The parent company of British Airways, IAG said it looks to raise €2.75bn (£2.49bn) to strengthen its balance sheet.
The decision to go for debt-funding for the airline giant is coming after the group reported a record loss in the second quarter as the coronavirus pandemic continues to hammer the travel market.
IAG, which also owns Iberia and Aer Lingus, reported a record €1.36bn operating loss as passenger numbers fell by more than 98% in the second quarter. That compares with a profit of €960m for the same period last year.
Willie Walsh, IAG’s chief executive, expects it to take until at least 2023 for passenger demand to reach the pre-coronavirus levels of 2019.
“All IAG airlines made substantial losses,” Walsh said. “Each airline has taken actions to adjust their business and reduce their cost base to reflect forecast demand in their markets.”
The group is asking investors to back a €2.75bn equity raising and has already secured the support of its largest shareholder, Qatar Airways.
“This will enhance the group’s resilience, balance sheet and liquidity position,” Walsh said.
Total operating losses for the group, including exceptional costs relating to the early retirement of British Airways’ Boeing 747s and Iberia’s Airbus A340s, came to €2.2bn.
The group, which failed to see a hoped for recovery in air travel in July, said it is planning for an improvement in traveller numbers but expects capacity to be down by 74% in the third quarter compared with 2019 and down by 46% in the fourth quarter.
“We are nowhere close to where we had hoped to be as a result of the continuing restrictions that government has introduced,” said Walsh, speaking on the BBC Radio 4 Today programme.
“In July we will operate about 20% of capacity versus 2019; we had been hoping for 50%. That demonstrates that these ongoing restrictions are having a severe impact on the ability of airlines to operate.”
Walsh said there is clear evidence of pent-up demand for air travel when restrictions are lifted.
“Domestic markets recover much more quickly than international markets,” he said. “When restrictions are removed there is very clear evidence of pent up demand and passengers do start flying again.”
He added that the quarantine restrictions introduced for travellers flying to Spain had not discouraged customers flying to other parts of Europe.
The group has so far refunded more than £1bn to customers but Walsh admitted it could have moved more quickly. “It is important for us to acknowledge that we have disappointed people and not been able to refund people as quickly as we would like,” he said.
“The scale of this challenge goes beyond anything we have seen before and we just weren’t prepared for it. We are significantly improving the time we refund customers. We are aiming to get back to seven days. We are currently running at an average of 14 days.”