IAG’s Spanish carriers tap €1bn in state aid

The move follows the IAG chief's push back against state-supported financing for UK airlines

FILE PHOTO: An Airbus A319-100 aircraft, operated by Iberia, lands at Orly Airport near Paris, France, September 6, 2019. REUTERS/Benoit Tessier/File Photo
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British Airways owner IAG tapped €1 billion ($1.1bn) 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 Willie Walsh pushed back against state-supported financing for UK airlines and said his own company had sufficient liquidity to see it through the coronavirus pandemic.

Iberia plans to borrow €750 million and Vueling €260m. The five-year amortising 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 €1.3bn ($1.4bn) 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 company traded 4 per cent lower as of 9:04am in London.