International Airlines Group, the parent company of Aer Lingus, BA, LEVEL, Iberia and Vueling, has confirmed that it is considering a rights issue to raise up to €2.75 billion from its shareholders.
IAG issued the statement following a report by Reuters earlier this afternoon. According to Reuters, IAG is assessing other options such as the issue of a convertible bond which has been used by BA in the past.
Under a rights issue existing shareholders are offered the opportunity to purchase new shares in a company at a discount.
A rights issue by IAG is potentially complicated as Qatar Airways owns a 25% stake in the group. If a rights issue was to increase Qatar Airways’ stake in the group above 29.9% it would be required to make a formal takeover offer.
Whilst IAG airlines have taken advantage of state payroll protection programmes and state guaranteed loans, IAG is not seeking a bespoke state support package. This is in contrast to Air France-KLM and Lufthansa who have both received support from European governments running to several billion Euros.
IAG has always been against state intervention in the airline industry and seems determined to avoid state support at any cost. State support could ultimately lead to governments taking shareholdings in IAG airlines. This could undermine IAG’s business model of making investment decisions based on rational investment criteria, and not to support specific aviation hubs.
Measures taken by IAG to raise funds include pre-selling Avios of up to $750m to American Express, BA raising $750m by mortgaging aircraft and BA auctioning some off its art collection.
A further update is likely from IAG when it publishes its half-year results on Friday 31 July.
Here is the full statement from IAG:
International Airlines Group (IAG) notes recent media speculation regarding the possibility of IAG undertaking an equity raise.
As detailed in its Q1 financial results announcement on 7 May, going into the crisis IAG had a strong balance sheet and liquidity with cash and undrawn facilities at 30 April of €10 billion. IAG has taken appropriate actions to strengthen its balance sheet and boost its liquidity position. This includes the announcement earlier today that IAG has extended its global commercial partnership with American Express and will receive a payment of approximately £750 million.
The Group is evaluating the merits of a rights issue of up to €2.75 billion that would further strengthen IAG’s balance sheet. No decision has been made as to whether or when to proceed with a rights issue.
A further announcement will be made as appropriate.