Troubled British Airways plans to raise nearly a billion dollars of emergency cash funding as it tries to survive the current economic downturn, the airline said Friday.
The news is an indication of bad times at BA, which is facing the threat of summer strikes by ground staff. Earlier this month, its pilots accepted a pay cut in exchange for the promise of shares to help the airline save money. The airline said it will try to raise £600 million ($978.6 million) in two ways, the company said. Half the money will come from a £300 million ($489 million) convertible debt issue. They are essentially IOUs that will be repaid with interest or converted into BA shares in the future. The airline’s pension fund has also allowed the company to draw on bank guarantees set aside for the pension in case of bankruptcy. That means it will have access to as much as £330 million ($540 million) if it needs to draw on cash. “We’re taking action to improve our liquidity and strengthen our position within the industry,” said BA Chief Executive Willie Walsh. “This 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 program to maintain our position as a leading global premium airline.”
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The airline lost £100 million ($163 million) in the first quarter of the year, ending June 30, the company said Friday in a pre announcement of its earnings. That figure was slightly better than the market expected, the airline said, but it also means the company is losing about £1 million ($1.6 million) a day. As of June 30, the airline had approximately £1.25 billion ($2.04 billion) of cash and general facilities of around £130 million ($212 million). “BA needs to strengthen its balance sheet,” CNN Aviation and Business Correspondent Richard Quest said. “It’s raising a sizable amount of money, which suggests there’s no end in sight in the current downturn and falloff in premium traffic.
“We’re in the summer months, which is traditionally the best time of the year,” Quest said. “BA has to get through what will be a very nasty winter. Whilst the worst may be over with the recession, in the airline industry, there is still plenty more grim news as we head into the winter.”
