Recent Developments in International Finance and its Impact on British Airways

Running head: INTERNATIONAL FINANCE
International Finance
Name of the Student
Name of the University
Authors Note
Course ID

1INTERNATIONAL FINANCE
Table of Contents
Introduction:.............................................................................................................................................2
Recent developments in international financial environment & its impact on British Airways:............2
Risk management strategy:......................................................................................................................3
Sources of Finance:..................................................................................................................................4
Debt and Equity:..................................................................................................................................4
Dividend Policy:..................................................................................................................................5
Financial Performance Analysis (Ratio Analysis):..................................................................................5
Profitability Ratios:.............................................................................................................................5
Liquidity Ratios:..................................................................................................................................7
Efficiency Ratios:................................................................................................................................9
Investment Ratios:.............................................................................................................................11
Conclusion:............................................................................................................................................13
References:.............................................................................................................................................15
Appendix:...............................................................................................................................................17

2INTERNATIONAL FINANCE
Introduction:
British Airways Airline is the flag carrier and it is regarded as the UK’s largest airline
on the basis of the size of its fleet. It is one of the world’s leading premium airline company.
The company has the principle business place at London and has the significant business
existence at London City Airports, Heathrow and Gatwick. During the year 2011, British
Airways merged with the Iberia to form an International Airline Group (Iairgroup.com 2019).
As the part of joint business with IAG, British Airways operates as one of the most
widespread international airline schedule. British airways is regarded as the founder of one
world alliance, whose member airlines provides services to greater than 1000 destinations in
more than 150 nations.
During 2017 the company announced a five year deal of £4.5 billion investment
programme so that it can enhance the experience of customers in all its cabins (Iairgroup.com
2019). In the upcoming five years the company aims to introduce 70 more aircrafts for
passenger services. British airways is also working to enhance its services and segmentation
in order to boost its sales revenue. The report would address the recent development in the
international financial environment that have impacted the performance of British Airways.
Special emphasis will be paid on the sources of finance and dividend policy of British
Airways. An in depth ratio analysis will be performed to assess the financial performance in
terms of profitability, liquidity, efficiency and investment.
Recent developments in international financial environment & its impact on British
Airways:
The two recent development in the financial environment that have created an impact
on the British Airways is the weakening of Sterling Pound and the negative movements of the
pension assets.

3INTERNATIONAL FINANCE
Weaker Pounds: Financial factors such as the weakening of sterling pound have created a
impact on the British Airways reported revenues. Furthermore, weaker pounds have
contributed to the effect of fuel hedging activities that have created a negative impact on the
operating profit of the company (Srovnalikova and Razinskaite 2017). The sterling weakness
had resulted in a £145 million blow to the operating profit of the company in the quarter
ending month of September. As a result of weakness in the pound, British Airways operating
profit before exceptional items have come shy of the company’s anticipations as it fell by 3.6
percent to £1.2 billion in the third quarter, a fall from £1.25 billion for the similar period in
the last year. These results were impacted by the tough operating environment with the
significant effect on the currency (Broadbent and Policy 2017). The volatility in the sterling
pound have created a material impact on the operational results of the British Airways.
Negative movements in pension assets: Another factor that has impacted the financial
performance of the British Airways is the negative movements in the values of the pension
assets and financial returns from these assets which have increased the pension deficit. The
deficit in the pension funds is sensitive to the small change in the bond yields (Castle 2019).
Due to the negative movements in the pension assets there is an environment of volatility in
the NAPS schemes and resulted in the funding deficit of £2.8 billion.
Risk management strategy:
The company is exposed to financial risks relating to foreign exchange and fuel price.
The potential risks and the risk management strategy is given below;
Foreign exchange and slow moving cash: The Company is open to the risk relating to
currency on its income, purchases and borrowings in overseas currencies together with the
currency depreciation of cash that is held in the monies apart from the airline’s domestic
currency (sterling) (Hameed and Rose 2018). The company minimises the risks whenever