LONDONInternational Airlines Group has offered some of its lucrative landing slots at London’s airports as collateral for the first time to secure $1.8 billion in new funding to strengthen its financial situation.

Rising coronavirus cases in continental Europe have dented expectations that mass travel will be able to restart in time for the peak summer holiday season, which airlines are relying on to boost their battered finances.

The facility will be available to three of IAG’s stable of airlines, Aer Lingus, BA, and Iberia, and be secured against aircraft assets and take-off and landing rights at both London Heathrow and Gatwick airports.

“Putting up aircraft is normal [as collateral], but slots are the crown jewels and don’t tend to be part of the financing,” said Mark Simpson, an aviation analyst at Goodbody.

“There is access to funding, there is an appetite to support that, but having to put up slots is indicative the demand to fund IAG looks to be a bit tougher than some of their competitors.”

IAG has avoided putting its lucrative slots at the UK’s leading airports up as collateral, although other airlines including Virgin Atlantic, Delta, and Norwegian have done so.

IAG considered a bond backed by its slots at Heathrow in 2012, but dropped the plan. Slots at Heathrow are crucial to BA’s business model, although slots that could be used as collateral are a “relatively small” proportion of the airline group’s portfolio, according to a person with knowledge of the deal.

The world’s strongest airlines, including IAG, have not struggled to raise money during the crisis. But the industry is facing a mounting debt burden as a consequence, meaning the pandemic will hang over balance sheets for years to come. The plight of the airlines was not helped this week when UK ministers warned it was still too early to book international holidays for the summer, sending airline stocks tumbling. IAG shares fell for a third straight session on Tuesday, taking its losses since Friday to about 15 percent. The airline on Tuesday said the three-year revolving credit facility would boost its overall liquidity to an estimated €10.3bn by the end of March, including €7.8bn in cash.

The group will also cancel a US dollar facility for BA due to expire in June. As a net result, the carrier’s total credit facilities have increased by nearly €400m.
Via (Financial Times)