IAG slid 7.5%, and was the second biggest drag on the index, after it declined to give a profit forecast for the year due to the COVID-19 pandemic, but said its summer capacity would rise to 45% from 22% in the previous quarter.
The blue-chip FTSE 100 lost 0.7%, with miners and travel stocks leading the decline.
"I think what really drives the sentiment down is risk aversion, which (is) firmly in place due to several key earnings reports. Also bearish sentiment stemming from the China sell off kind of spilled into the European session," said Edward Moya, senior analyst at OANDA.
The FTSE 100 ended the month slightly down 0.07%, snapping a winning streak of five consecutive months, as losses in banks, oil stocks, and personal goods shares offset gains in insurance, real estate and homebuilder stocks.
Concerns that rising inflation could lead the Bank of England to pull back monetary support, a jump in local coronavirus infections and uncertainty over future earnings growth have somewhat outweighed optimism around recent robust quarterly earnings and bumper dividend payouts.
"England is still going to win the battle against COVID, it's just the economic recovery is slightly delayed, and all the earnings growth might just get pushed off into another quarter." Moya said.
The mid-cap index fell 0.4%, slipping from record highs hit earlier in the week, but ended the month 2.56% up.
In other stocks, global education group Pearson gained 3.0% after it reported a better-than-expected rebound in first-half profit and a 17% jump in underlying sales, helping it raise its dividend.
Babcock slumped 16.0% after the British engineering company warned that free cash flow would be significantly negative this financial year as its annual loss soared on a 2 billion pounds ($2.8 billion) writedown.
NatWest eased 1.2% even after it accelerated returning cash to shareholders following a return to profit. (Graphic: FTSE 100 snaps a five month win streak, )
(Reporting by Shashank Nayar and Amal S in Bengaluru; editing by Subhranshu Sahu and Emelia Sithole-Matarise)
By Shashank Nayar and Amal S