BA plans to create a £600m survival fund

Published on Friday 17 July 2009 10:31

BRITISH AIRWAYS has announced survival plans to raise more than £600 million in emergency funding.

The company hopes to access 300m through a debt issue, and has agreed new terms with its pension fund which will release around 330m in banking facilities.

In accordance with market rules, BA also revealed details of its unaudited accounts, which shows that it expected to make an operating loss of 100m for the quarter to 30 June.

This is slightly ahead of market expectations, and the company also reported revenue of approximately 1.98 billion.

BA, which earlier this week refused to rule out a rights issue to raise cash, is facing potential industrial action over the summer, and industry analysts said the money was being raised to act as a safety net.

BA said the new funding would increase liquidity at the airline to about 2bn.

The airline has approximately 1.25bn of cash and general facilities of about 130m and has already obtained facilities of more than 1.9bn against future aircraft deliveries.

The convertible bonds would involve BA paying interest on them. Shareholders would then be able to convert the bond in 2014 into BA shares at an agreed price.

BA chief executive Willie Walsh said: "Following discussions with institutional investors, we're taking action to improve our liquidity and strengthen our position within the industry.

"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."

Mr Walsh said the move "puts to bed any suggestions that British Airways is in any sort of risk".

"We are clearly in a very strong position relative to most airlines," he added.

BA said the deal struck with the trustees of its UK defined benefit pension schemes would see it take back the bank facilities which had been set aside for use if the company became insolvent.

The pension funds have not been given anything in return for the loss of access to the back-up funds.

Mr Walsh said the funds would benefit from a stronger airline.

The company can draw cash from the facilities at any time before 21 June, 2012.

The airline lost a record 401m in the year to March and Mr Walsh has previously told staff that the firm is in a "fight for survival".

The company paid out nearly 3 billion in fuel costs last year due to rising oil prices, while the demand for flights is down.

Earlier this year BA asked 40,000 staff to work for nothing for up to a month.

Around 2,000 BA cabin crew workers have rejected plans for a pay freeze, saying the move was an "assault" on their pay, terms and conditions