British Airways owner launches £600m bond backed by aircraft

City A.M. Reporter
BRITISH Airways (BA) launched a £603m asset-backed bond yesterday, the first from a UK airline using new planes as collateral, a year after it was forced to cancel a debt issue backed by landing slots and US routes due to lack of demand.

BA, owned by International Airlines Group, said the bonds, or enhanced equipment trust certificates (EETCs), were backed by 14 Boeing and Airbus planes due for delivery over the next year.

EETCs are a common form of financing for North American airlines, with US Airways raising hundreds of millions of dollars through them in recent years.

Enrique Dupuy, IAG’s finance chief, said the issue marked a “strategic milestone” for the group, which has long been looking to diversify its sources of funding.

Last year’s cancelled bond – backed by take-off and landing slots at London’s Heathrow airport, routes between London City Airport and JFK in New York and two leased Airbus planes – was to have raised £250m.

This year, however, IAG successfully raised €390m (£331m) through a convertible bond to help to fund the purchase of Spanish low-cost carrier Vueling.

“BA is in the midst of its fleet renewal and while this bond issue will help finance that, what IAG really wants is to diversify its forms of financing,” said BPI analyst Guilherme Macedo Sampaio. The EETC will cost BA some £29.2m, he said.

BA said the EETC’s class A bonds have an annual coupon, payable quarterly, of 4.625 per cent, while the class B bonds have an annual coupon, payable quarterly, of 5.625 per cent.