IAG is a Madrid-registered holding company that owns five airlines and a loyalty business, and it sells air travel to leisure and business passengers, plus cargo space and loyalty points. Revenue was €33.2bn in 2025. Roughly 88% is passenger tickets, about 4% is cargo (IAG Cargo, carried in the bellies of passenger jets), and about 8% is other income: maintenance, handling and Avios (estimates, from the FY25 split). By airline, before eliminations and as rough estimates: British Airways (~48%) is the profit engine, flying long-haul from London Heathrow, and the North Atlantic is its largest market. Iberia plus the low-cost long-haul brand LEVEL (~22%) run the Madrid hub and lead on Europe–Latin America. Vueling (~10%) is a Barcelona-based short-haul low-cost carrier. Aer Lingus (~8%) runs Dublin–US transatlantic flying with US preclearance. IAG Loyalty (~6%) sells Avios points to credit-card and retail partners at very high margins.
It makes money by filling seats (load factor about 85%) at yields above unit cost. The premium cabins on Heathrow–US routes earn a large share of profit, and the scarce Heathrow and Madrid slots protect those yields. The main cost lines are fuel (~21–25% of revenue), labour (~20%) and the fleet (about 628 aircraft, roughly half leased). Key sensitivities: jet fuel, which is hedged about 60% for 12–18 months and partly recovered through fares; transatlantic premium demand, which tracks US corporate travel and US consumer wealth; FX, since costs are short USD while BA's earnings are in GBP; and exogenous shocks such as pandemics, war or ATC strikes.
What changed since the 10/14 valuation: almost nothing. (1) Price: $10.85 → $11.05 (+1.8%; the 10/14 close was $10.90). That is €4.93 or 417p per ordinary share, in line with London at ~415p. (2) FX: EUR/USD is 1.1209 vs 1.1202, so flat. On 10/14 it touched 1.1113, the low of the year. GBP/EUR is 1.1808 vs 1.1835. The ADR translation effect is +0.06%. (3) Oil: Brent is holding at about $100–103. It was $102.60 on 10/5, and the Kalshi 10/16 strike market centres on $101–102. On 10/6 the EIA raised its 2026 Brent average to $98 (+8%), citing a drawdown of global stocks and tight middle distillates. We found no fresh jet print; the last we have is ~$171 on 9/9. With middle distillates tight, jet is still well above our $100 long-run deck, so the hedge book and the 2027 midpoint ($106) carry the near-term pain, as before. (4) Company: no new IAG news since 10/14. The Q3 date is confirmed for 6 November. Sell-side: 21 Buy / 2 Hold / 1 Sell, mean ADR target $14.00 (range $10.86–17.09). (5) Model: the 10/14 script was not in the workspace, so the engine was rebuilt from the published assumptions. It returns $17.64 vs $17.70. The −$0.06 gap is a fuel-path rounding difference (2027 jet at the $112/$100 midpoint, 2028 onward at $100), not new information. Bear moves from $6.02 to $8.03, because the bear is now defined explicitly (8.5% all-in margin, jet $128–135, growth ×0.6, 9.5% WACC, ROIC = WACC). Bull moves from $22.81 to $21.16, and prob-weighted from $14.97 to $15.17. The verdict, risk rating and levels are unchanged.
Normalized, not peak. Lease-adjusted operating margin across the cycle (2015–19 and 2022–25, ex-COVID) averages 12.4%. TTM is 14.7%. We haircut to 11.9% for a $100/bbl long-run jet deck, apply 40% fleet reinvestment through 2031 (777-9/A350/A321XLR deliveries plus ~€1.3bn/yr of new leases), and discount at an 8.5% → 8.0% EUR WACC. The result is €7.87/share, $17.64/ADR. Terminal value is 62% of operating value, under the 70% flag.
The reverse DCF still says the market is pricing a permanent war. $11.05 needs one of three things: a 8.0% operating margin forever, which IAG has beaten in every non-COVID year except 2022; long-run jet at about $141/bbl with nothing reverting; or an 11.2% EUR WACC. The balance sheet has net debt including leases of about 0.6× EBITDA and a BA pension surplus. TTM FCF is about €4.0bn, ~19% of market cap before leases. The €1.5bn excess-cash return (≈€800m done, the rest by Feb-27) retires stock at ~60% of intrinsic value.
What the market fears, and why it doesn't break the thesis. Fuel: IAG is short oil. Brent above $100 is a cost headwind that 60% hedging and ~60% fare recovery soften but don't remove. The price is only "fair" if jet stays above ~$140 for the life of the asset base. Transatlantic: premium and corporate demand held through H1 (PRASK +7.1% at constant currency), but US carriers are adding seats and Aer Lingus unit revenue fell 3.8%. FX: a stronger dollar raises USD-denominated costs, but it also raises the USD value of each ADR's euro earnings, and the two partly cancel. This week's EUR/USD low is a small headwind to ADR translation and nothing more.
Call: BUY / accumulate below $12 (≈€5.35, ≈453p). We would trim above ~$16.5 (about 7% below base, where the fuel-shock discount has fully closed). Holders: keep the position and add on dips toward $10. Size so a further 25% drawdown in an oil spike is survivable. The OTC ADR has no meaningful listed options, so the defined-risk expression is long the ADR (or IAG in London) plus a small long-oil hedge: ~6–9-month out-of-the-money BNO/Brent call options, sized so a +$30/bbl move offsets about a third of the estimated equity hit. Never short it naked. Next catalyst: Q3 results on 6 November 2026, the peak North Atlantic quarter, along with the interim dividend and an update on the buyback. Tells: Q4 fuel bill guidance, the 2027 hedge ratio and price, and North Atlantic premium RASK.
| HIGH | Jet fuel / Middle East (short oil): fuel was ~21% of 2025 revenue and ~25% at spot. Brent has held at about $100–103 into mid-October, and the EIA is raising forecasts. Hedges (~60% near-term, a rolling 3-year ladder) delay the hit by 12–18 months but don't remove it. |
| HIGH | Exogenous demand shocks (short tail events: pandemic, war, terror, ATC): 2020–21 lost €7.3bn of EBIT and forced a €2.7bn rights issue. A 10% "shock" scenario is carried in the weights. |
| MED | Transatlantic yield (long US premium/corporate demand and the US consumer): exposed to US carriers adding capacity and to a US slowdown. |
| MED | FX (short USD on costs, long GBP via BA; ADR holders are long EUR/USD): EUR/USD hit its 2026 low of 1.1113 on 10/14. |
| MED | Labour / restructuring / ATC: €149m of H1 restructuring at Iberia and BA, more due in H2 at BA and Aer Lingus, plus European ATC and strike disruption. |
| LOW | Balance sheet and pension: net debt including leases is €4.7bn (0.6×), liquidity is €11.9bn, and the BA pension is in surplus (€2.2bn asset). |
| Long-run jet $/bbl ↓ / WACC (EUR, stable −50bp) → | 7.5% | 8.0% | 8.5% | 9.0% | 10.0% |
| $85 | $24.9 | $22.2 | $20.0 | $18.2 | $15.2 |
| $100 | $22.0 | $19.6 | $17.6 | $16.0 | $13.4 |
| $115 | $19.0 | $17.0 | $15.2 | $13.8 | $11.5 |
| $130 | $16.1 | $14.3 | $12.8 | $11.6 | $9.6 |
| $150 | $12.1 | $10.7 | $9.6 | $8.6 | $7.0 |
| $170 | $8.2 | $7.2 | $6.3 | $5.6 | $4.5 |
| WACC (yrs 1–5 → stable) ↓ / terminal g → | 1.0% | 1.5% | 2.0% | 2.5% | 3.0% |
| 7.5% → 7.0% | $20.7 | $21.3 | $22.0 | $22.8 | $23.9 |
| 8.0% → 7.5% | $18.7 | $19.1 | $19.6 | $20.2 | $20.9 |
| 8.5% → 8.0% | $17.1 | $17.3 | $17.6 | $18.0 | $18.5 |
| 9.0% → 8.5% | $15.6 | $15.8 | $16.0 | $16.2 | $16.6 |
| 9.5% → 9.0% | $14.3 | $14.4 | $14.6 | $14.7 | $14.9 |
| Year | Revenue | Op. profit pre-exc. | Lease adj. | Adj. EBIT | Margin | Fuel | Fuel/rev | FCF (IAG) | New leases | FCF − leases |
| 2015 | 22,858 | 2,320 | 243 | 2,563 | 11.2% | 6,031 | 26.4% | — | — | — |
| 2016 | 22,567 | 2,535 | 284 | 2,819 | 12.5% | 5,415 | 24.0% | — | — | — |
| 2017 | 22,880 | 2,950 | 296 | 3,246 | 14.2% | 4,610 | 20.1% | — | — | — |
| 2018 | 24,406 | 3,230 | 297 | 3,527 | 14.5% | 5,283 | 21.6% | — | — | — |
| 2019 | 25,506 | 3,285 | 0 | 3,285 | 12.9% | 6,021 | 23.6% | — | — | — |
| 2020 (excl.) | 7,806 | -4,365 | 0 | -4,365 | -55.9% | 3,737 | 47.9% | — | — | — |
| 2021 (excl.) | 8,455 | -2,965 | 0 | -2,965 | -35.1% | 2,186 | 25.9% | — | — | — |
| 2022 | 23,066 | 1,247 | 0 | 1,247 | 5.4% | 6,120 | 26.5% | 979 | 1,017 | -38 |
| 2023 | 29,453 | 3,507 | 0 | 3,507 | 11.9% | 7,557 | 25.7% | 1,320 | 1,315 | 5 |
| 2024 | 32,100 | 4,443 | 0 | 4,443 | 13.8% | 7,608 | 23.7% | 3,556 | — | — |
| 2025 | 33,213 | 5,024 | 0 | 5,024 | 15.1% | 7,083 | 21.3% | 3,146 | — | — |
| TTM Jun-26 | 33,371 | 4,903 | 0 | 4,903 | 14.7% | ~7,800 | ~23% | 3,954 | ~1,300e | ~2,650e |
| Cycle avg (9 yrs, ex 2020–21) | 12.4% |
| Year | Jet $/bbl | Revenue | EBIT % | EBIT | NOPAT | Reinvest | FCFF | WACC | PV |
| 2027 | 106 | 34,608 | 11.3% | 3,923 | 2,942 | 1,177 | 1,765 | 8.5% | 1,627 |
| 2028 | 100 | 35,646 | 11.9% | 4,248 | 3,186 | 1,274 | 1,911 | 8.5% | 1,624 |
| 2029 | 100 | 36,716 | 11.9% | 4,375 | 3,281 | 1,312 | 1,969 | 8.5% | 1,541 |
| 2030 | 100 | 37,634 | 11.9% | 4,484 | 3,363 | 1,345 | 2,018 | 8.5% | 1,456 |
| 2031 | 100 | 38,574 | 11.9% | 4,596 | 3,447 | 1,379 | 2,068 | 8.5% | 1,376 |
| 2032 | 100 | 39,462 | 11.9% | 4,702 | 3,527 | 1,246 | 2,281 | 8.4% | 1,399 |
| 2033 | 100 | 40,330 | 11.9% | 4,806 | 3,604 | 1,105 | 2,499 | 8.3% | 1,416 |
| 2034 | 100 | 41,177 | 11.9% | 4,907 | 3,680 | 957 | 2,723 | 8.2% | 1,426 |
| 2035 | 100 | 42,000 | 11.9% | 5,005 | 3,753 | 801 | 2,953 | 8.1% | 1,430 |
| 2036 | 100 | 42,840 | 11.9% | 5,105 | 3,829 | 638 | 3,190 | 8.0% | 1,431 |
| Terminal | g 2.0% (EUR), stable ROIC 12% → reinvestment 16.7%, stable WACC 8.0% | TV 54,238 | 24,323 | ||||||
| Risk-free: EUR 10Y Bund ~3.2% (UST 5.20% less ~1pt inflation differential ⇒ USD-consistent EUR rate ~4.2%) | 3.2% |
| ERP 4.40% + Spain/UK country premium ~0.6% | 5.0% |
| Unlevered beta (European airlines) 1.0 → relevered at market D/E 0.66 (gross debt incl. leases) | 1.49 |
| Cost of equity | 10.7% |
| Pre-tax cost of debt (bonds due May-26, 3.875%/4.50%; leases ~4.5%; synthetic rating BBB) → after-tax | 4.5% → 3.4% |
| Arithmetic WACC (60/40) | 7.7% |
| WACC used, yrs 1–5 (cyclical floor ≈ USD-consistent rate) | 8.5% |
| Stable-phase WACC (glides from yr 6) | 8.0% |
| ADR ratio (verified: $11.05 ÷ 2 = €4.93 = 417p vs LSE ~415p) · EUR/USD 1.1209 · GBP/EUR 1.1808 (15-Oct close) | 1 ADR = 2 ords |
| Ordinary shares ex-treasury (TVR 26-Aug 4,378m) + ~30m awards; buyback continuing, no newer TVR used | 4,389m |
| Market cap / EV | €21.6bn / €26.3bn |
| Gross borrowings incl. lease liabilities / cash and deposits (30-Jun-26) | €13,867m / €9,175m |
| Net debt used: average of Jun-26 €4,692m and Dec-25 €5,948m (June is the forward-sales cash peak) | €5,320m |
| + BA pension surplus €2,172m × 50% (trapped) × (1 − 25% tax) | €815m |
| Minority interests / Air Europa stake | immaterial / ignored |
| Equity value → per share → per ADR | €34.5bn → €7.87 → $17.64 |
| TTM revenue / op. profit pre-exc. / EBITDA | €33,371m / €4,903m / €7,640m |
| TTM adjusted EPS €0.666 → P/E per ordinary share (the "2.8×" printed on some screens uses a stale 5:1 ADR ratio) | 7.4× |
| 2026 guidance: margin 12–15%, fuel €8.3–8.6bn, capex ~€3.4bn, ASK flat, FCF > €3bn | H1 margin 10.9% |
| Consensus (Robinhood, 10/15): 21 Buy / 2 Hold / 1 Sell; ADR target mean $14.00 (range $10.86–17.09) | +27% to mean |