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British Airways owner IAG has announced plans for a capital raising of up to €2.75bn to strengthen its finances as the impact of the pandemic rips through the aviation industry.

The rights issue, backed by its biggest shareholder Qatar Airways, comes as the airline operator has cut spending and restructured its business to cope with this year’s unprecedented downturn in passenger numbers. IAG reported a €4bn loss in the first half and warned it will take at least until 2023 for passenger demand to recover to last year’s levels. It is also now in “active discussions” to potentially restructure its €1bn acquisition of Air Europe, which was agreed last November.

Chief executive Willie Walsh said he has seen evidence that passenger demand recovers when government restrictions are lifted, but the UK government’s sudden imposition of a quarantine on travellers returning from Spain, and the industry’s furious reaction, illustrates the uncertain outlook he faces.

Briefly

Grim results from NatWest cap a frantic week of earnings that has illustrated the depth of the pandemic’s impact on the UK’s biggest companies. The bank, which recently changed its name from RBS, reported a £2.1bn impairment charge for the second quarter, more than double the provision in the first three months of the year. Bank results offer a particularly useful window into the real economy, and RBS is the latest in a string of lenders to report a rise in provisions to deal with bad debts this week.

The London Stock Exchange has said it is in “exploratory discussions” to sell its Italian bond trading venue or the whole of its parent Borsa Italiana. The LSE’s stake in the assets has come under political scrutiny in Italy, where the government has considered taking back control of strategic assets including bond trading infrastructure. 

In this morning’s other earnings news: BT reported a 7 per cent fall in revenue in the second quarter, which it pinned on the pandemic including reduced revenue from its subscription TV offering BT Sport. British American Tobacco reported a small rise in revenue as people kept smoking throughout the crisis, although its operations in some emerging markets have been hit. 

We can close the week with a slither of good news for the UK economy. The pound has traded above $1.30 for the first time since March’s market tumult over the past few days after rising nearly 6 per cent this month, its best such performance since 2009. The move is mainly a reflection of dollar weakness however, the pound has barely budged against the euro.

Corporate Spotlight

Line chart of Quarterly S&P 500 totals ($bn)* showing Companies favour buybacks over dividends

US companies are clinging to share buybacks even as the economy suffers from its worst recession in decades.

Total buybacks are expected to drop this year, but as Richard Henderson in New York reports, companies in the S&P 500 that have reported second-quarter earnings so far have reduced the number of their outstanding shares by an average of 0.3 per cent from the previous quarter. Some of the largest US multinationals including Google parent Alphabet and Microsoft continued to buy back their own stock or even accelerated stock repurchases.

Job moves 

IAG has more news out this morning, and has appointed Spanish executive Javier Ferrán as its new chairman. He replaces the long-serving Antonio Vázquez, who will step aside in January next year.

Beyond the Square Mile 

A day after chief executives of Amazon, Apple, Alphabet and Facebook faced hostile questioning in Congress their companies defied economic turmoil in the US to report a blowout quarter. Wall Street reacted euphorically to Thursday’s earnings news. The combined market value of the four companies soared by about $230bn in after-market trading to above $5tn for the first time. Here are the individual results stories on Apple, Amazon, Google and Facebook.

Procter & Gamble said the economic downturn had done little to hit global demand for its premium household products such as Fairy washing up liquid and Pampers nappies and argued the pandemic was leading to lasting changes in consumer habits. Before the pandemic, premium household brands had been losing market share to cheaper alternatives, especially supermarkets’ own products. But Jon Moeller, P&G chief financial officer, argued the crisis was leading consumers to reappraise the value of trusted brands.

Shares of Chinese electric vehicle start-up Li Auto surged on their New York debut as investors bet the company could be China’s answer to Tesla despite rising tensions between Washington and Beijing. Li Auto, which is backed by TikTok owner Bytedance and ecommerce group Meituan Dianping, jumped 43 per cent on its first day of trading on Nasdaq on Thursday.

Essential comment before you go

Lombard
Three months ago, Lloyds Banking Group — considered a UK bellwether by virtue of its scale and domestic retail banking focus — took a comparatively optimistic stance. That horse has bolted

Richard Waters
It is still an open question after this week’s hearing in Washington how much political will there will be to put serious restraints on the tech industry.

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