UPDATE 2-BA owner IAG reassures with earnings, orders 18 Boeing jets

LONDON (Reuters) – British Airways owner IAG weathered rising fuel costs and air traffic control disruption to just beat expectations for its 2018 results on Thursday, and said it would order 18 Boeing 777-9 planes.

FILE PHOTO: British Airways logos are seen on tail fins at Heathrow Airport in west London, Britain, February 23, 2018. REUTERS/Hannah McKay/File Photo

The company said earnings for 2019 would be flat on the year, but a special dividend announced after the market closed on Wednesday helped its shares rise 2.4 percent in early deals.

IAG reported a 9.5 percent rise in operating profit before exceptional items for the year to Dec. 31 to 3.23 billion euros ($3.68 billion), ahead of analysts’ consensus forecast for 3.16 billion, but said there would be no growth in 2019.

“It’s fuel,” Chief Executive Willie Walsh explained, adding a rising fuel bill had been a headwind in 2018. “We’re going to see an even larger increase in 2019,” he said.

IAG did not disclose details of its fuel hedging strategy.

In a separate statement, IAG said it would order 18 Boeing 777-9s and options for 24 more for British Airways to replace 14 747-400s and four 777-200s between 2022 and 2025.

Industry sources said Airbus had been offering a combination of its A350 twin-engined long-range jet and the four-engined A380, the world’s largest airliner which it has decided to stop building from 2022 due to weak demand.

But IAG has voiced its dissatisfaction with the performance of Rolls Royce, which makes engines for the A350 and which on Thursday also withdrew from the race to power Boeing’s mid-market plane. The 777-9 uses GE engines.

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“I have been frustrated, largely with the performance of Rolls Royce, not so much with Airbus,” Walsh said, adding IAG had significant orders with Airbus.

“This aircraft order is specific to the requirements of British Airways, where we needed a larger aircraft … There’s still a lot for both Boeing and Airbus to play for, and we’re pleased with the competition that we’ve seen.”

IAG, which also owns Iberia, Aer Lingus and Vueling, said passenger revenue rose 6.2 percent across the group in 2018, with passenger unit revenue up 2.4 percent. It announced a special dividend of 35 euro cents a share.

Walsh said he had not seen evidence of a lull in demand to travel due to uncertainty around Britain’s scheduled departure from the European Union on March 29.

“We’re not seeing anything specific around the end of March … demand continues to be good,” he said.

Reporting by Alistair Smout, Additional reporting by Tim Hepher in Paris, Editing by James Davey and Mark Potter



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