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Moody’s downgrades IAG and BA debt as Willie Walsh declares he likes state aid

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Willie Walsh stood down as CEO of IAG, the British Airways parent company, yesterday. He had delayed his retirement in order to steer the airline through coronavirus. As of today, Luis Gallego – formerly CEO of Iberia – is in charge.

Moody's downgrades IAG and BA debt

Moody’s downgrades IAG and BA debt

As an unwelcome leaving gift, credit rating agency Moody’s downgraded the debt of both British Airways plc and International Consolidated Airlines Group SA.

British Airways has been downgraded from Ba1 to Ba2. (Link may not work on mobile.)

Moody’s continues to be concerned by:

BA’s disproportionate exposure to transatlantic and corporate travel

An increasing debt burden with little opportunity to pay it down over the next 2-3 years

‘Execution risks’ in the restructuring and cost reduction programmes

Moody’s believes that BA can survive for approximately 450 days based on current travel patterns and liquidity which is a weaker position than its peers.

IAG has had an identical debt downgrade from Ba1 to Ba2 (again, link may not work on mobile). IAG’s survival is predicted at 500 days, slightly longer than British Airways.

Moody's downgrades IAG and BA debt

What did Willie Walsh say to CNN about state aid?

Before he departed IAG, Walsh gave an interview to CNN. In this he makes a remarkable (by Walsh standards) turnaround on his views on state aid for airlines.

Many in the industry believe that British Airways has been deliberately holding off requests for state aid until Virgin Atlantic has gone bankrupt. Once that had happened, it was expected to follow the path of Lufthansa and Air France KLM, both of whom have received €10 billion bailouts.

You may or may not believe this. It is worth noting that it was just days after Virgin Atlantic secured its medium term future via a refinancing that Walsh was on TV supporting state aid.

Here is a transcript sourced from London Air Travel. I have not been able to verify this independently but I respect the reputation of the original source enough to use it. (EDIT: a reader has posted a link to a YouTube video of the interview in the comments below)

Willie Walsh was talking to Richard Quest:

I have changed my views a little bit because as you know I’m strongly opposed to state aid, and I’ve always defined state aid or a bailout as something to help a company or in this case an airline that has failed or is failing. I think in this situation, many of the airlines that have received state aid were in good financial shape before this crisis and deserve to be helped.

The thing that we have to focus on, Richard, is a lot of this state aid has come in the form of debt. So the balance sheet of all of these airlines will be severely stressed as a result of this.

Now we’ve taken the view that before you can ask for help, you’ve got to help yourself, you’ve got to do everything you can within your own power to as best you can address the challenges you face and that’s what we’ve been doing. So, I don’t believe we need state aid, I can’t rule it out so obviously I’m finishing up next Tuesday. My successor Luis Gallego will have to make these decisions going forward.

Moody's downgrades IAG and BA debt

What you need to understand with Willie Walsh is that he is used to planting the seed to steer opinion. It was not a coincidence that, in an analyst call a few months ago, he spoke positively about Mastercard and his budding relationship with the CEO. Fast forward a few weeks and American Express paid £750 million in advance to guarantee an extension of its British Airways credit card contract.

IAG is, of course, already taking state aid at subsidiary level via soft loans or loan guarantees. €1 billion has been taken by Iberia and Vueling from the Spanish Government and the £300 million taken by BA from the UK Government.

Walsh isn’t stupid. He sees Lufthansa and Air France KLM with €10 billion in fresh equity and soft loans in their back pockets, ready to lead the charge as aviation begins to pick up.

At IAG, British Airways is seeing – according to reports I hear – disastrous September bookings. Pilots are already drawing up plans for how a second wave of redundancies would be implemented, and other areas of the business are likely to be hit in the same way. Virgin Atlantic has now lost almost 50% of its employees this year, whilst British Airways is only at 25%.

Over at Aer Lingus, there are rumours in the press that the bases at Shannon and Cork may close entirely. We have already covered the plans to move part of the long-haul A321LR fleet to the UK to run direct UK-US flights from regional airports. It wouldn’t surprise me if the bulk of the 14-strong A321LR fleet ends up operating from the UK.

I’m not on top of the situation with Iberia and Vueling. Given the sharp rise in coronavirus cases in Spain, it is difficult to imagine the situation there as anything but desperate.

Whilst the IAG rights issue will inject €2.75 billion into the balance sheet in the coming weeks, it is unlikely to be enough.

Comments (42)

  • Luckyjim says:

    How fortunate for BA that their IT systems couldnt cope with large volumes of online refunds (existing functionality) but they were able to implement brand new functionality to issue large volumes of Future Travel Vouchers.

    • Anna says:

      Yes and equally fortunate for them that the CAA seems to have swallowed this ridiculous excuse!

      • Nick says:

        I’ve said this before but I do have *some* sympathy for BA on refunds. At the start of covid they had lots of customers asking for refunds when their flights weren’t cancelled – which as we know here means they’re only entitled to taxes back, not the fare. But they didn’t and then got angry when this is what was paid out, so causing more work for BA later. So by forcing them to call, BA can make sure customers are clear about options for voluntary/involuntary cancellations with customers so they’re not disappointed later.

        • ChrisC says:

          I agree with this and I’ve said similar before on here and on BA flyer talk board.

          When the US instituted it’s travel ban I was due to fly a few days later LHR-ARN to position for a series of Finnair flights. The Finnair flights got cancelled within 24 hours of the announcement and I was (eventually) refunded.

          However the BA flights to ARN (and the return) were not cancelled. BA then came up with the voucher offer which I readilly accepted once it became clear that the flights wouldn’t be cancelled which meant a couple of days waiting and regularly updating the app!

          That meant I now have a voucher for £288 rather than a refund of the fees and taxes of around £50.

          As far as I know BA did not have to institute ‘brand new functionality’ to issue FTV vouchers as it was existing functionality though with limited useage before covid hit.

          The new functionality that was needed was to enable FTV for pure cash tickets to be turned into an e- voucher that could be used online.

  • ChrisW says:

    If airlines had a tough summer this year they’re going to have a horrendous winter. Some UK travellers chanced a low risk summer break to Europe this year after so many months of lockdown.

    As the northern winter sets in, apart from ski trips, people need to travel a lot further to have a proper holiday (Dubai, Sth Africa, SE Asia, Caribbean etc). I expect most travellers won’t be comfortable travelling longhaul this winter even if they’re allowed into their destination.

    Should something go wrong in the Algarve (like a sudden quarantine change) it’s relatively easy to get home – you could just drive if worse comes to worst. If you’re in, say, St Lucia, it’s not nearly as easy or stress free.

    I’m interested to see if people travel this winter, and where. It’s a very different situation to summer.

    • Mike P says:

      A good summary of the situation. I, like a fair number of people, took the chance on a week away this summer and it was fine. I usually to the Far East over Xmas and New Year but won’t be chancing that this year.

      When I couple this with a complete lack of work travel in what would normally be a very busy period for me, I can’t see myself getting on a plane again until next spring.

    • ken says:

      Skiing season will be disasterous for the resorts.
      Business is based on cramming people into planes, transfers, hire shops, lifts, cafes, bars and restaurants.

      All with nice cold air keeping the virus alive.

      • ChrisW says:

        Ski season does have some disadvantages like the cold weather though social distancing can be done outside at least – skis are natural distancers!

        It’s also easy to avoid transmission given people wear gloves and face coverings normally in the snow. I would have no issues sitting next to someone on a chairlift if we both wore ski gloves and ski masks.

        • Anna says:

          Wasn’t it skiing holidays that started all this?!

          • tony says:

            Not sure they started it but I think it’s accepted they were a huge accelerator. However it’s the sweaty Apres-ski and packed mountain restaurants where presumably the real risk lies, and to a lesser extent the crowded boot room & ski hire shops. Then you have the fact people inevitably pick up coughs & colds, so there will be someone spluttering their way back on the transfer and plane.

            You can remove some of these risks but sensibly managing them all means self catering and driving there & back with all your own kit. I think it’ll be a shocker of a season. 🙁

          • memesweeper says:

            … and don’t forget the chalets. Lots of people like this kind of accommodation for a week, and it’s almost perfect for transmission.

          • Lady London says:

            Hum…. that was the apres-ski where it got transmitted :-). Not the actual skiing.

          • TGLoyalty says:

            🙂 surely it was Apres Ski lol

        • Alex M says:

          How exactly do gloves help to stop the spread?…

    • marcw says:

      You could go/visit the Canary Islands. But this is not a market BA is strong – Jet2, Ryanair, easyJet, wizzair… are in a much better position.

    • Lady London says:

      Got a feeling a lot of airlines will close almost everythiing for winter. Except possibly around Christmas/New Year and possibly February/school hols.

      So more staff on extendee leave of absence (if they’re lucky) and many more redundant.

  • Charles Rodgers says:

    Airlines & airports better implement their own rapid Covid testing systems soon.

    • Rhys says:

      The problem is that it would require government regulation to make work, and the UK government has been reticent until now. Heathrow has been pushing hard to make it happen, for example.

      • ChrisC says:

        This is a quote from Shapp’s statement to the House of Commons on Monday re possible airport testing

        “the point was brought home to me in a conversation with the head of one of Britain’s major airport groups. He decided to trial airport testing for himself and a group of eight returning holidaymakers. They all tested negative. After a week in quarantine, they took a further ​test and one of their group was positive. This illustrates PHE’s point that, due to the incubation period of this disease, and even using highly accurate tests, the capture rate of those carrying covid-19 may be as low as 7%, leaving 93% of people who are infected free to go about their business, more likely—most likely, under those circumstances—in the misguided belief that they do not carry coronavirus.”

        https://hansard.parliament.uk/commons/2020-09-07/debates/F9C0BD2A-22CB-4A74-AD47-1BE8696F6C9E/InternationalTravel

        • TGLoyalty says:

          That sample is so small I doubt it is statistically accurate.

          In July there were c900k movements from let’s assume 50% are arrivals and 80% of them stay in the UK as transit to other countries will be right down.

          So 360k people entering the UK if 7% had Covid that’s 25k+ positive cases for July. The UK only had c20k in the official figures. Do you really think 7% of passengers were COVID positive? Testing isn’t a silver bullet but it’s a better one than the sledgehammers being used at the moment.

          • TGLoyalty says:

            Rouge “from” in that. Meant to say 900k movements @ LHR

          • Charlieface says:

            No, you’re doing the maths wrong.
            7% of people who are ACTUALLY positive, at current rates about 1%, so 0.07% of 900k would be picked up = 630 and 0.0093% = 8370 who are not picked up.
            Certainly possible a result.
            Although testing 900k people of whom 891k are actually negative, means false positives of around 1% = 8910, so far more false positives than real positives.

          • TGLoyalty says:

            You’re right I linked the two scenarios when what he actually said wasn’t linked statistically.

            1 in 8 having a false positive is 12.5%. I would like to see the data behind the 7% Of Positive being caught and The 93% getting away.

            You could always just quarantine the planes where anyone onboard tests positive.

          • Charlieface says:

            But I agree it’s a tiny sample

  • marcw says:

    The situation at IB and VY is following: staff are on special COVID furlough program, which in the tourism and aviation sector is likely to be extended indefinitely. VY is doing better in terms of operations, as they don’t rely heavily on transfer passengers.
    IB is currently in negotiations with UX and the Spanish Government how to finish UX’s purchase. it looks like as IB will purchase UX via a subsidise from the Spanish Government, to avoid UX failing for bankruptcy.

  • Lady London says:

    Willie Walsh never opens his mouth for nothing.
    Everything said by someone in his level of position, is calculated.

    The fact that it’s being said by Walsh when he has technically left, is BA’s way of saying it without having to acknowledge it’s BA saying it.

    I’m all for supporting BA with state aid, if they want it. Too much industrial destruction going on of valid industries.

    If anyone’s left standing at the end of this, and I’m sure airlines will be, BA is nearly at the top of my list for surviving and thriving after this.

    • Lady London says:

      FWIW I think Willie Walsh did an excellent job for BA and particularly steering them through Covid as it is so far.

      Luis Gallego’s cv is impressive.

      • Rob says:

        What has been done to Iberia since BA bought it is nothing short of miraculous.

        Except the website 🙂

  • Paul says:

    BA isn’t exactly helping its self.

    LHR GLA 5 Feb Fare £31
    GLA LHR 7 Feb Fare £117 on every flight
    RFS available
    Website says £31 fares available but you cant book.
    Amazing how their web site only ever makes mistakes in their favour.