By Sarah Young and Kate Holton
LONDON (Reuters) – British Airways owner IAG (L:) plans to raise 2.75 billion euros (2.49 billion pounds) from shareholders to repair the coronavirus-sized hole in its finances and brace for a more chaotic future.
Chief Executive Willie Walsh said the plan, backed by biggest shareholder Qatar Airways, is needed to survive the most severe crisis in aviation history after it lost more in one quarter than it has ever lost in a year.
“These are really extreme times,” Walsh told the BBC, adding that IAG had hoped to be flying at about 50% capacity by July but was instead at 20%.
“We’re seeing a much slower and more gradual build-up,” he added.
Airlines around the world have been brought to their knees by the halt to flights, forcing tens of thousands of job cuts, state bailouts and the collapse of some companies.
Walsh said that IAG, which also owns Iberia and Aer Lingus, was preparing for a structural change and anaemic demand that could last until 2023. British Airways, which accounts for more than half of IAG’s profit, has already said it needs to cut 12,000 jobs.
The group slid to a second-quarter operating loss, before exceptional items, of 1.365 billion euros and said it had liquidity of 8.1 billion euros at the end of June.
Walsh said the proposed fundraising would give IAG a “very comfortable buffer” to withstand worst-case scenarios.
Goodbody analysts described the capital increase as “expensive money”, given that a 5% discount on the offer would result in 70% more shares in issue.
They said the results demonstrated how network carriers with connecting short-haul and long-haul routes will find it more difficult to recover than budget carriers such as Ryanair (I:) and easyJet (L:).
Shares in IAG fell 7% to their lowest since 2012 at 167 pence and are down 72% this year.
AIR EUROPA DEAL
IAG said the proceeds of the cash call would not be used to fund the acquisition of Air Europa, the Spanish airline it agreed to buy for 1 billion euros last November.
The group said on Friday that it was in discussions to restructure that deal and Spanish media have reported that IAG is seeking a reduced price of between 500 million and 600 million euros.
A tentative return to flying in Europe, needed to salvage the summer travel season that provides the bulk of airline profits, has been threatened by signs of rising COVID-19 cases in some popular holiday destinations, including Spain and France.
Britain brought in quarantine rules for arrivals from Spain last week and has said it is looking at other countries. The United States and India, two big markets for British Airways, remain subject to quarantine rules.
The capital increase is conditional upon shareholder approval on Sept. 8, which Walsh said would be his last day in the job after the postponement of his retirement to steer IAG through the pandemic.
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