Initial Public Offering Roadshow Presentation March 2001 VIDEO Merrill Lynch Claudio Aguirre Terms of the Offering
Company Iberia Líneas Aéreas de España, S.A.
Selling Sociedad Estatal de Participaciones Industriales Shareholder Initial Public Offer of 442,912,736 existing shares, 48.51% Offer of the share capital Greenshoe: 10% of the final offer size
Madrid, Barcelona, Bilbao and Valencia Stock Exchanges and the Listing Automated Quotation System of the Spanish Stock Exchanges
Retail: 55% Preliminary Size Spanish Institutional: 20% of Tranches International: 25%
Indicative Price €1.71 - €2.14 Range
Lock-up 6 months
Global Santander Central Hispano Investment Coordinators Merrill Lynch Offering Timetable
Roadshow and March 19th-30th Bookbulding
Retail Offering March 28th-30th
Pricing and April 1st Allocation
Trading April 3rd
Settlement April 5th Shareholding Structure
Employees May Increase to Logista 6.1% 8.8% 6.7% El Corte Inglés 3.0%
Caja Madrid 10.0% SEPI 53.9% Ahorro Corporación SEPI 53.9% 3.0% BBVA 7.3% American Airlines Selling Down 1.0% SEPI 53.9% British Airways 9.0% Iberia Today Xabier de Irala, Chairman & CEO Contents
Iberia Today
Competitive Strengths
Key Financials
Strategy for Value Creation 2000-2003
Investment Highlights Where We Stand Today
One of the largest European airlines by traffic volume
Total revenues of Euro 4,487 Mill. in year 2000
Leader in terms of passenger traffic between Europe and Latin America and in Europe´s second largest domestic market
ROE of 17.2% and EBITDAR margin of 13.3% in 2000
Euro 6,250 Mill. fleet renewal programme under way
Membership in global alliance and code sharing relationships
Extremely valuable potential capital gains of stake in Amadeus The Transformation Process of Iberia
1994 Restructuring 1997 Consolidation 1999
Viability Plan Director Plan I
Returned to profitability Result-oriented culture Financing stabilised Closing of Viasa, sale of Ladeco Financial divestiture of Aerolíneas Argentinas and Capital structure reinforced closing of Viva Air as an airline company Cost optimisation
Re-positioned as Integration of Aviaco in Iberia “Spanish flag carrier” (sale of non-core Latin American Improved product quality and customer loyalty Business operations) Joined oneworld alliance Rationalised network and commercial objectives
Personnel reduced by 4,060 Salary and stability agreements with Labour employees unions Salary freeze and reduction Employee motivation Management Team with a Proven Track Record in Meeting and Exceeding Targets
6.2% 15.3% 62.0%
11,547 1,915 708
10,877 1,661
437
Revenues (1)EBITDAR (1) Income Before Tax (Euro Mill.) (Euro Mill.) (Euro Mill.)
Target Director Plan I (1997-1999) Actual (1997-1999)
(1) Accumulated figures (1997-1999) Iberia --AA Focus on Passenger Transportation in Three Strategic Markets
Contribution to Revenues by Contribution to Revenues by Activity 2000 Region 2000
Passenger Transportation Spain 79.4% 37%
Long Haul Cargo Europe Others 5.7% 32% 31% 7.0% Handling Maintenance 5.2% 2.8% Leader in Each Primary Market Market Share (2000)
Spain Spain - Europe
Iberia Iberia 70.4% 34.5%
Air France 7.6% Lufthansa 8.6% British Air ways 7.2% Air Europa Others Spanair Others 13.1% 0.7% 15.8% 42.1%
Spain - Latin America Europe - Latin America
Iberia Iberia Air France Lufthansa 44.5% 15.1% 10.4% 8.2%
British KLM Air ways 7.7% Arolineas KLM 10.1% Argentinas Varig 5.3% 8.1% 7.0% Varig Others 4.2% Others 37.9% 41.5% Efficient Network with Growing Connectivity
Over 100 destinations and 464 average daily frequencies
Madrid is the 4th largest European point-to-point city in terms of passengers
% of Iberia flights from/to MAD or BNA Average number of connecting flights +/- 90 min.
98.1 16.9 16.8 16.1 16.0 94.8 92.4 91.4 90.1 87.3 10.8 85.8 9.0 83.5 8.1 83.0 7.4 8.0 8.0 80.6
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 Domestic European Arrivals Departures Competitive Strengths Xabier de Irala, Chairman & CEO Dominant Position in EuropeEurope’’’ss 2nd Largest and High Growth Domestic Market
Large, High-Growth Market Strong International Traffic
High domestic traffic growth #3 worldwide in number of international tourist arrivals (48.5 Mill. in 2000) Scheduled passenger CAGR (95-00) of 8.4% 16.2% CAGR (95-00) 13.2% total growth in 2000 #1 in Europe in international traffic growth
Domestic Sched. Pax in 1999 (mill.) International Sched. Pax. CAGR 00-04 (%)
26.1 6.5 24.2 20.9 5.8 17.5 5.7
5.2 5.0
France Spain Germany UK Spain France Italy Germany UK Sustainable and Increasing Leadership in Latin America
Latin America represents the most important region for Spanish foreign direct investment
Iberia offers a clear superior product in terms of destinations and direct-flights
Market Share (%) Iberia BA KLM AF LH
15 IB Number of destinations in Latin America211811129 13 Number of destinations in Latin America 11 with daily flights 14 4 7 6 5 AF BA Average daily 9 Frequencies 21 11 9 10 7
LH % non-stop flights KLM (ex-hub MIA) 96 70 76 90 88 7 1997 1998 1999 2000 Significant Expansion Potential at Madrid and Barcelona Airports
Passenger Growth CAGR 99-04 (%)
8.5 New runways by 2004 2 in Barajas (Madrid) 6.5 6.5 1 in El Prat (Barcelona) 5.3 5.0 New terminals 4.0 Barajas by 2004 3.1 El Prat by 2005 1.5 Air traffic control 0.8 investments Orly El Prat El Schipol Barajas Gatwick Gaulle Frankfurt Heathrow Fiumicino Charles de Charles Unit Costs Significantly Below Industry Average
15 SAS
Lufthansa (1)
Austrian Airlines
10 KLM
Air France Euro Cents/ASK Iberia British Airways
5 600 800 1.000 1.200 1.400 1.600 1.800 2.000
Average Stage Length (Kms)
Source: Merrill Lynch research, Iberia Data for period Sept.99-Sept.00 Fiscal year 2000 (1) Lufthansa Group Flexibility to Adapt Capacity to Market Conditions
Total Flexibility -16% 181
Non exercise 158 30 152 of options 5 Long-Haul 24 Cancel Aircraft 20 wet-lease 2 Cancel Flexibility operating-lease 3 -33%
Short/ 151 Delayed Medium-Haul 134 Flexibility 132 deliveries 7 Aircraft -13% Cancel wet-lease 8 Cancel operating- lease 4
12/2000 12/2003 12/2003 Base Case Flexibility Case
Fleet Renewal Programme Financial Highlights Enrique Dupuy de Lôme, CFO Iberia has Outperformed the Average of its European Peers
EBITDAR Margin (%) Return on Equity (%)
50 20
18 25 16
14 0
12 -25 10
8 -270 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000
Iberia Alitalia British Airways KLM Lufthansa Swiss Air Average Air France Well Managed and Continuous Growth
73.8% 72.2% Mill. 71.5% 69.0% 69.0% 54,858 48,875 51,212 42,686 41,956 40,484 32,190 35,379 30,808 28,691
1996 1997 1998 1999 2000
RPKs ASKs Load Factor %
CAGR 96-00 9% 7% Positive Evolution of Revenues and Net Income Despite Difficult Environment
Revenues (Euro Mill.) Attributable Net Income (Euro Mill.)
CAGR 96-00 = 7.7% CAGR 96-00 = 75.9%
8.0% (1) 4,489 7.0%
(1) 4.5% 3,996
3,885 4.5% % Margin
3,661 319 3.9% 312 (1)
2.4% 175 (1) 3,338 90
0.6% 153 201 21
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000
(1) Attributable Net Income excluding net impact of fuel cost increases in 1999 and 2000 Strong Balance Sheet
Fixed Assets Shareholders Funds Net Financial Debt (Euro Mill.) (Euro Mill.) (Euro Mill.)
430 2,886
340 2,607 1,164 1,014 950 2,283 2,258
2,077 630 538
0 Net -15 -18 Cash
-131
1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 1996 1997 1998 1999 2000 Extremely Valuable Potential Capital Gains in Amadeus
Iberia’s 18.3% economic stake in Amadeus has a market value of circa Euro 800 Mill. and a book value of Euro 10.4 Mill.
Between May and June 2000 Iberia sold 6.7% of Amadeus, realising gross capital gains of Euro 390 Mill.
Existing lock-up period terminated on February 28, 2001 Efficient Hedging Strategy
Hedging strategy Fuel unit cost significantly below average
Hedging 2001: Jan – Sep 2000
48% 18.6 USD/barrel Fuel 1.3 SAS 42% 23-32 USD/barrel KLM 1.2 Air France 10% Free 1.1 Lufthansa Balance Sheet: 1 Currency Natural hedge 0.9 Iberia British Airways risk Operational Flows:
Euro Cents/ASK 0.8 Quasi natural hedge 0.7 600 800 1,000 1,200 1,400 1,600 1,800 2,000
Interest 45% floating / 55% fixed Average Stage Length (Kms) rates in 12/00 Strategy for Value Creation 2000-2003 Xabier de Irala, Chairman & CEO Strategy for Value Creation: New Era
Grow and enhance leadership in natural markets
Improve client service and develop business traffic Key Targets Utilise Internet tools for both distribution and purchasing High EBITDAR Margin 2003 Increase productivity of human and technical resources and maximise return on assets Strong growth of Ordinary Profit before taxes Maintain current low unit costs
Leverage strengths through strategic alliances
Continue outstanding risk management and flexibility Focusing Growth Strategy in Key Markets
Long Haul Europe
“Maintaining current leadership in “Strengthening market presence” Europe to Latin America routes” Feed the Europe to Latin American Improve product offering routes frequencies Increase in frequencies and direct connectivity flights rather than from new markets Daily flights to all Latin American capitals, even 2 in most relevant destinations
Spain
“Focusing on yield reinforcement” Selective increase in frequencies Increase in aircraft capacity Continue leveraging on regional flights with Air Nostrum Attracting the Business Traveller
Importance of Business Key Initiatives Traveller (2000)
Domestic Market Continue overhaul of Premium 58.3 Class offering 41.6 New fleet offers improved efficiencies and more comfort Medium-Haul 37.3 Increase number of non-stop 14.0 flights to Latin America
Increase frequencies and Long-Haul connectivity of key flights 28.1 9.3
% Business Pax % Total Rev
Includes Y Class (complete tourist tariff) New Fleet and Improved Maintenance Will Drive Asset Productivity
Aircraft Families
Target LT 2000 2003 Target Block Hours/Aircraft per day Operated by Iberia964 8.9
Average Age 9.1 7 7 +17%
Technical and Ground Personnel 7.6
24-hour maintenance
Target: 41% reductions in the number of unused aircraft during commercial schedule 2000 2003 Target Increasing Personnel Productivity
Technical Crew Ground Personnel
Decrease training hours of pilots Severance Plan 2000-2002 Improve scheduling for in-flight A more flexible labour framework personnel
Block Hours/Pilot ASKs/Ground Personnel
Block Hours Increase in per Pilot Training Hours 3.1 279.9 2.6 258.6 2.5 2.4 225.9 226.1 229.2 2.3
+22% +20%
1997 1998 1999 2000 2003 1997 1998 1999 2000 2003E Reducing Purchasing and Commercial Costs Through Technology
Increasing Direct Sales Contribution Decreasing Purchasing Costs Through e-Procurement
2000: 13.6% 2003 Target: 18.3% Acquisition Costs
3.1 e-Procurement Market Places 17.8 40.9 40.9 Cordiem Adquira
3 - 5% Target in 3 years 79.1 20.5 Internet Offices Telephone
Net Distribution Cost/Air Transport Purchases Administrative Costs Revenues (%) 11.0 8.7 Reduction per 50 - 80% Transaction Target in 3 years
2000 2003 Target Ambitious Unit Cost Reduction Target for 20002000---20032003
Net Commercial Expenses Personnel Cost/ASK 17.8% Cost/ASK 10.2%
Unitary Costs Reduction Cost/ASK 0.3% (in real terms 7.5%)
Operating Fleet Expenses Net Maintenance Cost/ASK 16.8% General and Administrative Fuel Cost/ASK 15.0% Cost/ASK 6.3% Rentals and Depreciation 24.7% Investment Highlights Xabier de Irala, Chairman & CEO Investment Highlights
Management track record and commitment to delivering value/cultural change
Unit cost significantly below industry average with further scope for reductions
Flexibility and robust balance sheet
Strong potential for double-digit EBITDAR growth www.iberia.com Domestic Fares Amongst the Lowest in Europe
Full Highest Price per mile (Euro) Business Iberia = Base 100 Economy Discount
MADRID-BILBAO (IB) 100 100 100 PARIS – RENNES (AF) 137 146 121 110/225 Miles LONDON – MANCHESTER (BA) 166 176 135 ROME – NAPLES (AZ) 120 116 118 FRANKFURT – DUSSELDORF (LH) 215 229 200 MADRID – SEVILLE (IB) 100 100 100 PARIS – LYON (AF) 177 150 156 225/300 LONDON – NEWCASTLE (BA) 178 168 163 Miles ROME - BARI (AZ) 104 105 117 FRANKFURT – HAMBURG (LH) 161 181 161 MADRID – BARCELONA (IB) 100 100 100 PARIS – BORDEAUX (AF) 149 129 203 300/350 LONDON – BELFAST (BA) 142 162 203 Miles ROME – MILAN (AZ) 109 112 186 FRANKFURT – KIEL (LH) 158 182 238 Targets: Pursuing Efficiency
2000 Target 2003 ASK (Mill.) accumulated growth 54,290 +24.8%
Load Factor (%) 73.8% 74.3%
Revenue/ASK (Euro cents/ASK) 7.95 8.24
Unit Cost (Euro cents/ASK) 7.9 7.9
Fleet Utilisation 7.6 8.9 (Block hours/day)
(1) EBITDAR Margin (%) 13.3% 18.2%
Adjusted EBIT Margin (%) (1) (2) 4.7% 9.1%
(1) Group figures (2) Assuming 7% of interest cost in operating leases