IAG (International Airlines Group), the parent of Iberia, British Airways, Aer Lingus, Vueling, and LEVEL, announced on Friday that it had reached an agreement with the Spanish banks for loans 70% guaranteed by the country’s government.
Iberia would receive €750M and Vueling €260M. The cash can only be used by these airlines and not spread around the IAG. Iberia cannot use these funds to pay for the purchase of Air Europe that is still under review by Brussels.
Here’s the announcement that IAG made on Friday:
International Airlines Group (IAG) announces that IBERIA LÍNEAS AÉREAS DE ESPAÑA S.A. OPERADORA, SOCIEDAD UNIPERSONAL (“Iberia”) and VUELING AIRLINES, S.A. (“Vueling”) have signed syndicated financing agreements for €750 million and €260 million respectively.
The banks involved in the syndicated agreement will ask the Instituto de Crédito Oficial (ICO) to grant guarantees for these loans and the financing is conditional on those guarantees being made available. The arrangement is within the legal framework set up by the Spanish government to mitigate the economic impact of COVID-19.
The financing arrangements have a five-year term, amortising from 30 April 2023, but are repayable at any time on notice from Iberia or Vueling respectively. They contain a number of non-financial covenants to protect the position of the banks, including restrictions on the upstream of cash to the rest of the IAG companies.
The loans are upon official guarantee from the ICO, but the airlines and the banks have been green-lighted by the Spanish government.
The loan amount could be a short-term solution but inadequate if the travel doesn’t pick up rapidly once the travel bans are lifted around Europe and Latin America (the latter is Iberia’s primary long-haul market).