British Airways will be temporarily barred from paying dividends to its parent IAG after securing a government guarantee for a £2bn loan, designed to help its recovery from turbulence caused by coronavirus and Britain’s exit from the EU.
IAG, which also owns Ireland’s Aer Lingus and Spain’s Iberia, said BA had received commitments for a five-year loan from a syndicate of banks.
The new loan has been facilitated by a state guarantee designed specifically to help UK businesses post Brexit, offered through UK Export Finance (UKEF).
Rolls-Royce this year took advantage of the facility to raise liquidity of about £3bn with a guarantee from UKEF for 80 per cent of the loan.
IAG said BA’s £2bn credit line would be drawn down in January, subject to settlement of terms.
However, BA will not be allowed to pay dividends to its parent for the term of the loan, which could put pressure on IAG’s own capacity for dividend payments.
BA is IAG’s biggest single contributor to group profit, the company confirmed.
IAG said it continued to explore other “debt initiatives” to improve liquidity, which stood at €8bn excluding the UKEF guaranteed facility.
BA would use the funding to prepare for a partial recovery in air travel as governments begin to roll out vaccines to contain the spread of the virus.
However, the legacy carrier will also face fierce competition from low-cost rivals such as Ryanair and Wizz Air which have made no secret of their ambition to expand aggressively on short-haul routes across Europe as passengers begin to return to the air.
Meanwhile, as the UK prepared to quit the EU’s single market on January 1, IAG also on Thursday announced board changes to ensure a majority of EU citizens sit as independent non-executive directors.
The changes follow moves this week by Ryanair and Wizz to strip voting rights from UK shareholders to comply with post-Brexit EU ownership rules.
Only airlines majority-owned and controlled by nationals of the EU, Switzerland, Norway, Iceland or Liechtenstein will be allowed to fly between two EU destinations from January 1.
However, both the UK and EU have said they would look at options to liberalise ownership rules within a year.
“It is disappointing that it has become necessary to make these changes to the board,” said outgoing chairman Antonio Vázquez.
“However, we are pleased that the EU-UK trade and co-operation agreement recognises the potential benefits of further liberalisation of airline ownership and control because we believe that it is in the best interests of the industry and consumers.”
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