IAG launches $IAG launches $3.48 billion rights issue 3.48 billion rights issue 

International Airlines Group (IAG) has announced a rights issue of up to €2.75bn billion to boost its liquidity and reduce leverage. Goldman Sachs, Morgan Stanley and Deutsche Bank are acting as underwriters.

Qatar Airways Group, IAG's largest shareholder with a 25.1% holding), has confirmed its support for the proposed capital increase and irrevocably undertaken to subscribe for its pro rata entitlement. Qatar Airways has proposed two directors to join IAG’s Board as non-executive directors. The remainder of the capital increase is fully underwritten on a standby basis. Shareholders will vote to approve the deal at a meeting in September.

"Our investment in IAG has always been for the long term and we continue to support the company through these difficult times for our industry,” said Qatar Airways Group chief executive Akbar Al Baker. “We are confident that IAG will emerge from this global crisis as Europe's leading airline group and we look forward to working closely together to deliver our joint vision to enhance travel opportunities for airline passengers across the globe."

In a stock filing, IAG stated that this capital increase would allow the group to emerge from the current pandemic in a “strong position, with more resilience, greater flexibility and the ability to make the right operational and strategic decisions for the long term benefit of all its stakeholders”.

"Our industry is facing an unprecedented crisis and the outlook remains uncertain,” said Willie Walsh, CEO of IAG. “However, we strongly believe that now is the time to look to the future and strengthen IAG's financial and strategic position.” Walsh does not expect the aviation industry to recover before 2023 but in the interim he expects there to be opportunities for IAG to capitalise.

“We are seeing early signs of passenger demand returning and while early days in this recovery, now is the time for us to be bold again and ensure IAG emerges from this current crisis in a strong position," adds Walsh.

IAG has reported a record operating loss of €1.365bn for the second quarter - compared to a profit of  €960 million in 2019 – and a half year operating loss of €3.806bn compared to a profit of  €806 million in 2019. The losses includedan exceptional charge of €2.137bn on derecognition of fuel and foreign exchange hedges for 2020 and the impairment of its fleet, which includes the early retirement of British Airways' 747s and Iberia's A340s.

Walsh confirmed that IAG has more than halved its operating cash costs and significantly reducing its capital spending. Aircraft deliveries have been reduced by 68 to 75 through deferrals and cancellations and further fleet retirement plans have been implemented. IAG states that it maintains the flexibility to return additional 42 leased aircraft in 2021 and 54 aircraft in 2022.

During the half year, IAG has raised funds including: an extension to the $1.38bn revolving credit facility for British Airways; £300 million from the UK COVID Corporate Finance Facility and €1bn term loans (which are 70% guaranteed by the ICO in Spain); and arranging approximately $1bn of bridge facilities secured against aircraft. In addition the Group has secured around €780 million from the sale and leaseback of 10 aircraft and £750 million from the extension of the worldwide commercial partnership with American Express.

At the end of June liquidity stood at €8.1 billion, comprising €6bn and €2.1bn of undrawn general and committed aircraft finance facilities.

Media speculation has recently suggested that IAG was renegotiating the sale price of Air Europa, owned by Globalia, to half its original price of $1.17bn. IAG confirmed today that despite the crisis, the group is moving forward with the acquisition since Air Europa has “considerable strategic and financial benefits for IAG and its shareholders”. IAG confirmed that it remains in “active discussions regarding a potential restructuring of the acquisition to take into account the impact of the COVID-19 pandemic”, promising a further announcement when appropriate. IAG stated that the capital increase funds would not be used to acquire Air Europa.