Is International Consolidated Airlines Group (LON:IAG) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that International Consolidated Airlines Group S.A. (LON:IAG) does use debt in its business. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does International Consolidated Airlines Group Carry?

As you can see below, International Consolidated Airlines Group had €7.40b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has €9.35b in cash, leading to a €1.95b net cash position.

How Healthy Is International Consolidated Airlines Group's Balance Sheet?

We can see from the most recent balance sheet that International Consolidated Airlines Group had liabilities of €21.2b falling due within a year, and liabilities of €16.9b due beyond that. Offsetting these obligations, it had cash of €9.35b as well as receivables valued at €1.96b due within 12 months. So its liabilities total €26.7b more than the combination of its cash and short-term receivables.

When you consider that this deficiency exceeds the company's huge €20.9b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Given that International Consolidated Airlines Group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

View our latest analysis for International Consolidated Airlines Group

On top of that, International Consolidated Airlines Group grew its EBIT by 37% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if International Consolidated Airlines Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While International Consolidated Airlines Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, International Consolidated Airlines Group recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While International Consolidated Airlines Group does have more liabilities than liquid assets, it also has net cash of €1.95b. And we liked the look of last year's 37% year-on-year EBIT growth. So we are not troubled with International Consolidated Airlines Group's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for International Consolidated Airlines Group you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.