Aer Lingus and British Airways owner IAG plans to raise €2.75 billion from shareholders to repair the coronavirus-sized hole in its finances and brace for a more chaotic future.
CEO Willie Walsh said the plan, backed by biggest shareholder Qatar Airways, is needed to survive the most severe crisis in aviation history after it lost more in one quarter than it has ever lost in a year.
"It is a terrible time for the industry, but we think that this is the right time to go to our shareholders," he said while speaking on RTÉ’s Morning Ireland.
"Lliquidity remains strong at a group level, we have just over €6 billion of cash and €2.1 billion of facilities, a total facility of €8.1 billion, but as you've seen, we have been burning through cash at a very significant rate, so I want to make sure that we have additional resilience in the business as we go forward."
Burn rate is likely to remain higher for longer, as the return to service after the first wave of Covid-19 has been slower than expected. IAG had hoped to be flying at about 50% capacity by July but was instead at 20%.
"It's terrible results whatever way you look at it - it’s probably a little bit worse than we had expected, given that we had hoped to get back to a higher level of flying by this stage," he said. "It’s clear that the recovery in the industry is going to take quite a bit longer than everybody had expected originally."
Airlines around the world have been brought to their knees by the halt to flights, forcing tens of thousands of job cuts, state bailouts and the collapse of some companies.
Mr Walsh said that IAG, which also owns Iberia and Vueling, was preparing for a structural change and anaemic demand that could last until 2023.
British Airways, which accounts for more than half of IAG's profit, has already said it needs to cut 12,000 jobs.
IAG today reported a pre-tax loss of €4.206 billion for the first half of the year while its operating losses came to €1.365 billion, broadly in line with a consensus forecast for a loss of €1.395 billion.
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Its passenger revenues fell to €315m from €936m last year.
Mr Walsh said the proposed fundraising would give IAG a "very comfortable buffer" to withstand worst-case scenarios.
Goodbody analysts described the capital increase as "expensive money", given that a 5% discount on the offer would result in 70% more shares in issue.
They said the results demonstrated how network carriers with connecting short-haul and long-haul routes will find it more difficult to recover than budget carriers such as Ryanair and EasyJet.
Shares in IAG fell 7% to their lowest level since 2012 at 167 pence this morning and are down 72% this year.
IAG said the proceeds of the cash call would not be used to fund the acquisition of Air Europa, the Spanish airline it agreed to buy for €1 billion last November.
The group said on today that it was in discussions to restructure that deal and Spanish media have reported that IAG is seeking a reduced price of between €500-600m.
A tentative return to flying in Europe, needed to salvage the summer travel season that provides the bulk of airline profits, has been threatened by signs of rising Covid-19 cases in some popular holiday destinations, including Spain and France.
Britain brought in quarantine rules for arrivals from Spain last week and has said it is looking at other countries. The US and India, two big markets for British Airways, remain subject to quarantine rules.
The capital increase is conditional upon shareholder approval on September 8, which Willie Walsh said would be his last day in the job after the postponement of his retirement to steer IAG through the pandemic.
"I will be retiring on September 8 at the AGM when Luis will take over from me. That is firm. We're not going to change that," Walsh told reporters on a call today.
When the pandemic struck earlier this year, Walsh delayed his retirement. Iberia's CEO Luis Gallego is due to succeed him.
IAG also today named Javier Ferran as its new chairman. He is due to take over at the beginning of next year, just months after a new chief executive takes the reins and as the pandemic batters the travel market.
Ferran, who is also chairman of the world's largest spirits maker Diageo, has been on the IAG board since 2019 and will replace Antonio Vazquez.
Ferran said that the airline group had a strong future.
"I am committed to leading the group through this crisis and working with Luis (Gallego) to build a strong future, in which the group will continue to take a leading role in the industry," Ferran said today.
By the time he steps down at the end of this year, chairman Vazquez will have been at the helm for almost ten years with his tenure dating back to the formation of IAG in 2011 through the merger of British Airways and Iberia.