British Airways owner gears up for £2.5bn emergency funding

British Airways’ owner is preparing to land a €2.75bn (£2.5bn) rights issue to bolster cash reserves drained by the coronavirus pandemic.

IAG, the FTSE 100 airlines group that also owns Aer Lingus and Iberia, said it was “evaluating the merits” of going cap in hand to investors to “further strengthen” its balance sheet.

The announcement followed IAG raising £750m from American Express, which pre-purchased Avios loyalty points for future flights by the company’s carriers.

The rights issue, open to all shareholders, is just one option being considered.

Others include a placing with major institutional investors or an issuance of loans that can be converted into shares.

IAG has been hit hard by the pandemic. While short-haul flying has returned across Europe in recent weeks, long-haul services, in particular those to North America, remain largely grounded.

Fears over a second wave in the US have led to a downturn in demand, and delayed the prospect of a meaningful recovery of lucrative transatlantic routes for British Airways.

In sharp contrast with its European counterparts, the Government has thus far refused to offer bespoke financial support for UK airlines.

IAG has tapped the Treasury’s Covid Corporate Financing Facility for a £300m loan and a similar programme by the Spanish government for a further €1bn. In March it extended its corporate overdraft by $1.4bn.

However, British Airways, whose operations generate almost two-thirds of IAG’s operating profit, has launched a radical business restructuring. Losing an estimated £20m-a-day, BA announced redundancies of up to 12,000 in April.

Earlier this week the UK flag carrier announced a deal with pilots that meant only 270 of the 1,255 previously announced redundancies were compulsory. The threat to the pilots that remained that they would have to re-apply for their jobs under so-called “fire and rehire” proposals, was also removed.

With unions representing cabin and ground crew, Unite and GMB, unwilling to negotiate unless the jobs threat is taken off the table, BA has now commenced one-to-one negotiations with staff.

IAG said: “No decision has been made as to whether or when to proceed with a rights issue.”