Aer Lingus-owner IAG to raise $1.2bn survival bond

Airline group says money will help support it if the pandemic-driven travel downturn lasts longer than expected

Aer Lingus-owner IAG plans to raise about €1 billion through a bond issue, which it said would help see it through if the pandemic-driven travel downturn lasts longer than expected.

Airlines are counting on a summer travel reboot after a year of minimal income due to coronavirus restrictions, but rising case numbers in some countries and delays to the vaccine rollout in Europe could derail the recovery.

IAG, which also owns British Airways, Iberia and Vueling in Spain, said last month it had liquidity to ride out the crisis, but on Thursday decided to add to its war chest.

It said the proceeds from the bonds could be used to withstand a more prolonged downturn or provide “flexibility to take advantage of a recovery in demand for air travel”.


IAG, which is burning through about €185 million per week as a result of the pandemic, has been cutting costs while flying only 20 per cent of its normal capacity.

It said the senior unsecured bonds would be issued in two tranches, with €500 million due in 2025 and €500 million due in 2029. They are expected to price on Thursday.

In a low-rate environment and with economies set to reopen, bond investors have become increasingly keen to buy debt from well-known airlines, as it is one of the few sectors still offering a high yield, a source familiar with the deal said.

At the initial stages of the bond sale, the four-year bonds were being marketed at a yield of 3.25 per cent and the eight-year bonds at 4.25 per cent, an announcement to investors seen by Reuters showed.

The average yield for European junk-rated corporate debt is 2.59 per cent, Markit’s Iboxx indices show.

Bond market

Although IAG lost its investment grade rating last year after the pandemic wreaked havoc on airlines, progress on Covid-19 vaccinations has led investors to revisit the sector.

“Airlines is one of the few corners of the bond market still offering some juice,” said the source. “With international travel expected to reopen this year, investors feel comfortable owning this debt.”

Lufthansa and EasyJet have already tapped bond markets in recent months, with the German airline repaying a big portion of a government bailout after its latest €1.6 billion debt sale and EasyJet raising €1.2 billion in February.

BBVA, Goldman Sachs, Morgan Stanley and Santander are managing the IAG issue. – Reuters