IAG’s Spanish Airlines Tap $1.1 Billion State-Backed Loan

(Bloomberg) -- British Airways owner IAG SA tapped 1 billion euros ($1.1 billion) in state-backed loans for its Spanish units Iberia and Vueling to help weather collapsing travel demand.

The banks involved in the syndicated agreement will ask state-owned Instituto de Crédito Oficial to provide guarantees, and the financing is conditional on those being received, London-based IAG said in a statement Friday.

The move comes as a surprise after IAG Chief Executive Officer Willie Walsh pushed back against state-supported financing for U.K. airlines and said his own company had sufficient liquidity to see it through the coronavirus pandemic.

The loans were “commercial loans agreed with banks in accordance with current market conditions with 70% government guarantee,” IAG said.

Iberia plans to borrow 750 million euros and Vueling 260 million euros. The five-year amortizing loans are repayable at any time, and the deal excludes other IAG companies from tapping on any funds of the Spanish divisions.

IAG Chief Financial Officer Stephen Gunning said in the release that the arrangement “is within the legal framework set up by the Spanish government to mitigate the economic impact of Covid-19.”

Carriers around the world have grounded their fleets as the pandemic wipes out demand and causes countries to erect barriers to travel. IAG has been further hit by a 1.3 billion-euro ($1.4 billion) charge from fuel and currency hedges, adding to a first-quarter operating loss.

IAG doesn't expect passenger numbers to recover to 2019 levels for several years, it said this week. Shares of the fell as much as 5% and were down 2.4% as of 4:06 p.m. in London.

Read more: European Tally of State-Backed Company Loans Reaches $18 Billion