BA to raise £600m to shore up balance sheet

Author: By Sarah Arnott

Some £350m will come from a bond issue, the rest by taking back a guarantee to pay out pension entitlements in the event of the company’s bankruptcy. The company announced the plans alongside forecasts of £100m of losses in the first quarter ? on top of last year’s £401m black hole ? as it struggles against what chief executive Willie Walsh has described as aviation’s “worst ever” trading conditions.

The new cash will take BA’s pile to around £2bn, plus another £1.9bn-worth of debt facilities ring-fenced for its aircraft purchase programme. Mr Walsh, who last month told staff the flag carrier was “fighting for survival”, said the extra money will ensure the group is well-positioned for the recession and the upturn.

“The cash position is an important focus when the industry is facing challenging conditions,” he said. “There is still work that we need to do, but this puts to rest any mad suggestions that BA is facing imminent collapse. There was no question at any stage about BA’s short-term position, but it is unacceptable we were unprofitable in the first quarter so have to reverse that as soon as possible.”

The £350m bond issuance is to be put to shareholders at a general meeting. If the scheme goes ahead, they will convert to between 15 and 20 per cent of the group’s issued share capital on expiry in 2014. The conversion price was set at 189p yesterday, a premium of 37.6 per cent, and the coupon is 5.8 per cent per annum. The airline also retains the option of calling the bonds after three years if the value of the shares gained by conversion exceeds 150 per cent of the principal amount of the bonds over an agreed period.

The rest of the cash has been secured through an agreement with the trustees of BA’s heavily indebted pension scheme to release bank guarantees worth $540m (£331m) back to the airline. The additional facilities are available until June 2012. Mr Walsh said: “The trustees clearly believe that it is in the best interests of their members to have a strong BA. The only way the deficit in the funds can be addressed is by having a strong, viable and profitable company paying into it.”

The biggest immediate challenge for BA is the dispute with three different groups of staff over plans to cut pay and conditions that could see as many as 3,700 positions axed. Discussions with the GMB and Unite trade unions representing check-in assistants, baggage-handlers and cabin crews are now taking place under the auspices of Acas, the arbitration service.

The only downside of the group’s newly strengthened balance sheet, is that it may make solving the industrial relations issues trickier.

Gert Zonneveld, a transport analyst at Panmure Gordon, said. “BA is very well-capitalised now, but that doesn’t mean it will be all plain sailing from here.

“All the uncertainties and problems out in the market are still there, and the chances of having a strike may even be increased now that the company has more money.”

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