International Airlines Group in £2.5 billion rights issue rumours

International Airlines Group in £2.5 billion rights issue rumours

International Airlines Group released a statement on 24 July 2020, responding to media speculation suggesting that the company was looking to undertake a rights issue to raise £2.5 billion to strengthen its balance sheet.

If the equity raise goes ahead, it will be the biggest secondary offering by deal value of 2020, raising over £500 million more than Compass Group’s placing in May. It would also rank as the second biggest fundraising in the last five years, after the £2.68 billion placing by pharmaceutical giant Astrazeneca, and the largest rights issue since Standard Chartered’s £3.4 billion equity fundraising in 2015.

In its statement, Steve Gunning, the company’s Chief Financial Officer, confirmed that ‘No decision has been made as to whether or when to proceed with a rights issue.’ At the same time, the company announced a lucrative partnership with American Express, which will net IAG approximately £750 million and will involve American Express offering Avios points in connection with British Airways as part of its loyalty programme.

Nevertheless, the company’s fortunes are looking troubled, having been hit hard by airline travel restrictions imposed by the coronavirus pandemic. In its Q1 results, IAG confirmed that revenue had experienced a decline of around 13% to £4.2 billion compared to £4.8 billion the previous year. The company cancelled its dividend of 0.17 euros per share and ‘proposed the allocation of all the profit for fiscal year 2019 (except the amount already paid as interim dividend) to the voluntary reserve’. In its results the company stated:

‘given the uncertainty on the impact and duration of COVID-19, IAG is not currently providing profit guidance for 2020… Recovery to the level of passenger demand in 2019 is expected to take several years, necessitating Group-wide restructuring measures.’

During April and May IAG were only operating flights for essential travel and repatriation, resulting in a reduction in passenger capacity of 94% compared to last year. Its share price dropped from a high of 642p on 19 February 2020 to around 168p on 14 May, the lowest recorded by the company since the terrorist attacks in New York on 11 September 2011.

The company has also suffered from the fallout by way of job losses and pay cuts. Subsidiary British Airways (BA) utilised the UK's COVID-19 Job Retention Scheme and furloughed 22,626 employees in April. However, this has not been enough to remove the cloud on the horizon. BA pilots are due to vote on a consultative ballot, which came about after three months of negotiation between BA and union, British Airline Pilots Association (BALPA). The proposal replaces a plan which would have resulted in 1,255 pilot job cuts, and instead includes voluntary redundancy deals and a holding pool of 300 pilots remaining employed on a 20% pay cut, who will be pulled in to work when the industry takes off once again. Brian Strutton, general secretary of BALPA, commented ‘It is hugely disappointing that during our extensive negotiations, British Airways would not accept the full package of mitigations we put forward which would have avoided any job losses at all, and at no cost to BA.’ The vote is expected to take place on 30 July.

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