British Airways parent IAG SA tapped UK government-backed loans to boost liquidity, in a sign of the damage wrought by the coronavirus on even the industry’s strongest players. IAG accessed 300 million pounds from the Coronavirus Corporate Finance Facility in the second week of April, it said taking state-supported funding to $1.45 billion including Spanish backing. The group, which initially signaled it wasn’t seeking aid, said it’s essentially grounded until July, when it’ll start restoring flights.
Chief Executive Officer Willie Walsh said London-based IAG needs to restructure in all areas as it slims down for a tougher future. British Airways is planning to slash 12,000 jobs or 30% of the workforce, and is considering plans to close its secondary hub at London Gatwick airport. “We do not expect passenger demand to recover to the level of 2019 before 2023 at the earliest,” Walsh said. “This means group-wide restructuring is essential in order to get through the crisis and preserve an adequate level of liquidity.”
IAG reserves had increased to 10 billion euros ($12.4 billion) at the end of April. That puts the company in a “very strong liquidity position” and means it should be able to “outlast many peers” in an extended slump, Sanford C. Bernstein analyst Daniel Roeska said in a note.
Walsh, who will leave on Sept. 24 after delaying his retirement due to the pandemic, said British Airways is consulting with employee representatives at Gatwick after initiating a formal and legal process there. BA’s announcement of some of the industry’s deepest job cuts has met with hostility from UK politicians and labor groups, especially since it’s tapped furlough funds meant to safeguard workers.
IAG reiterated that it’s too early to provide an earnings outlook. That’s after it last week reported an operating loss of 535 million euros for the first quarter even before a hit from fuel hedges, and warned that the result for the current three months will be worse again. Walsh initially said IAG wasn’t applying for bailouts and earlier in the year opposed a proposal to help now-defunct Flybe, one of the virus’s first airline victims. He said in March he thought airlines should be expected to “look at self-help before they would call on governments to provide state aid.”
Spanish aid
IAG’s Spanish units Iberia and Vueling have since tapped 1 billion euros in loans backed by a state bank. Walsh said the British funding is commercial paper that IAG was able to access because of its “great credit rating.” He said the company will avail itself of general facilities where they are available. Other airlines are scrambling to secure bailouts, with governments worldwide devoting more than $85 billion to rescue plans.
Air France-KLM - which reported a first-quarter net loss of 1.8 billion euros after the impact of fuel “over-hedging” - has won European Union approval for 7 billion euros in French aid, with more to come from the Netherlands, and Lufthansa is in talks on a 10 billion-euro package that could see Germany take a 25% stake.
Walsh said a letter of intent to buy Boeing Co. 737 Max jetliners remains in place and that IAG is progressing with plans to buy Spain’s Air Europa, though the deal has a price-adjustment mechanism that could be applied because of the virus’s impact on airline valuations.
