Aer Lingus owner International Airlines Group (IAG) has said that it has raised total liquidity by £2.45 billion by deferring pension contributions and finalising a loan, which will help it to survive the travel slump for longer.
IAG said that it is continuing to explore other debt opportunities to improve its finances, which have been battered by the pandemic. The group will report quarterly results on Friday February 26, which analysts expect to show a €1.25 billion loss for October-December.
In order to clinch the deferral of the £450 million worth of pension deficit contributions due between October of 2020 and September of 2021, British Airways, which IAG also owns, agreed not to pay any dividends to IAG before the end of 2023.
Like all airlines, IAG has been burning through cash, approximately €205 million a week, after operating for nearly 12 months with minimal revenues. It scrapped its dividend last April and then raised €2.74 billion in October from shareholders to ride out the crisis.
Countries around the world have tightened travel restrictions over the last two months in response to new variants of the coronavirus and it is unclear when travel will restart, putting further pressure on airlines' finances.
"In addition to these arrangements, IAG continues to explore other debt initiatives to improve further its liquidity," IAG said in a statement. The group also owns the airlines Iberia and Vueling in Spain.
Shares in IAG are trading down 55% from where they were this time last year, but news of the extra liquidity helped them rise 1.1% to 167 pence, in line with Britain's blue-chip index.
British Airways said that it has reached a final agreement for a new £2 billion five-year loan, which is partially guaranteed by Britain through its UK Export Finance unit, and will draw down the facility by the end of this month.
That facility was secured in December and also includes restrictions on BA making dividend payments to IAG.
Pension trustees also agreed to British Airways deferring monthly contributions of £37.5 million, in a deal that included putting up property assets as security, and a suspension of British Airways dividends to IAG until the end of 2023.
British Airways is IAG's biggest and most profitable airline and the pause in dividends from it means that it could be years before IAG shareholders see payments again.
That is unlikely to be a surprise for shareholders, given new debts taken on by the airline group, and the fact that travel is not expected to reach 2019 levels until 2024.
"Managing Debt Not Distributions To Shareholders"
"This highlights the fact that IAG will be managing debt not distributions to shareholders for at least the next two years, which could be seen as reinforcing a negative," Goodbody analysts said in a note.