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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

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

Moody's downgrades IAG and BA debt

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.

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)

Moody's downgrades IAG and BA debt

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.

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.


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Comments (39)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • BJ says:

    So what Walsh is really saying is that he (would have) loved state aid if it were a free gift from the taxpayer as opposed to a conditional loan?

    You mention
    Predicted survival times which is interesting. Is there a single list anywhere we can compare these for different airlines?

  • Czechoslovakia says:

    Morning all. Is that IAG rating really identical ba2 to ba1. Looks like an upgrade how it’s written?

  • dezbez says:

    Willie sounds Trump-esque.

  • Opus says:

    If they need state aid. They’ll get it BUT the insults will be heavy. Also I wonder what the government will want in return

  • Dubious says:

    I am interested to know if any other shareholders failed to receive their AGM invitation papers in time?

    I had questions for Mr Walsh and co. But despite registering to attend (to raise these questions) the details were never forthcoming.

  • Stephen Golding says:

    I’m not in favour of state aid.

    But, with coronavirus, I can see the rationale for the government to compensate companies affected by a lockdown that has prohibited much economic activity.

  • Nonplussed says:

    Aer Lingus selecting 8 A321LRs and 6XLRs seems to be a mega order and one wonders what the market is in terms of the Irish diaspora? Maybe EI are targeting that market in Idaho and Thailand..

  • 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.

This article is closed to new comments. Feel free to ask your question in the HfP forums.

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