British Airways Owner IAG Says Annuity Deal, Loan Aid Boosts Liquidity

LONDON (Reuters) – British Airways owner IAG said Monday it had total liquidity of $ 2.45 billion.

IAG said it continues to investigate other debt options to improve its finances that have been battered by the pandemic. The group will publish quarterly results on Friday, from which analysts expect a loss of 1.25 billion euros (1.51 billion US dollars) for October through December.

In order to enforce the deferral of the pension deficit contributions of £ 450 million due between October 2020 and September 2021, the BA has undertaken not to distribute any dividends to the parent company IAG before the end of 2023.

Like all airlines, the IAG has burned around 205 million euros a week of cash after almost 12 months with minimal income. It canceled its dividend last April and then raised € 2.74 billion from shareholders in October to help weather the crisis.

Countries around the world have tightened travel restrictions for the past two months in response to new flavors of the coronavirus and it is unclear when travel will resume, further putting pressure on airlines’ finances.

“In addition to these agreements, IAG continues to review other debt initiatives to further improve its liquidity,” IAG said in a statement. The group also includes the airlines Iberia and Vueling in Spain and the Irish Aer Lingus.

IAG shares are trading 55% below their level last year, but the news of the additional liquidity helped them jump 1.1% to 167p in early Monday trading, in line with the UK blue chip index .

BA said it had reached a final agreement on a new £ 2 billion 5-year loan, partially guaranteed by the UK through its UK export finance unit, and will draw on the facility by the end of this month.

This facility was secured in December and also includes restrictions on the payment of dividends by the BA to the IAG.

The pension trustees also agreed for the BA to defer monthly contributions of £ 37.5 million, which included the deposit of property assets as collateral and a suspension of BA dividends to parent company IAG until the end of 2023.

BA is IAG’s largest and most profitable airline, and the dividend hiatus means it could be years before IAG shareholders see payments again.

Given the airline group’s new debt and the fact that travel is unlikely to reach 2019 levels until 2024, this should come as no surprise to shareholders.

“This underscores the fact that IAG will be managing debt rather than dividends to shareholders for at least the next two years, which could be seen as an exacerbation of the negative,” Goodbody analysts said in a note.

($ 1 = 0.7148 pounds)

($ 1 = 0.8258 euros)

Reporting by Sarah Young, editing by Estelle Shirbon and Susan Fenton

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