British Airways owner IAG has launched a steeply discounted €2.75bn rights issue to help shore up its finances through the disruption caused by coronavirus.
The airline group also warned it expects to carry fewer passengers than forecast this year and next as travel restrictions and quarantine measures hamper its recovery.
Alex Cruz, BA chief executive, was one of several UK airline executives to write to the UK prime minister on Thursday to plead for further support including testing on arrival. The letter, seen by the Financial Times, said the industry risked “ruin” otherwise.
IAG, which announced the emergency fundraising in July alongside a €2bn second-quarter loss, will issue nearly 3bn new shares at €0.92 each, a 36 per cent discount based on the new fully expanded share capital. Current shareholders will be entitled to buy three of the new shares for each two shares they currently own.
Stephen Furlong, analyst at Davy Research, said the discount was steeper than he had expected. The shareholder dilution was also more than he expected.
“You can see what they are trying to do, raise the money no matter what,” he said. “The key was just to raise the money, the price was just a secondary thought.”
The rights issue won the overwhelming support of shareholders at IAG’s annual meeting in Madrid this week. Qatar Airways, IAG’s largest shareholder which has steadily been building its stake in the airline group since 2015, took up its share entitlement in full.
IAG, which suffered a shareholder revolt over pay to top bosses including departed chief executive Willie Walsh, said it expects to be able to survive a “prolonged downturn” in air travel, and is confident it will emerge from the crisis as a more nimble and more flexible company.
It has already cut more than 8,000 of its planned 13,000 job losses at British Airways, largely through voluntary redundancies.
The company had total liquidity of €7.6bn by the end of August, including €5.8bn in cash and its equivalents.
The airline group is the latest major carrier to trim its flying schedules this week as expected passenger numbers fail to materialise, following easyJet, Ryanair and the US’s United Airlines.
Bookings at IAG have levelled off since recovering to about 30 per cent of pre-pandemic levels by the end of June, it said in a trading update alongside the rights issue.
Short-haul bookings have fallen slightly since the UK and some other European countries introduced quarantine requirements on passengers returning from some popular tourist destinations including Spain, while long-haul travel remains subdued.
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IAG now expects capacity to fall 63 per cent in 2020 compared with the previous year, compared with the 59 per cent previously forecast. For next year, it is expected to decline 27 per cent compared with 2019, compared with the 24 per cent previously expected.
As the damage ripples through the industry, the global airlines body warned an urgent rescue plan is needed to stop the UK falling behind international competitors.
Iata said the impact of the pandemic has been exacerbated by government policies, and called for the introduction of airport testing and an extension of the government’s furlough scheme.