British Airways has raised a further $750 million to shore up its finances by mortgaging 48 aircraft.
The deal was arranged by Citi – the security documentation is here. It is a legal requirement to notify Companies House when additional security is given against the assets of a business, as this has an impact on both shareholders and potential and existing lenders. If you have made an unsecured loan to British Airways plc, for example, you are now relying on a smaller pool of assets to repay you if the company goes into receivership.
Schedule 1 towards the back shows the assets involved:
2 x Airbus A318 (built 2009)
4 x Airbus A319 (built 2001)
24 x Airbus A320 (built 2001-2010)
10 x Airbus A321 (built 2004-2009)
7 x Boeing 777 (built 2000-2014)
1 x Boeing 787 (built 2016)
There are clearly a few dogs here, as there is little residual value in 20 year old short-haul aircraft.
The bulk of the $750 million, in reality, comes from the Boeing 787-9 and the two 2014 Boeing 777-300ER aircraft included in the package.
One quirk is the two Airbus A318 aircraft, pictured above. These are the aircraft bought to operate the London City Airport to New York JFK service. Only one of the two aircraft is currently being used by British Airways. The second plane was taken over by Titan Airways when BA cut the London City service down to one flight per day – you can see it here landing in St Helena last month! There was an assumption that British Airways had sold the aircraft to Titan but it is clearly only leased.
Why did British Airways do this?
It is sensible that British Airways is doing what it can at the moment to sustain its cash pile.
However, cynics may suggest that the airline is doing everything it can to avoid having to take Government funding. Whilst Iberia and Vueling have taken €1 billion from the Spanish Government, and IAG – BA’s parent company – has taken £300 million from the UK Government – British Airways itself has taken nothing.
The cost of servicing this mortgage is almost certainly higher than the cost of servicing a ‘soft’ loan from the UK Government especially as 48 old aircraft are not the most attractive security package in the current environment. It is possible that British Airways is trying to avoid taking Government funding until it has pushed through the proposed pay cuts, weakened contractual terms and mass redundancies which are currently under consultation.
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