British Airways parent IAG has announced plans to tap shareholders for a multi-billion pound cash boost to weather the coronavirus storm.
IAG said on Friday (31 July) it is seeking to raise €2.75 billion (£2.5 billion) after posting a €4.2 billion (£3.8 billion) first-half loss, down from an €806 million (£730 million) first-half profit this time last year.
The move has been backed by IAG’s largest shareholder Qatar Airways, which holds a 25% stake in the group, and will be put to shareholders for approval in September.
The cash would be underwritten by Goldman Sachs, Morgan Stanley and Deutsche Bank.
IAG also warned in a trading update it did not expect passenger numbers to recover to pre-Covid levels until 2023, and said in a worst case scenario, it would have to reduce total capacity for 2020 by 66%.
The group announced plans earlier this year to cut thousands of jobs and make wide-ranging savings to preserve cash.
Chief executive Willie Walsh said: "Our industry is facing an unprecedented crisis and the outlook remains uncertain. However, we strongly believe 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 capitalise on its strength and leadership positions."
IAG’s cost-saving measures have, to date, included reducing passenger capacity by 95%, cutting all non-essential spending, pay cuts, and laying off contractors.
It has tapped furlough schemes in the UK, Spain and Ireland, and taken steps to boost cash headroom. These include securing £750 million through the extension of its commercial partnership with American Express, securing £300 million from the UK government’s Covid Corporate Financing Facility, negotiating several loans and bridge facilities, and selling and leasing back aircraft.
As a result, IAG says it has managed to cut weekly operating costs from €440 million (£400 million) in Q1 to €205 million (£185 million) in Q2. It has also halved 2020-2020 planned capital expenditure.
The group has reduced planned 2020-2022 aircraft deliveries by 68 to 75 through deferrals and cancellations, while some fleet retirements have been brought forward – including the retirement of 53 older long-haul aircraft by the end of the year.
IAG added it was in discussions over its plans to acquire Air Europa, which could see the deal restructured "to take into account the impact of the Covid-19 pandemic", stating it still believed the acquisition "would have considerable strategic and financial benefits for IAG and its shareholders".
Walsh’s successor Luis Gallego added: We are seeing early signs of passenger demand returning and while early days in this recovery, now is the time for us to be bold again and ensure IAG emerges from this current crisis in a strong position."