British Airways Owner IAG Said to Prepare Review of Strategy

(Bloomberg) -- IAG SA, the parent of British Airways, is reviewing its strategy to help reposition the group as it emerges from the coronavirus pandemic, people familiar with the matter said.

The company is working with Goldman Sachs Group Inc. and Morgan Stanley to study its future business plan and liquidity needs, according to the people, who asked not to be identified because the information is private. The airline group, which also owns Iberia, is examining options that could include debt or equity fundraising, the people said.

Like its peers, IAG has been ravaged by the effective shutdown of air travel brought on by Covid-19, which is expected to result in $84 billion of losses for global airlines in 2020. IAG’s units have borrowed money through state-backed programs in the U.K. and Spain to help weather the downturn.

Shares of the company gained 5.9% to 280.20 pence at the close Tuesday in London, giving it a market value of 5.6 billion pounds ($7 billion). Discussions are at an early stage, and the result of the deliberations isn’t certain, the people said.

Representatives for IAG, Goldman Sachs and Morgan Stanley declined to comment.

IAG and many other airlines have signaled they will need to reduce costs drastically to realign their operations for a future with fewer passengers. BA has already said it plans to eliminate 12,000 jobs, or about 30% of its staff, triggering a political debate over its use of state aid.

On Saturday, the U.K.’s Transport Committee released a report accusing BA of using the crisis as an excuse to shed workers even as the state was paying the wages of its employees through a national furlough program. The report drew a swift response from IAG Chief Executive Officer Willie Walsh, who said in a letter to the committee’s chairman that “British Airways is fighting for its survival.”

Raising equity would ease cash-flow pressure on IAG, shore up its credit rating and potentially help it pay back government borrowings that have spawned the criticism. Qatar Airways will be key to any fundraising plan, as they’re the biggest shareholder in IAG with a 25% stake, data compiled by Bloomberg show. IAG’s corporate brokers in London are Barclays Plc and Deutsche Bank AG, according to the company’s website.

Much of what IAG has raised in recent months has been via short-term debt facilities and those will need to be refinanced, Chief Financial Officer Steve Gunning said on a May analyst call.

Lufthansa Chief Executive Officer Carsten Spohr said this month he’s working on plans to slash expenses and sell assets in order to adjust to a shrunken travel market and repay a 9 billion-euro ($10 billion) bailout from the German government. The carrier plans to shrink the fleet by 100 aircraft and has said the moves could result in a surplus of 22,000 jobs.

The French government has extended loans and guarantees worth 7 billion euros to Air France-KLM, tying the funds to a reduction in carbon emissions and services on its domestic routes. Air France-KLM said in April it may raise new equity once it has better visibility on post-crisis traffic levels.

Other carriers in IAG’s stable include Ireland’s Aer Lingus and long-distance discounter Level. IAG also reached an agreement late last year to acquire Spain’s Air Europa in a 1 billion-euro deal. IAG has been seeking to reduce the purchase price, Bloomberg News reported in April.

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