How do british airways raise finance?

Answer 1

The economic conditions that prevailed throughout 2009/10 were the most severe we have ever encountered. As a result of the worst recession for 60 years, our industry has faced a series of permanent structural changes that have drastically reduced our revenues in the short term and have permanently changed the economics of running a premium airline.

These problems are in themselves formidable. But, in addition, British Airways faced a list of daunting challenges of its own. These included the need to:

• Raise finance at a time of continuing crisis in the debt markets;
• Radically reduce our historic cost base;
• Change working practices;
• Complete our planned merger with Iberia;
• Win an acceptable anti-trust agreement to cooperate with American Airlines and Iberia on North Atlantic routes; and
• Tackle our £3.7 billion pensions deficit successfully.

Twelve months on, we can feel satisfied that on every one of these issues, we have either tackled or made significant progress in overcoming the challenges we faced.

Permanent changeWe entered the recession financially strong and with our fleet replacement plans fully financed to 2013. In August 2009, we successfully raised £350 million through a convertible bond issue, providing us with the finance to keep investing in our business and maintain our focus on excellent service as the recession runs its course.

Over the year we reduced our unit costs by 6.5 per cent. Our fuel bill fell by nearly £600 million, accounting for a large element of this decrease. Unit costs excluding fuel also fell by 1.8 per cent. This was truly a remarkable achievement. It is hard enough to cut costs when capacity is rising; to do so when capacity is in sharp decline is very difficult indeed. Our cost base is now far more competitive, meaning we are well placed to achieve more profitable growth in the future.

We successfully carried the majority of our workforce with us in making changes to working practices, including our pilots and engineers. A number of staff have left the Company on voluntary terms.

We have succeeded in introducing permanent cost reductions across the airline, including reductions in crew complements. Regrettably, these changes were met by unjustified strike action by Unite's cabin crew branch. BASSA misrepresented the Company's position to its members, failed to represent the views of the majority of cabin crew and has been intent on a confrontation with the airline. The vast majority of our employees recognise the need for permanent change and have shown great commitment to British Airways during this difficult year.

Our relationship with Iberia is very strong and we have now signed a merger agreement that we know will bring real benefits to our respective customers and shareholders and protect the brands of the two airlines. If remaining technicalities are successfully dealt with, as we fully expect, the merger should be concluded by the end of 2010.

Similarly, all the signs are that we can win anti-trust immunity from the US Department of Transportation along with regulatory approval from the EU competition authorities, to operate a joint business with American Airlines and Iberia over the North Atlantic. When in place we will be able to operate on equal terms with Skyteam and Star Alliance that already enjoy immunity. Our agreement will mean more competition not less, and greater choice for travellers on these busy routes.

Finally, we are progressing with negotiations to agree a way to fund our £3.7 billion pension deficits that satisfies the Trustees and meets our requirement that we will not have to increase our contribution to the schemes in the short term. Whilst the valuation has been agreed with the Trustees, it is currently under review by the Pensions Regulator. If we can keep the schemes open for existing members it will be a significant achievement - and one that has eluded many other businesses in recent years.

I hope you can see how huge an agenda of change we have tackled. In that sense, 2009/10 was a year of great achievement.