British Airways owner IAG could raise more money from shareholders in weeks to support its battered finances.
City sources said an investor fundraiser would help IAG reduce its £10.3 billion mountain of debt after a fraught summer of travel restrictions and the ongoing closure of major long-haul routes from Europe to the US.
Last week, low-cost giant easyJet announced a £1.2bn rights issue after rejecting a takeover bid from aggressive rival Wizz Air.
Another phone call? In July last year, IAG said it would raise £2.5bn
EasyJet CEO Johan Lundgren said he launched the fundraiser to protect the airline from “ongoing uncertainty” over travel restrictions – adding that other major airlines, including IAG, could follow suit.
In July last year, IAG said it would raise £2.5bn – five weeks after easyJet’s previous £450m cash call.
Lundgren told The Mail on Sunday: “It’s no secret that when you look at the massive debt some of these legacy carriers have taken on, it’s not clear to me that they could pay it off. So I think something has to be done about that in many cases.’
EasyJet’s £1.2bn rights issue followed warnings in the MoS earlier this month that Britain’s largest airlines were heading for further money calls and cost savings to survive the winter.
In documents released in July, IAG said: “In order to make the group’s liquidity position more resilient, the directors are actively pursuing a range of financing options, including securing additional long-term financial facilities.”
It said the potential further funding was “not included” in the planning projections discussed with investors.
Andrew Lobbenberg, head of European transport stock research at HSBC, said: “We expect IAG to look to restore its balance sheet after the pandemic. It has strong liquidity, but that’s because of the debt.’
Former BA CEO Keith Williams guided the airline through the 9/11 attacks
Lobbenberg added that the timing of an eventual capital increase by IAG could be linked to an announcement about the reopening of the US border, now expected in December after hopes had faded that an agreement could be reached at the G7 meeting. peak in June.
He said: “If you think about the national airlines that launch rights issues, they would want to do it tactically with a favorable operational background. So I imagine the timing of the opening of the Atlantic will be very relevant to any airline rights issuance.”
IAG operates the Spanish airlines Iberia and Vueling in addition to BA and the Irish airline Aer Lingus.
It made a record loss of €7.4bn (£6.3bn) in 2020, followed by a loss of €2bn in the six months to June. Passenger revenues in the second quarter were 88.6 percent lower than in 2019.
Former BA CEO Keith Williams, who guided the airline through the 9/11 terror attacks and, in his previous role as head of finance, through the 2008 financial crisis, said the pandemic was IAG’s biggest 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 must ensure that travel returns to normal by having a global structure to make travel easier for passengers.”
IAG has raised more than €7 billion during the pandemic, including through BA’s £2 billion export finance loan and a €825 million convertible bond.
It had €10.8 billion in liquidity at the end of July, but consumes €270 million per week, up from €190 million earlier this year. Net debt of €12.1 billion is an increase of €9.8 billion in 2020.
Lobbenberg said the goal of further funding from IAG would be to reduce debt and restore investment-grade credit.
In July, IAG outlined three future scenarios, based on different demand recovery models.
It said it would meet financial covenants with all three results, but said it would need to secure additional funding in a more severe scenario.
IAG said the group’s ability to secure this funding represented a “material uncertainty” that could cast doubt on its ability to continue as a going concern. But Williams insisted IAG would emerge from the crisis as “one of the industry’s survivors.”
He said: “Although they have a harsh winter ahead of them, I think the airlines are still in good shape in principle. This is reflected in the IAG share price. It’s not where it used to be, but there’s still fundamental support for IAG. If it were necessary, I’m sure the financing would be there.’
IAG declined to comment.
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