in note 33 is subject to significant uncertainty. 6 Expenses by nature Operating profit is arrived at after charging Depreciation, amortisation and impairment of non-current assets: € million 2016 2015 Owned assets 739 834 Finance leased aircraft 391 346 Other leasehold interests 39 47 Impairment charge on property, plant and equipment – 5 Amortisation of intangible assets 104 75 Impairment on intangible assets 14 – 1,287 1,307 Operating leases costs: € million 2016 2015 Minimum lease rentals – aircraft 759 659 – property and equipment 226 195 Sub-lease rentals received (2) (46) 983 808 Cost of inventories: € million 2016 2015 Cost of inventories recognised as an expense, mainly fuel 3,966 4,899 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

117 7 Auditors’ remuneration The fees for audit and non-audit services provided by the auditor of the Group’s consolidated financial statements and of certain individual financial statements of the consolidated companies, Ernst & Young S.L., and by companies belonging to Ernst & Young’s network, were as follows: 2016 2015 €’000 Ernst & Young Ernst & Young Other auditor 1 Fees payable for the audit of the Group and individual accounts 3,313 3,552 40 Fees payable for other services: Audit of the Group’s subsidiaries pursuant to legislation 541 571 388 Other services pursuant to legislation 440 389 4 Other services relating to taxation 1 57 – Other assurance services 604 552 – Services relating to information technology 5 34 – Services relating to corporate finance transactions 2 90 610 – All other services 22 85 – 5,016 5,850 432 1 Fees for services billed to Aer Lingus by PricewaterhouseCoopers LLP (‘PwC’) and by companies belonging to PwC’s network, being the auditors of Aer Lingus in 2015. 2 In 2015 this mainly included services in relation to the Aer Lingus acquisition. The audit fees payable are approved by the Audit and Compliance Committee and have been reviewed in the context of other companies for cost effectiveness. A description of the work of the Audit and Compliance Committee is set out in the Report of the Audit and Compliance Committee and includes an explanation of how objectivity and independence is safeguarded when nonaudit services are provided. 8 Employee costs and numbers € million 2016 2015 Wages and salaries 3,136 3,277 Social security costs 491 485 Costs related to pension scheme benefits 276 372 Cost of share-based payments 36 35 Other employee costs 1 885 736 Total employee costs 4,824 4,905 1 Other employee costs include allowances and accommodation for crew The average number of employees during the year was as follows: Average number of employees 2016 2015 Percentage of women Average number of employees Percentage of women Senior executives 215 27% 214 24% Ground employees: Managerial 2,532 40% 2,385 41% Non-managerial 33,313 35% 32,835 36% Technical crew: Managerial 6,257 11% 5,906 10% Non-managerial 21,070 68% 19,522 67% 63,387 60,862 Strategic Report Corporate Governance Financial Statements Additional Information www.iairgroup.com

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