Investments

IAG to Boost Liquidity by 2.45 Billion Pounds

Posted by MoneyController on 23.02.2021

IAG announced earlier this week that it had taken measures to combat the decline in travel activities. The owner of British Airways mentioned a loan agreement and deferred pension contributions as their two major steps towards increasing liquidity. The firm’s total liquidity now gets a much-needed boost of 2.45 billion pounds.

IAG has been pursuing financing and debt opportunities since the industry was crippled by the effects of the pandemic. The company will report its quarterly earnings at the end of this week. Analysts expect a loss of 1.51 billion dollars. 

Apart from British Airways, the group also owns Spain’s Vueling and Iberia as well as Aer Lingus in Ireland. Vueling and Iberia have already received 260 and 750 million pounds respectively from the Spanish Instituto de Credito Oficial. Aer Lingus also secured a 150 million euros loan from the Irish government.

Due to the lack of travel in the last year, the company burnt through cash at an incredible rate (over 200 million euros per week!). Travel restrictions continue to this day, though some improvements are likely to be seen with worldwide vaccination programs already underway.

Financing deals

The company’s plans to defer pension contributions to the tune of 450 million pounds come with the agreement that British Airways will not pay any dividends to its parent company IAG until the end of 2023.

British Airways also announced it has secured a 2 billion pound loan on a 5-year term. The loan is guaranteed in part by the government through the UK Export Finance Unit. This loan also comes with the condition that British Airways won’t make any dividend payments to IAG.

Pension trustees are also in agreement with British Airways, deferring 37.5 million pounds in monthly pension contributions. Like other agreements, this one also comes with a suspension of dividend on top of property assets being put up as security.

Shareholder returns

Shares of IAG have plummeted a massive 55% since this time last year. While the added liquidity helps the company financially, shareholders are cautious about the returns they can expect to receive in the near-term. 

British Airways is by far the largest and most profitable entity for IAG. With the suspension in dividends, IAG shareholders will have to show some patience. According to some estimates, it may take 2-3 years before travel is restored to the levels seen prior to the start of the pandemic.

 

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