British Airways has asked investors to front extra funds as a safety net against a treble whammy of the credit crisis, swine flu, and the impending threat of cabin crew strike action, which it estimates could collectively burn £400 million in reserves.
Willie Walsh, the chief executive, confirmed with shareholders at yesterday’s AGM that he had spoken to institutions about issuing a convertible bond to enable the airline to bolster its balance sheet.
BA would pay interest on the bond, and holders would be entitled to convert the bond into BA shares at an agreed price. He ruled out a rights issue as a means of raising cash but said that other options would be looked at.
Chairman Martin Broughton pointed out to shareholders that the airline was not isolated in its cash-flow difficulties: “The world’s major airlines are now facing up to the need to add more liquidity to their balance sheets to give them sufficient lift to weather the current storm.”
“But we do not believe the timing is right to approach the financial markets for a rights issue, as there are a number of key issues that need to be resolved over the next 12 months,” he added.
BA is the latest to join a growing list of carriers seeking funding as they have been hit by mounting losses amid the downturn, with the premium being particularly hard hit.
Last month Lufthansa raised €750m through a seven-year bond with a coupon of 6.5 percent, its second bond issue of the year, whilst Air France-KLM has raised €661m through a convertible bond issue with a coupon of 4.97 percent. Qantas and All Nippon Airways have also raised fresh capital recently.
The airline remains in a stalemate with trade unions over a package of cost cutting that include axing some 3,700 jobs, a two-year pay freeze as well as changes to working conditions.
Chairman Martin Broughton added that BA had been “frustrated at the slow progress,” of the Iberia deal, and said he hoped that the appointment of Antonio Vazquez Romero would speed up discussions.
The meeting was picketed by a small number of protesting BA workers, and several cabin crew shareholders attacked management plans inside the meeting for cutting manning levels on long-haul aircraft.
Walsh also restated at the AGM that he will not accept less than a 53% share in the proposed Iberia/BA merger. Hopes remain high of sealing the deal swiftly after the resignation of former Iberia CEO, Fernando Conte, last week after a year of drawn out discussions.