British Airways Raising Money from Stock Market

British Airways Raising Money from Stock Market.

The coronavirus pandemic has significantly impacted the global aviation sector. It is for this reason that the British Airways owner IAG has a plan to raise 2.75 billion euros from the stock market as one of the steps to boost its finances to avoid the financial repercussions that might be brought about by the coronavirus pandemic. By raising its finances from its shareholders the company might remain afloat without the need for a government bailout.

By the end of June, IAG (International Consolidated Airlines Group), had liquidity of about 8.1 billion euros. Therefore, this plan seeks to increase its liquidity to keep its business afloat through this pandemic whose impact could last as far as 2023.

Airlines around the world should be proactive during these times to avoid eventual collapse. So many employees of the global aviation sector have lost their jobs, and various airlines are seeking government bailouts and others are on the verge of collapsing.

The summer season is usually the airline’s peak season whereby they earn most of their profits. However, this is terribly threatened by the increasing COVID-19 cases, special in various popular holiday destinations in Europe like Spain and France.

British Airways accounts for over half of IAG’s annual profits, but now things are seemingly quite thick since the airline is only flying about 15% of its normal schedule. Additionally, it’s facing a very weak demand from its two biggest markets India and the U.S because of the quarantine orders in the UK.
The group has already posted a loss of 1.365 billion euros in the second quarter, and further its share price has lost 66% of its value since the beginning of the year when the coronavirus pandemic led to a halt of the global air travel.

IAG, which also owns Spanish carrier Iberia and Ireland’s Aer Lingus, has already started its huge job cuts at the British Airways and is likely to do the same at its other airlines. British Airways had initially announced it would embark on 12,000 job cuts. Further, BA warned there were plans to change the contracts for its remaining employees who are around 30,000. This, as usual, triggered a furious reaction from Unite, a cabin crew union, who even warned of strike action.
IAG has since renewed a 750 million pound partnership with American Express.

The passenger numbers have significantly plummeted this year, and airlines are making losses across the globe. According to experts, it will take years before the numbers get back to normal, and that’s why global airlines have embarked on restructuring processes and most of them have opted for state assistance. For instance, Air France has already a 7 billion euro state aid from the French government and Lufthansa will receive 9 billion euro bailout from the government.

IAG is highly likely to raise capital with a rights issue, meaning that the shares will be offered to existing shareholders at a discount. According to several sources, this is planned to take place at the beginning of September. The group is also considering alternatives such as equity placing and a concurrent issuance of convertible bonds.
Further, the group is reviewing the purchase terms for the planned acquisition of Spanish long-haul carrier Air Europa, which was announced in 2019. The group has not sought government bailout but has utilized state-backed loan schemes in both Spain and Britain.

British Airlines has utilized the UK’s furlough schemes and gained access to the government’s coronavirus corporate finance facility. Spanish airlines Iberia and Vueling have already received 1 billion euros as state-backed loans.

If IAG goes ahead with the plan to raise capital from the stock market, it would, therefore, not require to turn to the government for a bailout.
According to Willie Walsh, IAG’s outgoing CEO, these plans will help strengthen the group’s financial and strategic position as well as help protect as many jobs and ensure service to as many customers as feasible.

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