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Friday, September 24, 2021

BA owner could soon raise more cash from shareholders

British Airways owner IAG could raise more cash from shareholders within weeks to shore up its battered finances.

City sources said a fundraising from investors would help IAG to slash its £10.3billion debt pile after a fraught summer of travel restrictions and the continued closure of key long-haul routes from Europe to the US.

Last week, low-cost giant easyJet announced a £1.2billion rights issue after rebuffing a takeover bid from aggressive rival Wizz Air. 

Another cash call? In July last year, IAG said it would raise £2.5bn

Johan Lundgren, easyJet’s chief executive, said that he launched the fundraising to protect the airline from ‘continued uncertainty’ over travel restrictions – and added that other major airline groups, including IAG, could follow suit.

In July last year, IAG said it would raise £2.5billion – five weeks after easyJet’s earlier £450million cash call.

Lundgren told The Mail on Sunday: ‘It is no secret that, if you are looking at the enormous debt that has been taken on by some of these legacy carriers, it is not clear to me that they would be able to pay that down. So I think in many cases something would need to happen on that.’

EasyJet’s £1.2billion rights issue followed warnings in the MoS earlier this month that Britain’s biggest airlines were heading for further cash calls and cost-cutting to survive the winter.

In documents issued in July, IAG said: ‘To add resilience to the liquidity position of the group, the directors are actively pursuing a range of financing options, including securing additional long-term financial facilities.’

It said the potential further financing had ‘not been included’ in planning forecasts discussed with investors.

Andrew Lobbenberg, head of European transport equity research at HSBC, said: ‘We expect IAG will want to repair its balance sheet after the pandemic. It has strong liquidity but that is on the back of debt.’

BA's former chief executive Keith Williams steered the airline through the 9/11 attacks

BA’s former chief executive Keith Williams steered the airline through the 9/11 attacks

Lobbenberg added that the timing of any potential capital raise by IAG could be linked to an announcement on reopening the US border, which is now expected in December after hopes were dashed that it could be agreed at the G7 summit in June.

He said: ‘When you think of the flag carriers launching rights issues, they would tactically want to do it with a favourable operating background. So I would imagine that the timing of the opening of the Atlantic will be highly relevant for any flag carrier rights issue.’

IAG operates Spanish airlines Iberia and Vueling alongside BA and Irish carrier Aer Lingus.

It made a record €7.4billion (£6.3billion) loss in 2020 followed by a €2billion loss in the six months to June. Passenger revenue was down 88.6 per cent in Q2 compared to 2019.

BA’s former chief executive Keith Williams, who steered the airline through the 9/11 terror attacks and, in his previous role as finance chief, through the 2008 financial crisis, said the pandemic was IAG’s greatest challenge yet.

Williams, who left BA in 2016 and is now chairman of Royal Mail, said: ‘The 9/11 terror attack was limited to transatlantic travel. The financial crisis hit business travel very quickly, but there was still a lot of leisure travel. Fundamentally, the Government needs to enable travel to get back to normality by having a global structure to make it easier for passengers to travel.’

IAG has raised more than €7billion during the pandemic including through BA’s £2billion Export Finance loan and an €825million convertible bond.

It had €10.8billion of liquidity at the end of July but is burning through €270million per week, up from €190million earlier this year. Its €12.1billion net debt is a hike from €9.8billion in 2020.

Lobbenberg said the aim of any further financing by IAG would be to slash debts and restore its investment-grade credit rating.

IAG in July outlined three future scenarios, based on varying models of demand recovery.

It said it would meet financial covenants with all three outcomes, but said in the event of a more severe scenario it would need to secure additional funding.

IAG said the group’s ability to secure this financing represented a ‘material uncertainty’ that could cast doubt on its ability to continue as a going concern. But Williams insisted that IAG would emerge from the crisis as ‘one of the survivors in the industry’.

He said: ‘Although they’ve got a hard winter ahead, I think, fundamentally, the airlines are still quite well-placed. You see that in the share price of IAG. It’s not where it was, but there is still a fundamental backing for IAG. If it did need to, I’m sure the financing would be there for it.’

IAG declined to comment.

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