IAG to raise £2.5bn in rights issue

British Airways' parent IAG said it would raise €2.74bn (£2.5bn) in a rights issue to strengthen its finances as the airline group cut its estimates for capacity in 2020.

The company will issue 2.98bn new shares at a price of €0.92 per share - a 35.9% discount to the theoretical ex-rights price based on the closing price on 9 September.

The capital increase was approved at the company's annual meeting on 8 September and has been expected for some time. IAG, which also owns Iberia and Aer Lingus, said its biggest shareholder, Qatar Airways, had agreed to take up its 25.1% allocation of shares.

For each existing IAG share the holder is entitled to one subscription right and two subscription rights are required to subscribe for three new shares. The rights issue is fully underwritten by Goldman Sachs and Morgan Stanley.

IAG said it needed the money to shore up its balance sheet to withstand a potential prolonged downturn for the airline sector. The industry has been battered by government shutdowns and IAG said it did not think demand would recover until 2023 at the earliest.

The company said it was planning to cut capacity for 2020 by 63% compared with a previous estimate of minus 59%. In the fourth quarter capacity will be down by 60% from 2019 - a much steeper drop than its previous scenario of a 46% drop. IAG said its worst-case scenario planning had not changed.

IAG said short-haul bookings had fallen slightly since July after the UK and other European countries imposed renewed quarantine restrictions on travellers. Long-haul bookings have had a delayed recovery but bookings increased modestly in August, IAG said.

The company said: "IAG believes the capital Increase, together with its quick response to the crisis, should enable the group to emerge from the current pandemic in a strong position, with more resilience, greater flexibility and the ability to make the right operational and strategic decisions for the long term benefit of all its stakeholders."

The FTSE 100 company is cutting up to 13,000 jobs to reduce costs. IAG said it had reached an agreement with the Unite u union over proposed changes to employees' terms and conditions. Unite had accused the company of acting like a Victorian mill owner in its treatment of workers.

IAG shares rose 1.8% to 203.95p at 08:27 BST.