LONDON (Reuters) – British Airways-owner IAG mentioned on Monday it had raised total liquidity by 2.45 billion pounds ($3.4 billion) by deferring pension contributions and finalizing a loan, which is able to assist it to survive the travel slump for longer.
IAG mentioned it continued to explore other debt opportunities to enhance its funds, which have been battered by the pandemic. The group will report quarterly results on Friday, which analysts expect to indicate a 1.25 billion euro ($1.51 billion) loss for October-December.
In order to clinch the deferral of the 450 million pounds worth of pension deficit contributions due between October 2020 and September 2021, BA agreed to not pay any dividends to parent firm IAG before the end of 2023.
Like all airlines, IAG has been burning through cash, around 205 million euros a week, after operating for nearly 12 months with minimal revenues. It scrapped its dividend last April, and then raised 2.74 billion euros in October from shareholders to ride out the crisis.
Nations around the world have tightened travel restrictions over the last two months in response to new variants of the coronavirus and it’s unclear when travel will restart, placing further pressure on airlines’ finances.
“Along with these arrangements, IAG continues to explore other debt initiatives to enhance further its liquidity,” IAG mentioned in a statement. The group also owns the airlines Iberia and Vueling in Spain and Ireland’s Aer Lingus.
Shares in IAG are trading down 55% from where they had been this time last yr, however news of the extra liquidity helped them rise 1.1% to 167 pence in early trading on Monday, in line with Britain’s blue-chip index.
BA mentioned it reached a final agreement for a new 2 billion pound five-year loan, which is partially guaranteed by Britain through its UK Export Finance unit and would draw down the facility by the end of this month.
That facility was secured in December and also includes restrictions on BA making dividend payments to IAG.
Pension trustees also agreed to BA deferring monthly contributions of 37.5 million pounds, in a deal that included putting up property assets as security, and a suspension of BA dividends to parent company IAG till the end of 2023.
BA is IAG’s biggest and most profitable airline and the pause in dividends from it means it could be years earlier than IAG shareholders see payments again.
That’s unlikely to be a surprise for shareholders, given new debts taken on by the airline group, and the fact that travel is not expected to reach 2019 levels till 2024.
“This highlights the fact that IAG will be managing debt, not distributions to shareholders for at least the next two years, which could be seen as reinforcing a negative,” Goodbody analysts mentioned in a note.
