Owner of British Airways IAG has today revealed plans for a rights issue amounting to as much as $3.6 billion, in the wake of posting huge losses for the first half of 2020. The group, which also owns Aer Lingus, Iberia, and Vueling, has revealed a €4 billion ($4.76 bn) loss due to what it calls an ‘unprecedented crisis. The move has been supported by its largest shareholder, Qatar Airways, which controls 25.1% of the IAG share pool.
Strengthening its balance sheet
Major European airline group IAG has today revealed plans to strengthen its balance sheet through a proposed capital increase of up to €2.75 billion ($3.6bn). The group, which owns British Airways, Aer Lingus, Iberia and Vueling, says that this will serve to reduce leverage on the company during these difficult times.
It also stated in the notification that this move will help it withstand a more prolonged downturn in air travel and provide the operational and strategic flexibility needed to take advantage of a faster-than-anticipated recovery, should it happen. Most airlines are preparing for a 2 – 3 year downturn in travel demand, but earlier this week, industry body IATA forecast that it could take as long as four years to return to 2019 levels.
Speaking about the capital raising effort today, CEO of IAG Willie Walsh commented,
“Our industry is facing an unprecedented crisis and the outlook remains uncertain. 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 capitalize on its strength and leadership positions.”
IAG revealed first-half losses in excess of €4 billion ($4.76 bn) with its airlines having spent most of the period grounded. In the second quarter of the year, IAG said passenger traffic had fallen 98% from its original level.
Support from Qatar Airways
As IAG’s largest shareholder with over a quarter of the company in its portfolio since February this year, support from Qatar Airways will be essential to push through these measures. In today’s release, Qatar Airways confirmed its support, and said it would also be exercising its right to a pro rata slice of the newly released pie.
As part of the deal, Qatar Airways will be adding two directors to the board of the company, who will be confirmed in at the shareholders meeting later this year. The two personnel will stand in as non-executive directors. CEO Akbar Al Baker commented on the news, saying,
“Our investment in IAG has always been for the long term and we continue to support the Company through these difficult times for our industry. We are confident that IAG will emerge from this global crisis as Europe’s leading airline group and we look forward to working closely together to deliver our joint vision to enhance travel opportunities for airline passengers across the globe.”
All the IAG directors who are shareholders and able to participate in the capital increase have also confirmed their intention to take up their entitlement. However, the move still requires the approval of the shareholders, which will undertake a vote at a shareholders meeting, scheduled to be held on September 8th.
IAG has been working hard to mitigate the impacts of COVID-19, sending various branches of its LEVEL brand into insolvency and seeking to lay off thousands of workers. Although the group has taken a loan from the UK government, and some of its airlines have received their own bailouts, there is still a mountain to climb for it to come back from COVID unscathed.