5 Discontinued operations
On November 3, 2006 the Group announced that it had reached an agreement in principle to sell the regional operation of its subsidiary airline BA Connect to the Flybe Group Ltd. The acquisition of BA Connect by the Flybe Group Ltd excluded the London City airport routes and the BA Connect-operated service from Manchester to New York. The disposal was completed on March 5, 2007. The business sold comprised the majority of the ‘Regional airline business’ segment as disclosed in the financial statements for the year ended March 31, 2006. The Group paid the Flybe Group Ltd £129 million, and took a 15 per cent investment in the Flybe Group Ltd, valued at £49 million at March 31, 2007.
Following the sale of the regional business of BA Connect to the Flybe Group Ltd in March 2007, the Group has agreed contractual terms to transfer its regional ground handling to aviance UK. The restructuring provision included in discontinued operations relates to costs associated with the reduction in staff at the regional airports, whose employment was attributed to the BA Connect operations and third-party flights.
Prior to the sale and transfer of the operations to discontinued operations, an impairment review was carried out on the assets, including goodwill, of the BA Connect business, prompted by the ongoing deterioration in trading performance against plan. This resulted in an impairment charge of £106 million, representing goodwill of £32 million and fleet assets of £74 million. The pre-tax impairment charge gave rise to a deferred tax credit of £22 million that has been recognised in the income statement (discontinued operations).
The £2 million loss from discontinued operations for the year ended March 31, 2008 is attributed to the resolution of uncertainties that arose from the terms of the disposal transaction, primarily adjustments to the restructuring provision previously reported within discontinued operations.
a Results from discontinued operations
The results from discontinued operations, which have been included in the consolidated income statement, are as follows:
| Group | ||
|---|---|---|
| £ million | 2008 | 2007 |
| Revenue | 233 | |
| Operating expenses | (231) | |
| Impairment | (106) | |
| Restructuring costs | (2) | (18) |
| Operating loss | (2) | (122) |
| Disposal transaction costs | (3) | |
| Loss arising on disposal of net assets | (28) | |
| Net finance costs | (5) | |
| Loss before tax | (2) | (158) |
| Tax: | ||
| UK corporation tax credit | 3 | |
| Tax arising from disposal of discontinued operations | (4) | |
| Total current income tax credit (discontinued operations) | (1) | |
| Deferred tax credit (note 11c) | 25 | |
| Total tax credit (note 5b) | 24 | |
| Loss from discontinued operations | (2) | (134) |
| Analysis of deferred tax credit above: | ||
| Fixed asset related temporary differences | 29 | |
| Pensions | (4) | |
| Deferred tax credit | 25 | |
b Reconciliation of the tax charge relating to discontinued operations
The tax credit for the year on the loss from discontinued operations is less than the notional tax credit on those losses calculated at the UK corporation tax rate of 30 per cent (2006/07: 30 per cent). The differences are explained below:
| Group | ||
|---|---|---|
| £ million | 2008 | 2007 |
| Accounting loss before income tax from discontinued operations | (2) | (158) |
| Accounting loss multiplied by standard rate of corporation tax in the UK of 30 per cent (2006/07: 30 per cent) | (1) | (47) |
| Effects of: | ||
| Non-deductible expenses | 1 | 5 |
| Untaxed profits on disposals | 8 | |
| Goodwill write-off | 10 | |
| Total tax credit on discontinued operations for the year (note 5a) | (24) | |
c Assets and liabilities of the discontinued operations at the date of disposal
The major classes of assets and liabilities of the discontinued operations at the date of disposal were as follows:
| Group | ||
|---|---|---|
| £ million | 2008 | 2007 |
| Tangible assets | 78 | |
| Intangible assets | 1 | |
| Deferred tax asset (note 11c) | 8 | |
| Other non-current assets | 4 | |
| Expendable spares and other inventories | 3 | |
| Trade receivables | 23 | |
| Cash and cash equivalents | 129 | |
| Other provisions | (43) | |
| Other long-term liabilities | (85) | |
| Trade payables | (41) | |
| Total net assets disposed of | – | 77 |
| Investment in Flybe Group Ltd (consideration) | 49 | |
| Loss arising on disposal of net assets | – | (28) |
| Cash and cash equivalents in BA Connect on disposal | (129) | |
| Settlement of trade receivable with the Company | (17) | |
| Transaction costs | (3) | |
| Cash outflow from disposal of BA Connect | – | (149) |
The cash flows relating to the discontinued operations to the date of disposal were as follows: |
||
| Operating cash flows | 16 | |
| Investing cash flows | (2) | |
| Financing cash flows | (20) | |
Excludes £149 million cash outflow from disposal of BA Connect.