International Consolidated Airlines Group’s (IAG’s) Spanish carriers Iberia and Vueling have secured €1 billion ($1.1 billion) in government-backed loans to see it through the worst of the corona-crisis. Spanish flag-carrier Iberia will receive €750 million ($825 million), and its low-cost compatriot Vueling €260 million ($286 million), IAG said in a statement released Friday.
Loans offered, not yet guaranteed
British Airways owner IAG has managed to secure funding for its Spanish carriers Iberia and Vueling to cope with the impact of COVID-19 travel bans and restrictions. Together, the airlines will receive €1 billion ($1.1 billion).
“The financing arrangements have a five-year term, amortising from 30 April 2023, but are repayable at any time on notice from Iberia or Vueling respectively. They contain a number of non-financial covenants to protect the position of the banks, including restrictions on the upstream of cash to the rest of the IAG companies,” said Stephen Gunning, Chief Financial Officer of IAG in the statement.
Meaning, British Airways and Aer Lingus are not allowed to benefit from any of the money, which is reasonable. If the Spanish government is going to guarantee a loan, it will surely do so, making sure that the money will protect Spanish businesses and employees.
A group of banks will provide a syndicated loan. However, it is yet to be formally backed by Spain’s Instituto de Crédito Oficial (ICO). The financing is conditional on those government guarantees being made available, Gunning further clarified.
IAG and state-support
According to Bloomberg, IAG’s CEO, Willie Walsh, has previously pushed back against state-supported financing for UK airlines, saying that his own company had sufficient funds to see it through the crisis.
British Airways might not yet have requested a government bailout, but it is not exactly weathering the storm unscathed. Just this week, the British flag-carrier announced measures that could result in the redundancy of a quarter of its staff.
Walsh was meant to retire in March but stayed on to see the group through the worst of the crisis. He has generally been of the idea that cost-cutting, rather than relying on state support, will place the group in a better position than its competitors, once demand begins to pick back up.
It seems, with the prolonged uncertainty of the crisis, even he may have had a change of heart. At least for the group’s continental contingency.
Terms and conditions
Some governments have decided to rally behind their national airlines in the face of the worst downturn in aviation history. Some of them, like Germany, look to gain more say in how their flag-carriers are run. Others, like France, are taking the opportunity for ecological admonitions. What terms Spain will attach to approve this syndicated loan, or if Walsh, in the end, will have to abandon his cost-cutting-before-aid stance to save BA, only time will tell.
Do you think IAG will end up requesting state support for BA and Aer Lingus as well? What terms do you think are reasonable for a government to place on state-guaranteed loans? Let us know your thoughts in the comments.