Independent auditor’s report to the members of

British Airways Plc

We have audited the financial statements of British Airways Plc for the year ended 31 March 2010 which

comprise the Group consolidated income statement, the Group statement of other comprehensive income,

the Group and Parent Company balance sheets, the Group and Parent Company cash flow statements, the

Group and Parent Company statements of changes in equity and the related notes 1 to 38. The financial

reporting framework that has been applied in their preparation is applicable law and International Financial

Reporting Standards (IFRS) as adopted by the European Union and, as regards the Parent Company

financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of

the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s

members those matters we are required to state to them in an auditor’s report and for no other purpose. To

the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the

Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we

have formed.

Respective responsibilities of Directors and auditors

As explained more fully in the Directors’ responsibility statements, the Directors are responsible for the

preparation of the financial statements and for being satisfied that they give a true and fair view. Our

responsibility is to audit the financial statements in accordance with applicable law and International

Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices

Board’s (APB’s) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient

to give reasonable assurance that the financial statements are free from material misstatement, whether

caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to

the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately

disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall

presentation of the financial statements.

Opinion on financial statements

In our opinion:

• The financial statements give a true and fair view of the state of the Group’s and of the Parent

Company’s affairs as at 31 March 2010 and of the Group’s loss for the year then ended;

• The Group financial statements have been properly prepared in accordance with IFRS as adopted by

the European Union;

 • The Parent Company financial statements have been properly prepared in accordance with IFRS as

adopted by the European Union and as applied in accordance with the provisions of the Companies Act

2006; and

• The financial statements have been prepared in accordance with the requirements of the Companies

Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

• The part of the Directors’ remuneration report to be audited has been properly prepared in

accordance with the Companies Act 2006; and

• The information given in the Directors’ report for the financial year for which the financial

statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• Adequate accounting records have not been kept by the Parent Company, or returns adequate for

our audit have not been received from branches not visited by us; or

• The Parent Company financial statements and the part of the Directors’ remuneration report to be

audited are not in agreement with the accounting records and returns; or

• Certain disclosures of Directors’ remuneration specified by law are not made; or

• We have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• The Directors’ statement, in relation to going concern; and

• The part of the corporate governance statement relating to the Company’s compliance with the nine

provisions of the June 2008 Combined Code specified for our review.

Ernst & Young LLP

Richard Wilson (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory auditor

London

20 May 2010

The maintenance and integrity of the British Airways Plc website is the responsibility of the Directors; the

work carried out by the auditors does not involve consideration of these matters and, accordingly, the

auditors accept no responsibility for any changes that may have occurred to the financial statements since

they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may

differ from legislation in other jurisdictions.

*Chief Financial Officer’s statement
Taxation

The analysis and explanation of tax on the result for the year is set out in note 11 to the financial

statements.

Our total tax credit for the year was £106 million (2009: credit £43 million). The tax credit included a one-

off deferred tax movement of £13 million credit arising from a change in foreign profits tax legislation which

was enacted during the year, and there were adjustments relating to prior years giving rise to a credit of £9

million (2009: £10 million credit) and the effect of pension fund accounting of £45 million (2009: £5 million

credit). Excluding these one-off items, the effective tax rate for the Group would have been 24 per cent.

Our deferred tax balance at 31 March 2010 was £774 million (2009: £652 million). The year on year

movement was primarily related to the tax effect of the retranslation of foreign debt and the marked-to-

market movement on fuel and currency hedges and pension funding temporary differences, offset by the

reversal of fixed asset temporary differences and further trading losses, which can be utilized against future

taxable profits of the Company.

The Group also contributes tax revenues through payment of transaction and payroll related taxes. The total

amount of such taxes paid during the year was £636 million (2009: £632 million).

Earnings per share

A basic loss per share of 38.5 pence (2009: loss 32.6 pence) is attributable to shareholders.

Other reserves

Other reserves at 31 March 2010 were £692 million, an increase of £262 million from March 2009. This

increase is primarily driven by the marked-to-market movement on fuel and cash flow hedges of £587

million offset by the loss for the year. The equity portion of the convertible bond raised in August 2009 adds

a further £84 million to reserves.

Dividend

The Board has decided not to recommend the payment of a dividend.

Capital expenditure

£ million 2009/10 2008/09

Fleet – aircraft, spares, modifications and refurbishments

(net of refund of progress payments) 518 584
Property and equipment 36 67
Landing rights and other intangible assets 13 61
Total 567 712

Total capital expenditure in the year amounted to £567 million, down £145 million on last year.
We reduced our projected capital spend from £725 million in our financial plan to a target of £575 million for

the year, but in the end spent even less than projected by cancelling some non-essential programmes and

delaying others.

Liquidity

Our liquidity position remains strong with £1.7 billion of cash at the end of the year. We raised an additional

£350 million through a convertible bond issue in August 2009 to boost our reserves and make sure we had

sufficient cash and capital to invest in continuing improvements in our business. At the same time the

Trustees of our defined benefit schemes released bank guarantees of $540 million (approximately £330

million) to the airline. These can be drawn in cash at any time until June 2012. Note 24 to the financial

statements provides detailed analysis and explanation of our cash flow position. Our capital expenditure

commitments are outlined in note 15 to the financial statements.

Financial risk management

We are exposed to a variety of financial risks, including market risk, credit risk, capital risk and liquidity risk.

Our overall risk management programme focuses on the unpredictability of financial markets and seeks to

minimise potential adverse effects on our financial performance. This is covered in more detail in note 30 to

the financial statements.

Going concern

Our business activities, performance, strategy and risks are set out in this report. The financial position of

the Group, including cash flows, liquidity position and available committed facilities are discussed in this

section, and further information is provided in notes 24 to 31 of the financial statements.

After making enquiries, our Directors have a reasonable expectation that our Company and the Group has

adequate resources to continue operating for the foreseeable future. For this reason, the going concern

basis has been adopted in preparing the accounts.

Outlook

Airlines map GDP. When recession hits, premium services tend to fall first and fastest. As recovery begins

they also tend to be quickest to pick up. With our dependence on premium travel, this means we should see

our own performance pick up ahead of some of our main competitors.

That’s been the pattern in the past and it’s likely to be repeated. The difference this time is that we will be

going into recovery in much better shape than in the past, having tackled many of the legacy cost structures

that have traditionally held this business back.

But the pace of general recovery remains hard to predict. We expect it to be slow and we remain vulnerable

to the threat of a double-dip recession. The oil price presents us with another difficult risk although we

remain comfortably hedged to ride further volatility should it return to the market.

There are other uncertainties that we must contend with too. As you know, much of northern Europe’s

airspace was shut down for six days in April following the eruption of the volcano in Iceland. It’s pretty
remarkable to think that the disruption caused by this event was far greater than that seen in the aftermath

of the 9/11 attacks on New York. We estimate it to have cost us around £100 million.

Although we were pleased to work with the authorities, aerospace manufacturers and other airlines to

reassess the restrictions airlines operate under when volcanic ash is present in the atmosphere, we cannot

rule out further disruption in the months ahead.

It has been a difficult two years for the airline as we faced economic recession. We should see some

significant recovery this year as the economy improves.

Keith Williams Chief Financial Officer

*Corporate governance statement

The Company is committed to high standards of corporate governance. The Board is accountable to the

Company’s shareholders for good corporate governance. The code of best practice, set out in Section 1 of

the Combined Code as amended from time to time and appended to the Listing Rules of the Financial

Services Authority (the ‘Combined Code’), has been adopted as the Company’s corporate governance

statement.

In accordance with the Listing Rules, the Company is required to report firstly on how it applies the main

principles of the Combined Code 2008 and secondly to confirm that it has applied the Code’s provisions or,

where it has not, to provide an explanation. The following section outlines the way in which the Company

has applied the main and supporting principles in the Code.

The Board

The Board provides entrepreneurial leadership of the Company within a framework of prudent and effective

controls, which enables risk to be assessed and managed. The Board sets the Company’s strategic aims,

ensures that the necessary financial and human resources are in place for the Company to meet its

objectives and reviews management performance. The Board sets the Company’s values and standards and

ensures that its obligations to its shareholders and others are understood and met.

As a unitary Board, all Directors are involved in, and responsible for, the development of the Company’s

strategy. The Non-executive Directors review the performance of the Company with the Executive Directors

on a regular basis. The Board delegates certain of its functions to committees consisting of Non-executive

Directors, as detailed within this report. The Board of the Company routinely meets seven times a year and

additionally when necessary to consider all matters relating to the overall control, business performance and

strategy of the Company, and for these purposes the Board has drawn up a schedule of matters reserved for

Board decision which it reviews at least annually. Broadly, the Board has reserved to itself major strategic

and financial decisions, including investment and divestment decisions, approval of business and financial

plans, approval of significant alliance or codeshare partnerships, significant contracts and capital

commitments of greater than £10 million.

The Board is led by the Chairman and the executive management of the Company is led by the Chief

Executive. Their respective roles are more fully described in the terms of reference on the Company’s

investor relations website, www.bashares.com. The Chairman is responsible for setting the Board agenda

and ensuring that it works effectively. Working with the Secretary, he ensures that Board members receive

accurate, timely and clear information. Of the 10 members serving at the year end, excluding the Chairman,

two were Executive Directors and seven were Non-executive Directors (of which six are considered

independent for Combined Code purposes). All seven Non-executive Directors are drawn from a diverse

range of business and other backgrounds, bringing a broad spectrum of views and experiences to Board

deliberations. This diversity of background and experience is identified by the Board members as one of the

strengths of the Board. Maarten van den Bergh is the Board’s Senior Independent Director. In this role he is

available to the shareholders should they have any concerns that they have been unable to resolve through

normal channels, or when such channels would be inappropriate. He is also responsible for leading the

Board’s discussions on the Chairman’s performance and would lead the process leading to the appointment

of a new Chairman, when appropriate.

A statement of the Directors’ responsibilities in respect of the financial statements is set out in the

responsibilities statements and a statement on going concern is given in the Chief Financial Officer's report.

The Non-executive Directors scrutinise the performance of the management in order to be satisfied as to the

integrity and strength of financial information, controls and risk management. They have a prime role in

appointing, removing and succession planning of senior management and, through the Remuneration

Committee, they are responsible for determining appropriate levels of remuneration for the Executive

Directors.

Although the Non-executive Directors are eligible for non-contractual travel concessions in addition to their

fees, this is not considered to affect their independence.

All Directors receive regular information about the Company so that they can play as full a part as possible

in Board meetings. Papers for Board and Committee meetings are typically distributed in the week prior to

the relevant meeting. All Board members have access to the Secretary for any further information they

require. If any of the Non-executive Directors has any concerns with the running of the Company, they

would first discuss these concerns with one of the Executive Directors, the Secretary or the Chairman. If

their concerns cannot be resolved in this way, then they are recorded in the Board minutes. No such

concerns arose during the year.

Non-executive Directors are encouraged to visit the Company’s operations and to speak to customers and

employees. They are also encouraged to attend the annual investor day where they can discuss corporate

governance matters with major shareholders. Independent professional advice would be available to

Directors in appropriate circumstances, at the Company’s expense. No such advice was needed during the

year in question.
All Directors are required to submit themselves for re-election every three years. New Directors are

appointed to the Board on the recommendation of the Nominations Committee. In December 2009, Rafael

Sánchez-Lozano Turmo joined the Board following the signing of the Memorandum of Understanding with

Iberia. Although the Committee is currently satisfied with the composition of the Board, it has been

conducting a search for an additional independent Non-executive Director following the retirement of two

Non-executives from the Board at the Annual General Meeting in July 2009.

The Secretary ensures that the Board members receive an appropriate induction and further training as

necessary. The Board receives briefings on changes in regulation or law, as circumstances require. This has

included training in relation to the implications of the Companies Act 2006 as various sections of it came into

force. More recently the Board has reviewed and responded to the Consultation on the revised UK Corporate

Governance Code.

The appointment and removal of the Secretary is a matter for the Board as a whole.

Rules about the appointment and replacement of Directors are set out in the Company’s Articles of

Association. The Directors’ powers are conferred on them by UK legislation and by the Company’s Articles of

Association.