As the pandemic bit, British Airways looked to raise capital in any way it could. The Chief Executive at the time, Alex Cruz, noted that he sold everything he could, leasing back what he still needed and waving goodbye to many assets on a permanent basis. While it ensured the airline’s survival in the short term, undoing these actions will be a long and difficult task.

Selling to survive

Going into the pandemic, there was a stark difference between the financial situations of the ultra-low-cost carriers and the full-service, legacy airlines. The ULCC strategy of holding on to cash for a rainy day saw most of these airlines entering the crisis with impressively strong cash reserves. Legacy airlines, such as British Airways, were in a far more vulnerable position, with higher overheads and smaller bank balances.

Speaking at CAPA Live this week, former British Airways CEO Alex Cruz reflected on what had to be done during the pandemic to ensure the survival of the airline. He said,

“What happened, particularly to the traditional carriers, is that they sold. In my case, I sold everything I could sell that I was not going to use. Buildings, art, everything that I could. And again, I sold a few things and leased them back, including buildings and aircraft.”

Avgeeks will fondly remember the several British Airways flash sales that took place over the course of 2020. In June, it was revealed that the airline would be selling off its collection of artwork from head offices and lounges. With pieces from high-profile artists, including Bridget Riley and Damien Hurst, the collection went under the hammer at Sotheby’s in July last year.

Later in the year, the airline sold a range of cabin equipment formerly used on its Boeing 747s. And at the start of 2021, a pair of limited edition signed suitcases were sold for almost £9,000.

On the aircraft side, May 2020 saw the airline mortgaging a total of 48 aircraft, raising a total of £750 million in the process. Data from ch-aviation shows that the airline currently has 68 of its 295 aircraft leased in, many of which will have moved to this status from being owned over the course of 2020. Cruz spoke about the value of selling and leasing back aircraft, noting that,

“I did quite a few sale and lease backs. It was what we had to do. We did not sell and lease back the whole fleet, or certainly before I left that didn't happen. We still wanted to keep a few aircraft in our own books. It is one way to raise money, there's absolutely no doubt. And it was a no brainer to immediately take a look at the collection of assets and which ones would make sense to monetize most in the short of term.”

Stay informed: Sign up for our daily and weekly aviation news digests.

A difficult step to undo

While the former BA CEO appreciates the value that selling and leasing back assets had during the crisis, he notes that there is an eventual end of the road for this type of activity. Alex Cruz commented,

“I cannot neglect the value that doing those operations provided in raising cash to be able to make it through last year and earlier this year. But of course you run out of those assets eventually.”

He further explained that, for airlines like BA that originally had a balance between leased and owned aircraft, they would likely eventually want to return that balance to their operations. However, it might not be so easy to do so.

“I think ultimately most airlines will seek to have whatever balance they thought was right for them prior to the pandemic. That means a lot of transactions from an aircraft perspective, and I think it will take a long time. It's very difficult to undo this when you sign up new contracts that are five, six, seven, eight, nine, 10 years long.

“There will be a desire to go back to the previous mixes, whichever those were for the different airlines.”

British Airways is not the only airline that has undertaken numerous sale and leaseback transactions as a means of capital raising during the pandemic. It’s a trend that has highlighted the importance of lessors within the industry, but one which has also left many carriers with far fewer owned assets. For those that wish to restore the balance between owned and leased, it’s going to be a long road ahead.