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IAG shares fall close to rights issue price whilst BALPA claims easyJet could go bust in 2021

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IAG, the parent company of British Airways, suffered a sharp fall in its share price this morning. At 10.45am the price was down 14% to 95p.

The reason this matters is that the share price is now getting very close to the 84p (€0.92) price of the current €2.75 billion rights issue.

If you are an IAG shareholder, you should be thinking very carefully about committing to purchase additional shares at 84p. The market price could well fall below 84p shortly, leaving you sitting on an immediate paper loss.

The deadline for deciding whether to take part in the rights issue is only a few days away. This leaves shareholders in a tricky position.

The good news is that IAG is guaranteed the money regardless. The banks arranging the rights issue have agreed to buy all unsold rights, irrespective of how far the IAG share price falls, so the airline will receive the full €2.75 billion.

easyJet reported as saying that the airline may not survive 2021

To give you an indication of how bad things could get, I was sent an audio transcript of a conference call for easyJet pilots. The union reps were explaining what they claimed to have been told last Tuesday by easyJet management:

  • Bookings for Winter 2020 are “even worse than management’s worst fears”
  • The airline did own 80% of its fleet. This is now down to 50% and a further batch of sales may be on the way. Aircraft sales generate some cash but immediately trigger on-going mortgage payments.
  • easyJet is likely to operate no more than 90 aircraft in the UK over the Winter, compared to previous plans for 110+, so additional redundancies may be required
  • Flights which will operate next year are being filled by passengers who took vouchers for cancelled flights in 2020. Any quoted figures for 2021 loads do not necessarily reflect money coming into the business.
  • The airline is at risk of insolvency if it does not have a good Summer next year.

For clarity, these comments are from a report by BALPA reps based on a meeting with easyJet management. You need to make a judgement as to their accuracy.

Category

British Airways and Avios

Comments (93)

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

  • James A says:
    21 Sep21 September 13:17

    Urgh. I have ummed and ahhhed and decided to take up my issue. I am not a massive shareholder and it is a small part of my portfolio. Worst comes to the worst, I can eat the loss.

    I can still see the recovery on the distant horizon, and have faith that IAG can get there and clamber out of this nightmare.

    • old codger says:
      21 Sep21 September 16:58

      Me too. I only bought slightly more than required to get the shareholders discount, now defunct. I took up my issue, plus the option for the same again so I’d reach a nice round number of 1000 shares, but I guess I won’t get those extra ones if the banks are buying them?

      • Novice says:
        21 Sep21 September 17:46

        I bailed. There are many better stocks to buy out there.

        Aviation is dead if it doesn’t change. After this pandemic, there will be Climate Emergency, then maybe another pandemic if humans don’t give up on their love for industrialised farming practices… I recommend everyone to watch David Attenborough’s ‘Extinction; The facts’…

        And, I’m saying this as an aviation fan and an avid traveller… I think Covid is really a practice run for the main event.

        • Lady London says:
          21 Sep21 September 18:12

          If you want to terrify yourself, “Spillover” book available on Amazon, should do the job.

        • Lady London says:
          21 Sep21 September 18:12

          If you want to terrify yourself, “Spillover” book available on Amazon, should do the job.

          Rob has a link.

        • Jerry Butler says:
          21 Sep21 September 19:46

          Brilliant, incisive analysis from, HFP’s resident sage, while your at it, can you tell me the winner of the 2.30 at Lingfield tomorrow.

          • Mike says:
            22 Sep22 September 07:14

            14:30 Lingfield 22 Sep 2020 Betway Maiden Auction Stakes the winner will be LEGENDARY DAY

    • Nigel W says:
      21 Sep21 September 21:32

      I did the same. I’ve already made a loss so in my case, getting a few more won’t really change my situation much!

  • J says:
    21 Sep21 September 13:48

    Perhaps I am being optimistic but I can’t see a return to full-scale lockdown and stricter travel bans than those already in place… That bodes well for BA? But on the current trajectory will BA/easyJet eventually go bust? Could they become another RBS/Lloyds if the taxpayer bails them out?

    • ken says:
      21 Sep21 September 13:54

      A last resort bail out of BA likely to include some equity stake I would say.

      • Andrew says:
        21 Sep21 September 18:14

        And they’ve just renationalised the railways on the quiet, so who knows, maybe the same for BA too.

        • John says:
          22 Sep22 September 07:29

          Old railway model: government specifies routes, train company pays a fee to operate them and try to make a profit doing so. If the company fails the government takes over.

          New railway model: government specifies routes and pays train company a fixed fee to operate them. If route has enough passengers, government makes a profit (or a loss if keeping that line open is politically expedient)

          There is no chance that the government will tell BA what flights to operate and then pay it a fixed fee to fly them.

          • Dubious says:
            22 Sep22 September 17:10

            The former incentivizes the train companies to stimulate demand and reduce costs.
            The later incentivizes the train companies to only reduce costs.

            That doesn’t bode well for quality.

            Wouldn’t want that for aviation too – they already have enough cost cutting going on.

        • mark2 says:
          22 Sep22 September 10:46

          The tracks and signals, the source of most problems, were re-nationalised in 2004.

  • Mark says:
    21 Sep21 September 23:30

    Mark
    Maybe warren buffet was right there isn’t much he fails to understand! He got burnt but got out before he got cooked ! if you want my opinion get out as it will be years before aviation recovery 🛬

  • Dubios says:
    22 Sep22 September 07:11

    Based on my calcuations of my tiny holding, based on yesterday’s pricing and dealing fees, there is only a 2% gain to be made…not much of an incentive given the risk (in ability to trade during the period).

    • Lady London says:
      22 Sep22 September 09:38

      Yes retail trading fees are a ripoff and poor access compared to what the institutions get. So even if you make investments as a retail investor that make you a profit, which is difficult enough, the higher trading fees and the scandalous fact that your trades may be actioned much later than you are instructed, means a constant high cost to overcome on retail portfolios. Whereas the institutions trade in a instant and due to lower costs they make money on very small stock movements which a retail investor cant do.

      The regulator is apparently going to look at trying to even up the playing field a bit but there’s quite a few things earlier on the list.

      • mr_jetlag says:
        22 Sep22 September 13:59

        Iweb levies a £5/trade flat fee, but I take your points on execution and bulk trading – this is why the house always wins on any strategy that involves lots of trades and why day trading is almost never profitable. Regulation won’t move the needle much on this and MIFID just raises the trade costs for everyone.

  • SimonP says:
    22 Sep22 September 08:03

    re EasyJet, my personal experience is of booking flights for May to PSA to have them cancelled, then rebooked to 24 October, to have it cancelled and rebooked to 25 October, only to have that cancelled. Gave up and asked for refund! Other family members trying to get to PSA but no flights at all (or marked Sold Out) for most of October. I can’t find out why this is. If that is the way easyJet operate then not surprising they are in trouble.

    • Dan says:
      22 Sep22 September 08:18

      Same experience here with flights to Barcelona with Easyjet, outboung cancelled, rebooked, cancelled, no flights operating I can move them to. This for flights booked for July, August and October. Fed up and requested refund and rebooked with BA. I am not going anywhere near Easyjet over the next year based on that.

      • Lady London says:
        22 Sep22 September 09:49

        You wont find other airlines running many flights either that you can book to.

        Easyjet canned most of their routes completely from late Sept till 25th October and I expect them to do the same for November.

        BA was my backup but as soon as the slot-sitting decision came out, that night BA’s computers cancelled route after route day after day. I literally watched all the days disappear search after search that night.

        Midweek flights are mostly gone everywhere. BA has a few still running but only if travelling at week endings suits you. Ryanair – yes thats how bad it got I was even looking at Ryanair – has the odd midweek flight with mostly weekends.

        So you cant even book on another airline on a lot of routes for October as there’s nothing. No reason for them to put flights back in November either.

        As I mentioned before “Sold Out” on an Easyjet flight means “we’re pretty sure we’re going to cancel this and we’ll get around to doing this 4-2 weeks before”. Keep watching if you’re booked though just in case a rare instance of it not ending up cancelled should arise.

        • Dan says:
          22 Sep22 September 10:09

          I agree, fortunately I am flying Sunday to Sunday. On the return leg (October 4th), when I booked last week, there were 6 or 7 flights available. I checked earlier today and there are only 2 available, so I have been lucky I didn’t book one of the ones that have been cancelled.

          Still, no guarantee there will be no issues, but with less than 2 weeks to go I hope it will be alright.

          Something else that put me off Easyjet (and they have been my carrier of choice for short haul over the past few years) was that I ended up hanging up after being on hold for 2 hours to customer service. At least with BA they answered within 30 minutes, requested refund for a different flight, and got the money back in my AMEX the next day.

  • JP-MCO says:
    22 Sep22 September 08:30

    Disney is a good share to have as part of your portfolio at the moment. One would naturally think that their shares have devalued as a result of the park closures (and they did) but the launch of their new streaming service Disney+ has really caused it to bounce back of late. Amazingly, in spite of the restricted crowd levels and numerous resort closures Walt Disney World is actually turning a small profit at the moment.

    • Lady London says:
      22 Sep22 September 09:59

      This is why it’s such a scandal we’re all still paying for the BBC.

      The licence fee should be abolished – we were promised it would be abolished by 1997 or so before – and the BBC should pay the government a percentage of its revenue from advertising and backlist sales.

      In turn the government should pay the BBC fixed and variable amounts for unbiased news coverage and educational docunentaries. The BBC has a huge valuable backlist and the net would be we/ the government dont have to subsidise the likes of J Ross anymore.

      And quite why the BBC hasnt grabbed subscription territory and gone worldwide with it – they could still make a fortune every year selling 2 to Netflix’s 6 is beyond me. Perhaps life is too easy for the BBC to bother?

      • AJA says:
        22 Sep22 September 17:51

        The trouble is the BBC loves the guaranteed income from the TV tax (I mean who would pass up the opportunity to get £3.6bn every year?) plus it has adopted the subscription model – it’s called Britbox which has been on sale to the US and Canada for years, it was just called BBC America before now. They’ve now decided to bring that over this side of the pond, teamed up with ITV and C4, and all three use it to charge us again to watch programs the TV tax and other investment (C4 and ITV) has already paid to produce. And before that it invested heavily in UKTV otherwise known as Dave, Gold, Yesterday etc which earns it a nice little sum in program rights and advertising revenue. The thing is all of that is under the umbrella of the BBC Commercial arm so “separate” from the TV tax. What is annoying is that it could easily survive on its own merit but it cries that it is hard done by.

        • Lady London says:
          22 Sep22 September 18:55

          Exactly. You summed it up @AJA.

          I’m tired of my teat being sucked at by the greedy and lazy BBC.

          There is worldwide appetite for BBC content – even ancient – and the BBC should have got off its chff and grabbed the market.

          If Netflix et al grab it all then the lazy BBC that’s let all these oportunities slip away, will be back to suck on the UK public some more.

          Really, really had enough of it. The BBC should be a heavy net posutive contributor to the YK balance sheet and expand its commercial reach worldwide.

          With so much that will be lost because we have to pay for Covid now’s the time for our gutless regulators and all political parties to cut the BBC loose.

  • Dev says:
    22 Sep22 September 09:00

    I’m tempted to bug some IAG shares … they were trading at double, almost treble the current price pre-covid. I just cannot think of world without airlines and another with only low cost ones. People are not ready to trade in The Maldives for Margate!

    Airlines are suffering but maybe IAG were clever to drag out employee restructuring rather than rush headlong into it. Look at the American carriers, Lufty and Virgin, all of whom have announced further redundancies
    To the headline figures 2/3 months ago.

    I do think IAG are structurally sound if you take away covid induced panic.

    • Rob says:
      22 Sep22 September 09:11

      IAG is still bankrupt within a year if there is not a sharp recovery in business though.

      EasyJet admitted this in the conference call I allude to above. They didn’t expect to be around next Autumn unless they have a blockbuster Summer. Happy to email the call if you don’t believe me.

    • marcw says:
      22 Sep22 September 10:01

      So far BA is losing £20m, LH €16m, AF-KLM €10m… per day. I suspect the 3Q results are going to be VERY interesting.

  • Novice says:
    22 Sep22 September 09:52

    As I said before aviation needs to change. I read that Airbus are developing concepts of no emission planes running on hydrogen and electric. I think that’s the future. A Tesla-esque disruptor needs to get in there. Damn I should have studied engineering.

    • Rhys says:
      22 Sep22 September 09:52

      Yes, it’s the future. Quite far into the future! If it were easy or cheap it would have happened already 🙂

      • Mr. AC says:
        22 Sep22 September 11:08

        Actually it might be not that far! It all hinges on battery energy density, which has been improving steadily. And the timeline might meaningfully shift literally today (Elon Musk is doing a “Battery Day” event).

        • Rhys says:
          22 Sep22 September 11:25

          Airbus ditched its battery demonstrater and pivoted towards hydrogen because the rate of improvement in batteries wasn’t happening fast enough.

          Batteries are viable for passenger vehicles now, but even then they are not viable over long distances. Now imagine you have to lift those extremely heavy batteries to 30,000 feet and you can’t recharge them every 300 miles. That’s a problem.

          Hydrogen is the future for aircraft in the near term, but even then it’s still a 15 years away for the FIRST major aircraft program. Aircraft development cycles are already long enough with proven technologies – it’s a whole different game when you still have to R&D the propulsion tech as well!

          • Mr. AC says:
            22 Sep22 September 12:30

            You seem to be very sure of hydrogen for some reason… However judging from what you’re saying re: battery-powered plains, I don’t think you looked into the actual practical designs (that depend on the energy density falling).
            1. The electric plane would fly much higher than current aircraft and would be supersonic, since at a certain altitude you can go supersonic with less energy than subsonic at 30k feet. Combustion aircraft have a “sweet spot” of altitude and get less efficient above that. Electric planes are more efficient the higher you go.
            2. It takes very little energy to cruise, the main energy expense is getting as high up as possible – so there’s no need to recharge (you’ll recoup most of the energy you need on the way down). So it wouldn’t be like with cars 100 miles, then 150, then 300 based on incremental improvement. Once you cross a certain threshold that requires reaching high altitudes, very small improvements to batteries and/or efficiency would increase your range dramatically. So you would basically start with aircraft that have 1000-2000 km range and go from there.
            3. You’d also not need large airports since this type of aircraft could takeoff vertically (like a helicopter) due to the higher power-to-weight ratio of electric motors if they are gimbled.

            So once the batteries get good enough, these can be built. And then the question is – how do you get something like this (entirely new aircraft tech) as reliable and safe as what the current aviation industry has, so that the airlines buy them and the flying public is fine with getting on one? Here I really don’t have an idea how it can go, I can’t think of anything even remotely analogous. But I’d say that assuming battery tech gets there (and we’re close!), the airline industry is up for a massive shake-up 10-15 years down the line, not even close to COVID.

          • Rhys says:
            22 Sep22 September 13:28

            No sorry, electric planes are not more efficient the higher you go as they still fundamentally operate by spinning a massive fan which creates thrust. When the air is less dense the fan is less effective. Fans become increasingly useless the thinner the atmosphere gets, which is why Virgin Galactic’s spaceplane uses rocket technology for its final ascent!

            I agree that “once batteries get good enough” using batteries make sense. But that’s the sticking point – once they are good enough. Airbus seems to think that at the current pace it won’t be fast enough for a production ready aircraft by 2035. If, in 5 years time, a radical new battery chemistry is discovered that is lighter and/or has much higher energy density then you can go back to the drawing board, but until then it seems like Airbus have decided it won’t work.

          • Lady London says:
            22 Sep22 September 19:01

            Wasnt hydrogen tried with airships a long time ago? Didnt rather a lot of them go bang?

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