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Annual report and accounts 2016

126 Notes to the

126 Notes to the consolidated financial statements continued 16 Intangible assets and impairment review continued b Impairment review The carrying amounts of intangible assets with indefinite life and goodwill allocated to cash generating units (CGUs) of the Group are: Customer € million Goodwill Landing rights Brand loyalty programmes Total 2016 Iberia January 1 and December 31, 2016 – 423 306 – 729 British Airways January 1, 2016 56 901 – – 957 Impairment – (11) – – (11) Exchange movements (7) (119) – – (126) December 31, 2016 49 771 – – 820 Vueling January 1 and December 31, 2016 28 89 35 – 152 Aer Lingus January 1 and December 31, 2016 272 62 110 – 444 Avios January 1 and December 31, 2016 – – – 253 253 December 31, 2016 349 1,345 451 253 2,398 Customer € million Goodwill Landing rights Brand loyalty programmes Total 2015 Iberia January 1, 2015 – 423 306 253 982 Transfer to Avios – – – (253) (253) December 31, 2015 – 423 306 – 729 British Airways January 1, 2015 51 840 – – 891 Exchange movements 5 61 – – 66 December 31, 2015 56 901 – – 957 Vueling January 1 and December 31, 2015 28 89 35 – 152 Aer Lingus January 1, 2015 – – – – – Acquired through Business combination 272 62 110 – 444 December 31, 2015 272 62 110 – 444 Avios January 1, 2015 – – – – – Transfer from Iberia – – – 253 253 December 31, 2015 – – – 253 253 December 31, 2015 356 1,475 451 253 2,535 INTERNATIONAL AIRLINES GROUP Annual Report and Accounts 2016

127 Basis for calculating recoverable amount The recoverable amounts of CGUs have been measured based on their value-in-use. Value-in-use is calculated using a discounted cash flow model, with the royalty methodology used for brands. Cash flow projections are based on the Business plan approved by the Board covering a five year period. Cash flows extrapolated beyond the five year period are projected to increase based on long-term growth rates. Cash flow projections are discounted using the CGU’s pre-tax discount rate. Annually the Group prepares and the Board approves five year business plans. Business plans were approved in the fourth quarter of the year. The business plan cash flows used in the value-in-use calculations reflect all restructuring of the business that has been approved by the Board and which can be executed by Management under existing agreements. Key assumptions For each of the CGUs the key assumptions used in the value-in-use calculations are as follows: 2016 Per cent British Airways Iberia Vueling Aer Lingus Avios Lease adjusted operating margin 12–15 8–14 7–15 12–15 n/a 1 Average ASK growth per annum 2 4 7 8 n/a 1 Long-term growth rate 2.5 2.0 2.0 2.0 2.4 Pre-tax discount rate 8.5 9.8 10.6 7.8 9.1 2015 Per cent British Airways Iberia Vueling Avios Lease adjusted operating margin 12–15 8–14 12–15 n/a 1 Average ASK growth per annum 2–3 7 10 n/a 1 Long-term growth rate 2.5 2.0 2.0 2.4 Pre-tax discount rate 8.6 9.7 10.3 9.1 1 Lease adjusted operating margin and ASK growth per annum assumptions are not applicable for the Avios loyalty reward business, which conducts business with partners both within and outside IAG. Lease adjusted operating margin is the average annual operating result, adjusted for aircraft operating lease costs, as a percentage of revenue over the five year Business plan to 2021. It is presented as a percentage point range and is based on past performance, Management’s expectation of the market development and incorporating risks into the cash flow estimates. ASK growth is the average annual increase over the Business plan, based on past performance and Management’s expectation of the market. The long-term growth rate is calculated for each CGU based on the forecasted weighted average exposure in each primary market using gross domestic product (GDP) (source: Oxford Economics). This is reviewed each year and updated as necessary to reflect management’s view on specific market risk. Strategic Report Corporate Governance Financial Statements Additional Information Pre-tax discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and underlying risks of its primary market. The discount rate calculation is based on the circumstances of the airline industry, the Group and the CGU. It is derived from the weighted average cost of capital (WACC). The WACC takes into consideration both debt and equity available to airlines. The cost of equity is derived from the expected return on investment by airline investors and the cost of debt is broadly based on the Group’s interest-bearing borrowings. CGU specific risk is incorporated by applying individual beta factors which are evaluated annually based on available market data. The pre-tax discount rate reflects the timing of future tax flows. Summary of results In 2016, Management reviewed the recoverable amount of each of its CGUs and concluded the recoverable amounts exceeded the carrying values. In 2016, British Airways recognised an impairment charge of €14 million in respect of landing rights associated with its Openskies operation, €11 million of which related to landing rights in the EU that have an indefinite life. The impairment has arisen as a result of changes in Business plan assumptions for the Openskies operation. At December 31, 2016 the remaining carrying value was €12 million, representing its value-in-use. Sensitivities Sensitivities have been considered for each CGU. No reasonable possible change in the key assumptions for any of the Groups CGUs would cause the carrying amounts to exceed the recoverable amounts. www.iairgroup.com

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