LONDON (Reuters) – British Airways owner IAG said Monday it had increased total liquidity by £ 2.45 billion ($ 3.4 billion) by deferring pension contributions and taking out a loan to survive the travel burglary longer.
The IAG said it continues to look into other debt options to help improve its finances, which have been ravaged by the pandemic. The group will publish quarterly results on Friday, for which analysts expect a loss of 1.25 billion euros (1.51 billion US dollars) from October to December.
In order to defer the pension deficit contributions worth £ 450 million due between October 2020 and September 2021, BA agreed not to pay dividends to parent company IAG before the end of 2023.
Like all airlines, after almost 12 months of operation with minimal income, the IAG has consumed around 205 million euros per week in cash. It canceled its dividend last April and raised € 2.74 billion from shareholders in October to help overcome the crisis.
Countries around the world have tightened travel restrictions in the past two months to respond to new variants of the coronavirus. It is unclear when travel will resume, which continues to put pressure on airlines’ finances.
“In addition to these agreements, the IAG continues to review other debt initiatives to further improve its liquidity,” the IAG said in a statement. The group also owns the airlines Iberia and Vueling in Spain and the Irish airline Aer Lingus.
IAG’s shares are down 55% year over year, but news of the added liquidity helped them jump 1.1% to 167p in early Monday trading, in line with the UK blue chip index.
BA said it had finalized a deal on a new £ 2 billion five-year loan, partially guaranteed by the UK through its UK export finance unit, which would be drawn on the facility by the end of this month.
This facility was secured in December and also includes restrictions on BAs making dividend payments to IAG.
The pension funds also agreed for the BA to defer monthly contributions of £ 37.5 million, which included holding property assets as collateral and suspending BA dividends to parent company IAG through the end of 2023.
BA is the largest and most profitable airline in the IAG. Due to the dividend pause, it may be years before IAG shareholders receive payments again.
Given the airline group’s new debts and the fact that travel expenses are unlikely to reach 2019 levels until 2024, this should come as no surprise to shareholders.
“This underscores the fact that the IAG will be managing debt and no dividends to shareholders for at least the next two years, which could be viewed as compounding a 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