British Airways outlines plan to increase liquidity by £600 million

British Airways said Friday that it plans to raise £600 million ($985 million) in cash "to ensure it has strong liquidity" to enable it to manage through "the current difficult trading conditions."

CEO Willie Walsh, who has said several times recently that the airline is in a "fight for survival" (ATWOnline, July 15), told reporters that the increased liquidity "puts to bed any suggestion that BA is in any sort of risk short term."

The carrier said in a statement that it has launched a £300 million convertible debt issue. "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 stated.

Additionally, BA said it has agreed to terms with the trustees of its defined benefit pension programs in the UK "to release some bank guarantees back to the airline. These guarantees were provided in 2006 and were accessible by the trustees, but only in the event of the airline's insolvency." It explained that "up to" £330 million in bank facilities will become available, from which the airline can withdraw cash "at any time" through June 21, 2012.

BA said that as of June 30 it had approximately £1.25 billion in cash plus general facilities of around £130 million. It expects to report a £100 million operating loss for its fiscal first quarter ended June 30 on £1.98 billion in revenue.

It said that the new funding will bring its liquidity to about £2 billion. "We're taking action to improve our liquidity and strengthen our position within the industry," Walsh said. "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."

BA appointed Barclays Capital, Deutsche Bank AG London Branch, HSBC, Merrill Lynch International and RBS Hoare Govett Ltd. as joint bookrunners and joint lead managers for the convertible debt issue. Owing to national laws, the issue cannot be offered to institutional investors in the US, Canada, Australia, South Africa and Japan.