British Airways owner to go ahead with crucial $3.3b rights issue

But with extensive travel restrictions in place, it expects recovery only in 2023

British Airways will try and defer new aircraft purchases as it expects demand to revive only by 2023 or so. File picture of an A380 at Heathrow taken in less uncertain times.

London: British Airways owner IAG advanced plans to raise 2.75 billion euros ($3.3 billion) in equity to help ride out the coronavirus crisis, saying investor Qatar Airways has agreed to back a rights issue.

The Gulf airline, which holds a 25 per cent stake, has subscribed for its entitlement, with the rest of the capital increase fully underwritten, IAG said in a statement. The plan will be put to shareholders on September 8 and should be completed by the end of that month.

Carriers like IAG and rival Air France-KLM, which reported its biggest loss ever and plans to cut 5,000 jobs at its Dutch arm, are bracing for months of pain. The long-haul flights where they make their money are expected to be among the last to recover from the pandemic, while travel restrictions are limiting even operations as the virus continues to rage.

Restrictions everywhere

“Our demand is not what we’re actually seeing in our bookings, because bookings are being suppressed by government restrictions,” IAG CEO Willie Walsh said, predicting travel won’t reach pre-virus levels until at least 2023.

IAG reported a second-quarter operating loss of 1.36 billion euros versus a 960 million euro year-earlier profit, as its planes were virtually grounded for the entire period. Including one-time items such as the bill for early retirement of the group’s Boeing Co. 747 and Airbus SE A340 jets, the loss swelled to 2.2 billion euros.

Air France-KLM posted a quarterly loss of 2.61 billion euros and pushed back financial targets by a year, hammering home how hard the pandemic has hit the airline industry. The jobs cuts at KLM will come as part of a restructuring plan to secure vital government aid.

IAG had liquidity of 8.1 billion euros as of June 30, which with further funds including 380 million euros from plane sales and 750 million pounds from an air-miles deal with American Express “should be ample to position for a post-COVID-19 world,” Daniel Roeska, an analyst at Sanford C. Bernstein, said.

Bare minimum

IAG said it will operate barely 25 per cent of its usual capacity this quarter and just over 50 per cent in the final three months of the year, though even those plans are “uncertain and subject to easing lockdowns and travel restrictions.”

Walsh, who stands down as chief in September, said the group will defer delivery of 68 Airbus and Boeing jets due through 2022. He said plans to take the US manufacturer’s grounded 737 Max plane still stand, though the accord isn’t a firm order.

The company also said it’s continuing discussions to revise purchase terms for the acquisition of Spanish long-haul leisure carrier Air Europa, which was announced last year.