BA raises $1 bn to avert cash crisis

British Airways unveiled a $1 billion fundraising aimed at securing its future, including $540 million in bank loans that had been earmarked for its pension funds as a safety net against the airline going bust.

The cash removes any immediate threat to the struggling carrier as it endures one of the aviation sector's worst ever downturns, coupled with competition from budget carriers, chief executive Willie Walsh told reporters yesterday.

BA shares were up 3.7 per cent at 137 p in the morning, having fallen nearly 70 per cent in value over the past year.

The company, with pension liabilities estimated at over £3 billion, said pension fund trustees had agreed the best way to prevent BA going to the wall was for bank guarantees provided in 2006 to be handed back.

These guarantees were accessible by the trustees only in the event of the airline's insolvency.

BA also said it planned to raise £300 million through a convertible bond issue, boosting its balance sheet by a total of about £600 million. The airline also unveiled a first-quarter loss of around £100 million.

"This ensures that in all but the most extraordinary circumstances BA will emerge from the downturn intact, and without issuing too many shares (via a rights issue)," Evolution analyst Nick Cunningham said. "It is a very good compromise."

David Cumming, head of UK equities at BA shareholder Standard Life Investments, said the fundraising would be well received by investors, but must be followed up by continued cost discipline.

"It was important to do the funding. Now, if it keeps costs under control things will improve," he told BBC radio.

Walsh said BA was now "one of the strongest airlines in terms of cash. Our trading position is difficult, but we have taken action ahead of competitors. The situation has now improved for (pension scheme) members".

Global sales of lucrative business class fares, which account for about 25 per cent of airline revenues, fell 23.6 per cent in May, the International Air Transport Association said on Thursday, underscoring the severity of the aviation sector slump.

BA has responded to the downturn by slashing costs, and is negotiating changes in pay and working conditions that could lead to thousands of job cuts.

BA also said yesterday it expected an operating loss of £100 million for the three months ending June 30, on revenues of £1.98 billion. It said the loss, which compares with an operating profit of £35 million a year ago, was "slightly better than market expectation".

BA's convertible bond issue was fully taken up by investors, sources told Reuters. The notes fall due in 2014 and will be convertible into 15-20 per cent of the airline's shares.

Also yesterday, a person familiar with the matter told Reuters that BA had hired investment bank Reynolds Partners to find a buyer for its loss-making upmarket airline OpenSkies which flies from Amsterdam and Paris to New York.

The Daily Telegraph reported OpenSkies had been valued at £30-70 million.

A BA spokeswoman said: "We are reviewing all aspects of our business ... OpenSkies is a small part of our business and its losses are not significant compared to losses in other parts of the company".