British Airways owner International Consolidated Airlines (IAG) today confirmed it will seek to raise a huge €2.75bn (£2.49bn) to act as a coronavirus buffer.
Major 25 per cent shareholder Qatar Airways has committed to participating in the raise, and will get two non-exec board members in exchange for its support.
IAG said the cash will help bolster its balance sheet after the pandemic wreaked havoc on the aviation industry.
British Airways’ owner confirmed its intention to raise the cash as it outlined a half-year loss after tax of €3.8bn, compared to a profit of €806m last year.
“Our industry is facing an unprecedented crisis and the outlook remains uncertain,” IAG chief executive Willie Walsh said.
“However, we strongly believe that now is the time to look to the future and strengthen IAG’s financial and strategic position. While we have had to make tough decisions on both people and costs, these actions are the right ones to protect as many jobs and serve as many customers as feasible and put IAG in the strongest position possible.
“The industry will recover from this crisis, though we do not expect this to be before 2023, and there will be opportunities for IAG to capitalise on its strength and leadership positions.
“We’re delighted that our largest shareholder, Qatar Airways, has already committed to support the proposed capital raising,” Walsh added.
Losses mount up at British Airways
IAG’s share price sank 7.5 per cent today as it revealed passenger numbers were 95.3 per cent down year on year.
It slumped to a €1.37bn operating loss in the second quarter, and a €1.9bn operating loss for the first half of 2020. In 2019 operating profit hit €1.1bn.
And AJ Bell investment director Russ Mould warned investors piling into the cash raise would be taking “a leap of faith”, with BA predicting no recovery to 2019 levels until 2023.
“A cash injection will give the British Airways owner short-term breathing space, yet the pace of the airline sector recovery is out of its hands,” Mould added.
“It is dependent on the course of coronavirus and government decisions on travel restrictions, quarantines and lockdowns in case of new flare-ups.
“You also need to consider whether there will be an appetite to travel once the crisis eases. A lot of IAG’s sales come from business travellers and there is a big question mark over how much flying this market will need to do, given how this year we’ve become accustomed to talking to people around the world by video calls.”
The board confirmed that independent director Javier Ferran will replace chairman Antonio Vazquez upon his retirement in January.
IAG set to act quickly on capital raise
Reuters has reported that IAG wants to complete the raise by the end of summer.
British Airways has announced 12,000 redundancies due to the ongoing worldwide travel restrictions as a result of the crisis.
The airline has not taken a government bailout during the pandemic. However, it has drawn down £300m from the Bank of England’s Corporate Covid Financing Facility.
And sister airlines Vueling and Iberia claimed €1bn from a similar scheme in Spain.
IAG said its liquidity at the end of June was €8.1bn, including €6bn in cash and €2.1bn of undrawn financing. That was slightly down on the €8.6bn it had in its coffers at the end of 2019.
But it said it also expects €380m from selling and leasing five aircraft in July. And it should receive another £750m from an expected extension of its comercial partnership with American Express next month.