British Airways Owner IAG Issues Bonds Worth $1.2 Billion

The International Airlines Group (IAG) has become the latest in a string of aviation companies to issue bonds with the hope of raising funds. The company announced earlier today the issue of a series of bonds worth €1 billion ($1.2 billion) to see it through the rest of the pandemic.

British Airways A350
British Airways parent company IAG has issued €1 billion of bonds to survive the ongoing downturn. Photo: Stuart Bailey for British Airways

Airlines, aircraft manufacturers, and aviation companies around the world have been hit hard over the last year. Governments worldwide are providing loans to help airlines survive the pandemic, and companies like Boeing have taken to issuing bonds to help secure short-term financing. Bonds are issued by companies and purchased with the understanding that they will be repaid with interest in the future, allowing the company access to money immediately.

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Details of the bond offering

IAG, the parent company to major airlines such as British Airways, Iberia, and Aer Lingus, today issues two sets of bonds with a combined total of €1 billion ($1.2 billion). The first set of bonds worth €500 million ($600 million) will be due on 25th March 2025. The second tranche of bonds is worth another €500 million ($600 million) and will be due 25th March 2029.

Lufthansa parked and grounded planes
Lufthansa also issued bonds to help raise capital. Photo: Getty Images

According to Reuters, the four-year bonds are being marketed at 3.25%, while the eight-year bonds have 4.25%.  The final terms and the bond price will be set for next Thursday, March 25th. In a statement, the group said the capital raised would be used in,

“…strengthening the Group’s balance sheet and increasing the Group’s overall liquidity position; helping the Group withstand a more prolonged downturn in air travel, and providing the Group with the operational and strategic flexibility to take advantage of a recovery in demand for air travel. 

Preparing for a bad summer

Last week, IAG said it had the cash and therefore the liquidity to last for several more months until summer. Most airlines, including IAG, hope to see a significant increase in revenues over the summer months, so most believe they only need to last a few more months on reserves. IAG’s bond issue suggests it is preparing for the downturn to continue into the summer.

IAG isn’t alone in issuing bonds to raise capital. Airlines worldwide have been looking for additional ways to access money as cash burn becomes a major problem. At the height of the pandemic, IAG was burning through 178 million pounds ($223 million) every week. The company then posted a €7 billion ($8.5 billion) loss for the full-year ending December 31st, 2020.

British Airways Boeing 747-400
British Airways also reduced its fleet size, retiring its remaining 747s to help cut costs. Photo: Vincenzo Pace | Simple Flying

A worrying sign or standard practice?

Other ways that airlines have tried to find funding to survive the global downturn have been to slow cash burn by laying off staff and reducing fleet sizes. IAG airline British Airways sped up the retirement of its Boeing 747s to help reduce fleet size. While signs of trying to raise capital and lowering outgoing costs would usually signal financial issues and make investors wary, the aviation industry has been hit so hard over the past year that issuing €1 billion ($1.2 billion) of bonds is not really a surprise anymore.

IAG’s offering seems to be more of a precaution rather than a worrying sign. The company has said it has enough cash to last until a summer boom and is still looking to go ahead with Air Europa’s purchase.

What do you think of the group’s offering? Let us know in the comments.