British Airways-owner IAG will issue a bond in the hopes of raising about 1 billion euros ($1.2 billion) which the company says will help it to survive if the slump in the airline industry because of the Covid-19 pandemic continues for longer than expected.
Following a year where there was almost no income because of severe travel restrictions due to the pandemic, airlines across the world is hoping for a summer travel reboot. However that recovery in the industry could be delayed because of a resurgence of Covid-19 infection in some countries as well as a slow roll out of Covid-19 vaccines in Europe.
There was enough liquidity with it to ride out the crisis, IAG, which also owns Iberia and Vueling in Spain and Aer Lingus in Ireland, said last month. But the company decided to add on to the safety net on Thursday.
The money that would be generated from the bonds could be utilised by it to ride out a more prolonged downturn or to provide “flexibility to take advantage of a recovery in demand for air travel”, the company said.
While IAG has been flying only at about 20 per cent of its capacity, the company has been cutting costs to partially offset the huge cash burning of about 185 million euros per week as a result of the pandemic.
The company would issue the senior unsecured bonds under two maturity dates – the first one will be worth 500 million euros and would become due in 2025 and another 500 million euros bond that would be payable in 2029. They are expected to price on Thursday.
There is an acute interest among bond investors to buy debt from well-known airlines in an environment of low rates of interest and with economies set to reopen. The airline industry is one of the few industries that is still offering a high yield.
According to the Markit’s Iboxx indices, the average yield for European junk-rated corporate debt is 2.59 per cent.
Progress made in the roll out of the Covid-19 vaccines has raised interest of investors in the airline sector even though IAG lost its investment grade rating last year following the huge slump in the airline industry last year because of the pandemic.
“Airlines is one of the few corners of the bond market still offering some juice,” an analyst was quoted in reports as saying. “With international travel expected to reopen this year, investors feel comfortable owning this debt.”
In recent months, the bond path to raise funds has already been used by Lufthansa and easyJet. The funds generated from the issuance of its bonds, which was 1.6 billion euro debt sale, helped the German airlines to repay a big portion of a government bailout while 1.2 billion euros was raised in February by easyJet.
BBVA, Goldman Sachs, Morgan Stanley and Santander are managing the IAG issue.
(Adapted from Reuters.com)