17 July 2009

BA moves to raise Ã&#pound;600m

British Airways aims to raise Ã&#pound;600 million to help it through the current economic turbulence.

The cash funding is required to ensure the carrier has Ã¢â¬Åâœstrong liquidity consistent with the current difficult trading conditionsÃ¢â¬~.

It came as the airline announced a Ã&#pound;100 million operating loss for the three months to the end of June.

BA today launched a Ã&#pound;300 million convertible debt issue, conditional on approval from the airlineÃ¢â¬â¢s shareholders at a general meeting. Ã~

It is the airlineÃ¢â¬â¢s intention that eligible existing institutional shareholders will be given the opportunity to take up a pro rata allocation if they wish.

The securities will be senior unsecured convertible bonds due in 2014 which will be convertible into 15-20% of the issued ordinary share capital of BA. The final size of the offering will be determined at the time of pricing (expected to be later today).

The airline has also agreed terms with the trustees of its defined benefit pension schemes in the UK to release some bank guarantees back to the airline.

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These guarantees were provided in 2006 and were accessible by the trustees but only in the event of the airlineÃ¢â¬â¢s insolvency.

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This means that up to $540 million (approximately Ã&#pound;330 million) of bank facilities will become available for the airline to draw in cash at any time until June 21, 2012, the airline said. Ã~Ã~

BA pre-announced that its unaudited results for the first quarter ending June 30 are expected to show revenue of approximately Ã&#pound;1.98 billion and an operating loss of around Ã&#pound;100 million - slightly better than market expectation. The airline had approximately Ã&#pound;1.25 billion of cash and general facilities of around Ã&#pound;130 million. Ã~

The full interim management statement for the first quarter is to be released on July 31.

The funding is expected to add Ã&#pound;600 million of further liquidity to the airline bringing it to a total of approximately Ã&#pound;2 billion. Ã~The airline has already obtained facilities of more than $3 billion (Ã&#pound;1.9 billion) specifically against future aircraft deliveries. Ã~

BA chief executive Willie Walsh said: Ã¢â¬ÅâœFollowing discussions with institutional investors, weÃ¢â¬â¢re taking action to improve our liquidity and strengthen our position within the industry.

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Ã¢â¬ÅâœThis goes hand-in-hand with our cost reduction and efficiency initiatives which are designed to create the right conditions for our sustainable, long term profitability. It also supports our continued investment programme to maintain our position as a leading global premium airline.Ã¢â¬~

by Phil Davies

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Further confusion

Consumers and agents are already confused about what cover ATOL actually gives, Mr Clark's comment 'Clark added that the &#pound;2.50 for the protection that ATOL offers represented a "good deal" for consumers, being cheaper than stand-alone airline failure insurance' is very misleading and in general incorrect. The Levy only cover the failure of the airline if (a). The Airline is ATOL protected or (b).The ATOL holder who sold the airline ticket goes bankrupt and the airline has failed. It's the duty of the ATOL holder to either have airline failure insurance, say there is no cover or take the risk themselves. IPP as the largest provider of Airline Failure insurance in the world, operating in over 30 countries provide the majority of airline failure insurance in the UK far less than &#pound;2.50 per person and in fact on average &#pound;1 per person for agents covering airlines. So let's be clear here Mr Clark, for &#pound;2.50 ATOL covers the consumer if the ATOL agent goes bust not the airline. The agent buys Airline Failure Insurance for far less than &#pound;2.50 on a risk which in many cases is 100 times larger than a tour operator risk. If ATOL were to include cover for airlines as they have proposed then I can assure you would be looking at &#pound;8 per ticket upwards. ATOL covered XL and look how just one airline put a large hole in the fund.

By Archana Arora, Friday, July 17, 2009