Friday, British Airways Plc (BAY, BAY.L,BABWF.PK, BAIRY.PK) pre-announced that its first-quarter revenue would be about GBP 1.98 billion, with an operating loss of around GBP 100 million, which is slightly better than market expectations. Further, the company said it plans to raise GBP 600 million of cash funding, including a GBP 300 million convertible debt issue and about GBP 330 million bank guarantees, to ensure that it has strong liquidity consistent with the current difficult trading conditions.
As at June 30, 2009, the UK-based airline had approximately GBP 1.25 billion of cash and general facilities of around GBP 130 million.
On July 3, while announcing a 3.8% fall in June traffic, British Airways noted that market conditions continued to be very challenging, with trading at levels well below the previous year. The company's June performance metrics reflected the impact of the rapidly spreading A(H1N1) flu, apart from the challenging economic conditions. British Airways added then that on an underlying basis, both premium and non-premium volumes and seat factors have been stable for more than three months.
The company also said previously that it sees capacity for the summer to be down 3.5%, greater than the 2.5% previously anticipated, while adjusting to the difficult operating environment, and that it expects winter capacity to be down 5%, revised from the previously projected decline of 4%.
British Airways is slated to release its full interim management statement for the first quarter ended June 30 on Friday, July 31, 2009.
The company noted that its GBP 300 million convertible debt issue, which it launched today, is conditional on approval from the company's shareholders at a general meeting. Under the issue, eligible existing institutional shareholders would be given the opportunity to take up a pro rata allocation as part of the bookbuilding process if they so wish. The issue is subject to an increase option and is targeting institutional investors outside the United States, Canada, Australia, South Africa and Japan, the airline said.
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 British Airways. The company pointed out that the final size of the offering will be determined at the time of pricing, which is expected to be announced later today.
The bookbuilding process will close prior to the announcement of the final terms of the convertible bonds which is expected to be made today and closing is expected on or about August 13, 2009.
The company noted that the convertible bonds are expected to carry a coupon of between 5.50% and 6.25% per annum payable semi-annually in arrear and the conversion price is expected to be set at a premium of between 30% and 38% to the volume weighted average price of the shares from launch to pricing.
British Airways will issue the convertible bonds at 100% of their principal amount and, unless previously redeemed, converted or cancelled, will mature on the fifth anniversary of the issue of the convertible bonds in 2014. If the market price of the shares deliverable on conversion of the convertible bonds would exceed 150% of the principal amount of the convertible bonds over a specified period, the issuer would have the option to call the bonds after three years from issuance at the principal amount, together with accrued interest.
The company has appointed Barclays Capital, Deutsche Bank AG London Branch, HSBC, Merrill Lynch International and RBS Hoare Govett Ltd as joint bookrunners and joint lead managers.
Further, British Airways said it 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. Under the agreement, up to $540 million, or approximately GBP 330 million of bank facilities, will become available for the airline to draw in cash at any time until June 21, 2012. The company pointed out that these guarantees, which were provided in 2006, were accessible by the trustees but only in the event of the airline's insolvency.
According to the company, the funding is expected to add GBP 600 million of further liquidity to the airline bringing it to a total of approximately GBP 2 billion. British Airways has already obtained facilities of more than $3 billion or GBP 1.9 billion specifically against future aircraft deliveries.
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. It also supports our continued investment programme to maintain our position as a leading global premium airline."
British Airways previously had said that it is forecasting capital expenditure for 2009/2010 to be GBP 580 million, lower than the prior forecast of GBP 725 million. The company noted that about 7,000 employees volunteered for its cost-reduction schemes, paving way for nearly GBP 10 million in savings. Also, the company's remaining three mainline Boeing 757 aircraft would be grounded in summer 2010, and a further three Boeing 747-400s in winter 2010.
BAY last traded on September 26 at $79.44.
BAY.L is currently trading at 136.20 pence on the London Stock Exchange, up 4.10 pence or 3.10%, on a volume of 10 million shares.
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