British Airways parent moves ahead with €2.75 billion share sale

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LONDON (July 31): British Airways owner IAG SA advanced plans to raise €2.75 billion in equity to help ride out the coronavirus crisis, saying No 1 investor Qatar Airways has agreed to back a rights issue.

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

Network 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.

"Our demand is not what we're actually seeing in our bookings, because bookings are being suppressed by government restrictions," IAG chief executive officer Willie Walsh said on a media call, predicting travel will not reach pre-virus levels until at least 2023.

Shares of IAG, which also owns the Iberia and Aer Lingus brands, traded 3% lower as of 8.05am in London and has lost 72% of its value this year. Air France-KLM was priced down 1.8% and has slumped 65% for the year.

IAG reported a second-quarter operating loss of €1.36 billion versus a €960 million 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.

Air France-KLM posted a quarterly loss of €2.61 billion and pushed back financial targets by a year, hammering home how hard the coronavirus 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 as of June 30, which with further funds including €380 million from plane sales and £750 million from an air-miles deal with American Express "should be ample to position for a post-Covid world", Daniel Roeska, an analyst at Sanford C Bernstein, said in a note.

IAG said it will operate barely 25% of its usual capacity this quarter and just over 50% 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 is not a firm order.

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