TIDMIAG
RNS Number : 7347U
International Cons Airlines Group
31 July 2020
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ANNOUNCEMENT.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
FOR IMMEDIATE RELEASE
31 July 2020
International Consolidated Airlines Group, S.A.
Proposed Capital Increase of up to EUR2.75 billion
Strengthening IAG's Financial and Strategic Position for the
Future
International Consolidated Airlines Group, S.A. ("IAG", the
"Company" and, together with its subsidiaries, the "Group") today
announces its proposal to undertake a capital increase with
pre-emptive subscription rights to raise gross proceeds of up to
EUR2.75 billion (the "Proposed Capital Increase"). Qatar Airways
Group (Q.C.S.C) ("Qatar Airways"), IAG's largest shareholder (25.1
per cent. holding), has confirmed its support for the Proposed
Capital Increase and irrevocably undertaken to subscribe for its
pro rata entitlement. The remainder of the Proposed Capital
Increase is fully underwritten on a standby basis.
Key Highlights
-- The Proposed Capital Increase will strengthen IAG's balance
sheet by reducing financial leverage and increasing IAG's overall
liquidity position.
-- IAG has a proven and successful operating model underpinned
by its portfolio of world-class brands, global leadership positions
in each of its home markets and unique structure. The Group has a
strong track record of value-enhancing consolidation and delivering
value to shareholders through industry-leading returns and growing
profitability.
-- IAG acted quickly to mitigate the impacts of the COVID-19
pandemic, bolster liquidity and to protect its long-term future.
These actions preserved cash through a range of measures including:
capacity reductions; lowering operating costs; accessing job
retention schemes in the UK, Spain and Ireland; reducing
discretionary spending, including halving planned capex over the
next three years, and significantly reducing fleet deliveries.
-- IAG has also accessed additional pools of liquidity including
the c.GBP750 million extension of its worldwide commercial
partnership with American Express and secured further aircraft
financing.
-- IAG believes the Proposed Capital Increase, together with its
quick response to the crisis, should enable the Group to emerge
from the current pandemic in a strong position, with more
resilience, greater flexibility and the ability to make the right
operational and strategic decisions for the long term benefit of
all its stakeholders.
-- The Proposed Capital Increase to raise up to EUR2.75 billion is designed to:
-- enable IAG to strengthen its balance sheet and reduce leverage;
-- enhance liquidity and help IAG withstand a more prolonged
downturn in air travel based on IAG's stressed, downside scenario
planning; and
-- provide IAG with the operational and strategic flexibility to
take advantage of a recovery in demand for air travel.
-- Qatar Airways, IAG's largest shareholder (25.1 per cent.
holding), has confirmed its support for the Proposed Capital
Increase and has irrevocably undertaken to take up its rights in
full and to vote in favour of all resolutions to be proposed at the
Company's Annual Shareholders Meeting ("Shareholders Meeting") that
are required to give effect to the Proposed Capital Increase. Qatar
Airways has proposed two directors to join the Board of the Company
at the Shareholders Meeting as non-executive directors, within
Qatar Airways' proportionate representation rights under Spanish
law.
Willie Walsh, CEO of IAG said:
"Our industry is facing an unprecedented crisis and the outlook
remains uncertain. However, we strongly believe that now is the
time to look to the future and strengthen IAG's financial and
strategic position. While we have had to make tough decisions on
both people and costs, these actions are the right ones to protect
as many jobs and serve as many customers as feasible and put IAG in
the strongest position possible. The industry will recover from
this crisis, though we do not expect this to be before 2023, and
there will be opportunities for IAG to capitalise on its strength
and leadership positions."
Luis Gallego, CEO-elect of IAG said:
"Since its formation in 2011, IAG has delivered value to
shareholders by making bold decisions generating industry-leading
returns. We are delighted that our largest shareholder, Qatar
Airways, has committed its support for the Proposed Capital
Increase and we look forward to our continued long-term
collaboration.
We want to make our customers feel as comfortable as possible
when flying with us and have introduced a range of measures to
achieve this. We are seeing early signs of passenger demand
returning and while early days in this recovery, now is the time
for us to be bold again and ensure IAG emerges from this current
crisis in a strong position."
Background to and reasons for the Proposed Capital Increase
Impact of, and the Group's response to, the COVID-19
pandemic
The COVID-19 pandemic led to governments implementing numerous
wide-ranging measures in an attempt to contain the spread of the
virus. This has caused a severe economic downturn in many countries
and an unprecedented decrease in demand for both domestic and
international air travel resulting in industry-wide reductions in
capacity, traffic and volumes.
As an immediate response to the challenging market environment,
the Group undertook measures to mitigate, as far as possible, the
negative financial and operational impacts of the COVID-19
pandemic. These actions included:
-- Significant reduction in weekly operating costs: reducing
passenger capacity by 95 per cent. in 2Q 2020, cutting
non-essential spending, implementing trade union agreed salary
reductions for staff, reductions in management remuneration and
Board fees, as well as contractor layoffs. IAG also accessed
government employee support schemes by furloughing staff in the UK,
Spain and Ireland. These combined actions have resulted in a
reduction of weekly cash operating expenses from EUR440 million in
1Q to EUR205 million in 2Q 2020 (EUR193 million excluding
cargo-driven flight costs);
-- Halving 2020-2022 gross capex: 2020-2022 planned gross capex
halved by c.EUR7.0 billion to EUR7.3 billion, of which EUR1.5
billion in 2020, EUR2.3 billion in 2021 and EUR3.1 billion in 2022,
and securing financing for all 2020 fleet capex;
-- Material reduction in fleet deliveries: 2020-2022 aircraft
deliveries have been reduced by 68 to 75 through deferrals and
cancellations and further fleet retirement has been implemented,
including the retirement of 53 long haul aircraft by the end of
2020. IAG maintains the flexibility to return additional leased
aircraft in 2021 (42 aircraft) and 2022 (54 aircraft);
-- Proactive working capital management: net working capital
inflow of EUR447 million in 1H 2020 as a result of a number of
actions such as collecting outstanding revenue from agency billing
process due from 2019; acceleration of invoicing and focus on
collections; management of customer booking cancellations;
negotiated supplier payment deferrals and sale of loyalty points
from promotional activity; and
-- Decisive actions to boost liquidity: $1.38 billion British
Airways RCF extended; EUR337 million final dividend for 2019
cancelled; raising GBP0.3 billion from the UK Covid Corporate
Finance Facility and EUR1.0 billion in term loans (which are 70 per
cent. guaranteed by the ICO in Spain); and arranging c$1.0 billion
of bridge facilities secured against aircraft. In addition the
Group has secured c.EUR780 million from the sale and leaseback of
10 aircraft and c.GBP750 million from the extension of the
worldwide commercial partnership with American Express.
As a result of the actions taken by IAG (excluding the proceeds
of the Proposed Capital Increase) the Group had a liquidity
position at 30 June 2020 of EUR8.1 billion, comprising cash and
cash equivalents of EUR6.0 billion and EUR2.1 billion of undrawn
general and committed aircraft finance facilities. This compares to
a liquidity position of EUR8.6 billion as at 31 December 2019 and
is before the c.EUR380 million sale and leaseback of 5 aircraft
completed in July and receipt of the c.GBP750 million extension of
the worldwide commercial partnership with American Express expected
in August.
As at 30 June 2020, (and based in each case on the preceding 12
month period) the Group's leverage (net debt to EBITDA) was 4.2x,
compared to 1.4x as at 31 December 2019, reflecting both the
reduction in EBITDA generated in the period as a result of reduced
passenger demand and the increase in financial debt raised to
strengthen the Group's liquidity position.
IAG expects that global passenger demand will not return to 2019
levels until at least 2023 and the Board believes that enhancing
the Group's financial strength will serve to reinforce its
strategic position in that period.
The Group's long-term strategy
The Group has a strong track record of delivering value to
shareholders through an agile and resilient business model,
leveraging its strengths to advance its strategic priorities with a
view to becoming the world's leading airline group. In order to
realise its objectives, the Group's long-term strategy has three
key priorities:
-- Strengthening a portfolio of world class brands and
operations, ensuring that its businesses deliver an unrivalled
customer proposition that can adapt and meet changing customer
expectations driving strong levels of customer satisfaction;
-- Growing sustainable global leadership positions, taking
advantage of organic and, where appropriate, inorganic
opportunities; and
-- Enhancing the Group's common integrated platform,
strengthening the linkages between operating companies and
unlocking additional value.
While the Group is focused in the near-term on maintaining its
financial strength by optimising its cost structure and minimising
cash burn, its long-term strategy is not expected to change due to
the impact of the COVID-19 pandemic. The Group does, however,
envisage the potential for changes in the industry overall (for
example, changes in levels of demand by customer segment and
geographical changes, with certain markets becoming more desirable
than others), but these are yet to be evidenced. The Group
continually monitors industry developments and will adapt and
adjust its strategy and business model if necessary (in particular,
in light of the ongoing uncertainties relating to the impact of the
COVID-19 pandemic).
Rationale for the Proposed Capital Increase
In light of the impact of the COVID-19 pandemic on the Group,
the Board believes that enhancing the Group's financial position is
vital to ensuring that IAG has sufficient liquidity throughout a
more prolonged downturn in air travel as it seeks to deliver on its
strategy.
The purpose of the Proposed Capital Increase is to strengthen
IAG's balance sheet by reducing financial leverage and increasing
IAG's overall liquidity position. IAG believes that by taking this
action it can provide greater financial certainty for the Group as
it right-sizes the business for the future. IAG believes the
Proposed Capital Increase, together with its quick response to the
crisis, will enable the Group to emerge from the current pandemic
in a strong position, with more resilience, greater flexibility and
the ability to make the right operational and strategic decisions
for the long-term benefit of all its stakeholders.
As part of its capacity planning, the Group developed a downside
scenario in order to help assess the impact of a more prolonged and
severe downturn in global air travel with a slower recovery in
passenger demand when compared to its current capacity planning
scenario.
When assessing the amount to be raised via the Proposed Capital
Increase, the Board considered a range of financial and operating
metrics. The Board believes that the Proposed Capital Increase and
the announced management actions will not only reduce IAG's
leverage but should also ensure that the Group has sufficient
liquidity throughout its downside scenario.
The downside scenario reflects an overall reduction in passenger
capacity of c.66 per cent. in 2020 (compared to the current
capacity planning scenario of c.59 per cent.) and a slower recovery
in passenger ASK in 2021 compared to the current capacity planning
scenario with both scenarios only converging by the second half of
2022. The downside scenario also assumes reduced revenue from cargo
and other activities as well as an adverse near-term working
capital profile. These assumptions remain uncertain and subject to
the continued easing of lockdowns and travel restrictions. To
partially offset the negative impact of the cumulative assumptions
in the downside scenario, IAG has identified a number of additional
mitigating actions including a number of operating cost and
non-fleet capex related actions that could be implemented, if
required.
Despite the unprecedented reduction in passenger demand in the
second quarter and the continued spread of COVID-19 in North and
South America, the Group is seeing early signs of demand recovery,
albeit from a very low base, particularly in the domestic Spanish
and international short haul markets. The Board will monitor and
evaluate these developments with the management team in order to
understand the implications for the Group.
In order to encourage customers to return to air travel, the
Group has implemented a clear plan to ensure customer confidence
during the return to service. However, IAG continues to be impacted
by certain travel restrictions and advisories, some of which are
subject to change at short notice.
Use of Proceeds
The net proceeds of the Proposed Capital Increase will be used
to strengthen the Group's balance sheet by reducing financial
leverage and increasing IAG's overall liquidity position.
Air Europa
In spite of the unprecedented impact that the COVID-19 pandemic
has had on the airline industry, the Board continues to believe
that the acquisition of Air Europa by IAG would have considerable
strategic and financial benefits for IAG and its shareholders.
IAG and Globalia Corporación Empresarial, S.A. are engaged in
active discussions regarding a potential restructuring of the
acquisition to take into account the impact of the COVID-19
pandemic, and a further announcement will be made as
appropriate.
The net proceeds of the Proposed Capital Increase are not
planned to be used to fund the acquisition.
Qatar Airways Support
Qatar Airways, IAG's largest shareholder (25.1 per cent.
holding, as at the last practicable date ahead of this
announcement), has entered into an irrevocable undertaking to vote
in favour of the resolutions at the Shareholders Meeting and
subscribe for its pro rata entitlement under the Proposed Capital
Increase when it is launched. Qatar Airways has proposed two
directors to join the Board of the Company at the Shareholders
Meeting as non-executive directors, within Qatar Airways'
proportionate representation rights under Spanish law.
Qatar Airways Group Chief Executive Mr. Akbar Al Baker said:
"Our investment in IAG has always been for the long term and we
continue to support the Company through these difficult times for
our industry. We are confident that IAG will emerge from this
global crisis as Europe's leading airline group and we look forward
to working closely together to deliver our joint vision to enhance
travel opportunities for airline passengers across the globe."
Directors' Intentions
Each Director who is a shareholder and who is able to
participate in the Proposed Capital Increase has confirmed his or
her intention to take up in full or in part his or her entitlement
to subscribe for new shares.
Underwriting
IAG has entered into a standby underwriting agreement for up to
EUR2.75 billion, less the Qatar Airways entitlement that is subject
to the irrevocable undertaking, with Goldman Sachs International,
Morgan Stanley & Co. International plc and Deutsche Bank
Aktiengesellschaft in connection with the Proposed Capital
Increase. The standby underwriting agreement is expected to remain
in place until the publication of the prospectus, at which point it
will be replaced by a full underwriting agreement.
Timetable
The Proposed Capital Increase will be conditional on the
approval of the shareholders of the Company at the Shareholders
Meeting to be held on 8 September 2020. A call notice of the
Shareholders Meeting will be published by the Company shortly and
include the relevant resolution for the Proposed Capital Increase
as well as others to be put to shareholders.
Subject to shareholders approving the Proposed Capital Increase
at the Shareholders Meeting, the Proposed Capital Increase is
expected to be launched as soon as possible after the Shareholders
Meeting. A prospectus setting out full details of the Proposed
Capital Increase, including the terms and conditions, is expected
to be published at the time.
Steve Gunning
Chief Financial Officer
31 July 2020
CONTACT DETAILS
Goldman Sachs (Joint Financial Adviser and Joint Global
Coordinator)
+44 (0) 207 774 1000
Anthony Gutman
Richard Cormack
Nimesh Khiroya
Morgan Stanley (Joint Financial Adviser, Joint Global
Coordinator and Joint Corporate Broker)
+44 (0) 207 425 8000
Colm Donlon
Henrik Gobel
David Kitterick
Deutsche Bank (Joint Global Coordinator and Joint Corporate
Broker)
+44 (0) 207 545 8000
Matt Hall
Javier Rapallo
Saadi Soudavar
Rothschild & Co (Independent Financial Adviser to IAG)
+44 (0) 207 280 5000
John Deans
Peter Nicklin
Shannon Nicholls
IMPORTANT NOTICES
These materials may not be published, distributed or transmitted
in the United States, Australia, Canada, Hong Kong, Japan, New
Zealand, Singapore, South Africa, Switzerland or the United Arab
Emirates, or in any other jurisdiction in which the distribution,
release or publication would be restricted or prohibited. These
materials do not constitute an offer of securities for sale or a
solicitation of an offer to purchase securities (the "Securities")
of the Company in the United States or any other jurisdiction. The
Securities may not be offered or sold in the United States absent
registration or an exemption from registration under the U.S.
Securities Act of 1933, as amended (the "Securities Act"). The
Securities have not been, and will not be, registered under the
Securities Act. There will be no public offer of securities in the
United States.
This announcement is an advertisement and not a prospectus for
the purposes of the Prospectus Regulation. A final form prospectus,
which is expected to be approved by the Spanish National Securities
Market Commission (Comisión Nacional del Mercado de Valores), will
be prepared and made available to the public in accordance with the
Prospectus Regulation. The approval of the prospectus should not be
understood as an endorsement of the securities. Investors should
not subscribe for or purchase any transferable securities referred
to in this announcement except on the basis of information
contained in the prospectus published and should read the
prospectus before making an investment decision in order to fully
understand the potential risks and rewards associated with the
decision to invest in the securities. The final form prospectus,
when published, will be available on the website of the Spanish
National Securities Market Commission (www.cnmv.es) and the website
of the Company ( www.iairgroup.com).
This announcement does not constitute a recommendation
concerning any investor's decision or options with respect to the
Proposed Capital Increase. The price and value of securities can go
down as well as up. Past performance is not a guide to future
performance. The contents of this announcement are not to be
construed as legal, business, financial or tax advice. Each
shareholder or prospective investor should consult his, her or its
own independent legal adviser, business adviser, financial adviser
or tax adviser for legal, financial, business or tax advice.
Apart from the responsibilities and liabilities, if any, which
may be imposed on Goldman Sachs, Morgan Stanley and Deutsche Bank
(together, the "Underwriters") by the FSMA or the regulatory regime
established thereunder, neither of the Underwriters nor any of
their respective affiliates accepts any responsibility or liability
whatsoever and makes no representation or warranty, express or
implied, for the contents of this announcement, including its
accuracy, fairness, sufficiency, completeness or verification or
for any other statement made or purported to be made by it, or on
its behalf, in connection with the Company or the Proposed Capital
Increase and nothing in this announcement is, or shall be relied
upon as, a promise or representation in this respect, whether as to
the past or future. Each of the Underwriters and their respective
affiliates accordingly disclaims to the fullest extent permitted by
law all and any responsibility and liability whether arising in
tort, contract or otherwise (save as referred to above) which it
might otherwise have in respect of this announcement or any such
statement. Furthermore, each of the Underwriters and/or their
affiliates provides various investment banking, commercial banking
and financial advisory services from time to time to the
Company.
Goldman Sachs International ("Goldman Sachs") is authorised in
the United Kingdom by the Prudential Regulation Authority (the
"PRA") and regulated in the United Kingdom by the Financial Conduct
Authority (the "FCA") and the PRA. Goldman Sachs is acting as Joint
Financial Adviser and Joint Global Co-ordinator to the Company and
no other person in connection with this announcement and will not
be responsible to anyone other than the Company for providing the
protections afforded to clients of Goldman Sachs nor for providing
advice to any person in relation to any matters referred to in this
announcement.
Morgan Stanley & Co. International plc ("Morgan Stanley") is
authorised in the United Kingdom by the PRA and regulated in the
United Kingdom by the FCA and the PRA. Morgan Stanley is acting as
Joint Financial Adviser, Joint Global Co-ordinator and Joint
Corporate Broker to the Company, and will not regard any other
person as a client and will not be responsible to anyone other than
the Company for providing the protections afforded to clients of
Morgan Stanley nor for providing advice to any such other
person.
Deutsche Bank Aktiengesellschaft ("Deutsche Bank") is authorised
under German Banking Law (competent authorities: European Central
Bank and German Federal Financial Supervisory Authority ("BaFin"))
and, in the United Kingdom, by the Prudential Regulation Authority.
It is subject to supervision by the European Central Bank and the
BaFin, and to limited supervision in the United Kingdom by the
Prudential Regulation Authority and the Financial Conduct
Authority. Details about the extent of Deutsche Bank's
authorisation and supervision by these authorities are available on
request. Deutsche Bank is acting as Joint Global Co-ordinator and
Joint Corporate Broker to the Company and no other person in
connection with this document and will not be responsible to anyone
other than the Company for providing the protections afforded to
clients of Deutsche Bank nor for providing advice to any person in
relation to any matters referred to in this announcement.
N. M. Rothschild & Sons Limited ("Rothschild & Co"),
which is authorised and regulated by the FCA in the United Kingdom
is acting exclusively for the Company and no one else in connection
with the Proposed Capital Increase or any other matter referred to
in this announcement and will not regard any other person (whether
or not a recipient of this announcement) as a client and will not
be responsible to anyone other than the Company for providing the
protections afforded to clients of Rothschild & Co or for
providing advice in connection with the Proposed Capital Increase
or any other matter referred to in this announcement.
None of Goldman Sachs, Morgan Stanley, Deutsche Bank or
Rothschild & Co, nor any of their respective subsidiaries,
branches or affiliates, nor any of their respective directors,
officers or employees owes or accepts any duty, liability or
responsibility whatsoever (whether direct or indirect, whether in
contract, in tort, under statute or otherwise) to any person who is
not a client of Goldman Sachs, Morgan Stanley, Deutsche Bank or
Rothschild & Co in connection with the Proposed Capital
Increase, this announcement, any statement contained herein, or
otherwise.
Forward-Looking Statements
Certain statements included in this announcement are
forward-looking. These statements can be identified by the fact
that they do not relate only to historical or current facts. By
their nature, they involve risk and uncertainties because they
relate to events and depend on circumstances that will occur in the
future. Actual results could differ materially from those expressed
or implied by such forward-looking statements.
Forward-looking statements often use words such as "expects",
"may", "will", "could", "should", "intends", "plans", "predicts",
"envisages" or "anticipates" or other words of similar meaning.
They include, without limitation, any and all projections relating
to the results of operations and financial conditions of
International Consolidated Airlines Group, S.A. and its subsidiary
undertakings from time to time (the 'Group'), as well as plans and
objectives for future operations, expected future revenues,
financing plans, expected expenditure and divestments relating to
the Group and discussions of the Group's business plan. All
forward-looking statements in this announcement are based upon
information known to the Group on the date of this announcement and
speak as of the date of this announcement. Other than in accordance
with its legal or regulatory obligations, the Group does not
undertake to update or revise any forward-looking statement to
reflect any changes in events, conditions or circumstances on which
any such statement is based.
Actual results may differ from those expressed or implied in the
forward-looking statements in this announcement as a result of any
number of known and unknown risks, uncertainties and other factors,
including, but not limited to, the effects of the COVID-19 pandemic
and uncertainties about its impact and duration, many of which are
difficult to predict and are generally beyond the control of the
Group, and it is not reasonably possible to itemise each item.
Accordingly, readers of this announcement are cautioned against
relying on forward-looking statements. Further information on the
primary risks of the business and the Group's risk management
process is set out in the Risk management and principal risk
factors section in the Annual Report and Accounts 2019; these
documents are available on www.iairgroup.com. All forward-looking
statements made on or after the date of this announcement and
attributable to IAG are expressly qualified in their entirety by
the primary risks set out in that section. Many of these risks are,
and will be, exacerbated by the COVID-19 pandemic and any further
disruption to the global airline industry and economic environment
as a result.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ARIRBMATMTJJMAM
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