British Airways raises $750 million by mortgaging 48 aircraft

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British Airways has raised a further $750 million to shore up its finances by mortgaging 48 aircraft.

The deal was arranged by Citi – the security documentation is here. It is a legal requirement to notify Companies House when additional security is given against the assets of a business, as this has an impact on both shareholders and potential and existing lenders. If you have made an unsecured loan to British Airways plc, for example, you are now relying on a smaller pool of assets to repay you if the company goes into receivership.

Schedule 1 towards the back shows the assets involved:

2 x Airbus A318 (built 2009)

4 x Airbus A319 (built 2001)

24 x Airbus A320 (built 2001-2010)

10 x Airbus A321 (built 2004-2009)

7 x Boeing 777 (built 2000-2014)

1 x Boeing 787 (built 2016)

There are clearly a few dogs here, as there is little residual value in 20 year old short-haul aircraft.

The bulk of the $750 million, in reality, comes from the Boeing 787-9 and the two 2014 Boeing 777-300ER aircraft included in the package.

One quirk is the two Airbus A318 aircraft, pictured above. These are the aircraft bought to operate the London City Airport to New York JFK service.

Only one of the two aircraft is currently being used by British Airways. The second plane was taken over by Titan Airways when BA cut the London City service down to one flight per day – you can see it here landing in St Helena last month. There was an assumption that British Airways had sold the aircraft to Titan but it is clearly only leased.

Why did British Airways do this?

It is sensible that British Airways is doing what it can at the moment to sustain its cash pile.

However, cynics may suggest that the airline is doing everything it can to avoid having to take Government funding. Whilst Iberia and Vueling have taken €1 billion from the Spanish Government, and IAG – BA’s parent company – has taken £300 million from the UK Government – British Airways itself has taken nothing.

The cost of servicing this mortgage is almost certainly higher than the cost of servicing a ‘soft’ loan from the UK Government especially as 48 old aircraft are not the most attractive security package in the current environment.

It is possible that British Airways is trying to avoid taking Government funding until it has pushed through the proposed pay cuts, weakened contractual terms and mass redundancies which are currently under consultation.

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British Airways and Avios

This article is closed to new posts. Discussion continues in the HfP Forums.

Henk says:

28 May28 May 09:34

“The vast majority of the $750 million, in reality, comes from the Boeing 787-9 and the two 2014 Boeing 777-300ER aircraft included in the package.”

Those three aircraft are clearly the most valuable of the whole lot, but to say that the vast majority of the value comes from these three is overstating it. My estimate is that they account for about a third of the total value.
- Rob says:
  
  28 May28 May 09:44
  
  That’s what we meant. ‘Majority’ was not meant to be taken literally, ie over 50%.
  - ChrisBCN says:
    
    28 May28 May 15:06
    
    So if you use the term ‘majority’ elsewhere we shouldn’t take it to mean more than half? Puzzling!😀
    - ChrisBCN says:
      
      28 May28 May 15:11
      
      Oh I see majority is now bulk. Still incorrect, but to be fair I can’t think of an alternative phrasing other than ‘largest individual contribution’ which is a messy line and doesn’t feel quite right either.
      - callum says:
        
        29 May29 May 02:42
        
        “The most valuable planes in the package, by far, are the Boeing 787-9 and the two 2014 Boeing 777-300ER aircraft.”
        
        I often used to get caught up trying to change a single word within a passage to make it sound better, but quickly learnt that some sentences cannot be saved and it’s often better to just start it again from scratch!
      - ChrisBCN says:
        
        29 May29 May 09:18
        
        Gold star Callum!
      - Lady London says:
        
        29 May29 May 19:38
        
        Nice one @Callum
    - The Original David says:
      
      28 May28 May 15:12
      
      Not every time they use the word, but maybe just the majority of the time…
      
      I’m sure the HfP style guide is perfectly clear on the point 😉
      - ChrisBCN says:
        
        28 May28 May 15:13
        
        Who’d be an editor 😉
      - mr_jetlag says:
        
        28 May28 May 17:29
        
        Its these darned 6am commenters whats the problem innit 🙂
Paul stuart says:

28 May28 May 09:56

All these reports i keep reading as a BA employee are not as they seem.You cannot have a meaningful consultation period between the board and the unions when the board has said 12,000 are to lose their jobs and the rest will have severe paycuts if they are rehired after being made redundent.
Is this the consultation you are writing about ?
Drake says:

28 May28 May 10:49

I suspect the future norm will be the same for all airlines “good or bad planes and staff” get rid or hock. The day will come and shock to shareholders and banks the true value of the companies. Does anyone believe the current reported share values.
- mr_jetlag says:
  
  28 May28 May 11:33
  
  IAG has risen by about a third this week. I assume they know exactly what BA are doing (positioning themselves strongly by cutting fixed costs and disposing of legacy assets).
  - J says:
    
    28 May28 May 12:24
    
    No third runway any time soon – BA will keep majority of Heathrow slots for foreseeable future. Less competition from weaker (or absent) Virgin and Norwegian – BA then able to hike prices and cut even more corners on service. Long term things look pretty good for them.
    - ChrisBCN says:
      
      28 May28 May 15:12
      
      Coupled with lower operational cost of wages, future looks good for them.
      - J says:
        
        28 May28 May 15:26
        
        So this notion that they can’t afford to pay decent redundancy pay or that the existence of older staff is unsustainable is just plain stupid.
      - ChrisBCN says:
        
        28 May28 May 15:34
        
        If your goal is to maximise shareholder value. it’s not stupid.
        If your goal is to act humanely/generously to your staff it is stupid.
        
        Welcome to capitalism.
      - Lady London says:
        
        28 May28 May 16:25
        
        So since they’re making clear they will treat UK employees spectacularly badly and take on debt they dont have to in order that the UK will leave them intramelled, and because profits are all and treating employees as poorly as the law allows is what’s important, let’s take British Airways at their word and strip them of historical flag carrying privileges that were valid in the past.
        
        Just like BA is stripping longstanding loyal employees who have earned a few privileges, let’s strip BA pro rata of their LHR slots which are a privilege they too only earned historically. Let’s take 15-30% off their LHR slots away from BA in 2-3 years and let the highest bidder or airline most likely to contribute to competivity, have them.
        
        BA – you started it!
      - mr_jetlag says:
        
        28 May28 May 17:26
        
        @J curious where you see discrimination against older staff apart from the wage gap between WW and MF fleets (discussed at length). I think this is purely a cost play and an older MF crew would in fact be treated equally to younger crew in terms of pay and benefits. In some ways thats actually part of the problem – there is no real advantage to tenure and older crews find kids / mortgage impossible to support on MF pay.
      - Lady London says:
        
        28 May28 May 17:53
        
        @J not stupid at all, just mendacious.
      - Dubios says:
        
        29 May29 May 01:45
        
        @ChrisBCN
        
        There is more than one way to increase shareholder value and work for the benefit of shareholders. In other wires there is more than one version of capitalism – what you are seeing is only only interpretation.
  - Lady London says:
    
    28 May28 May 16:12
    
    +1
    - ChrisBCN says:
      
      28 May28 May 21:21
      
      Lady London, curious as to your thoughts. If BA were stripped of slots and they were auctioned, they would be worth more to BA (to maintain its monopoly) than to others, meaning they would bid high in an attempt to win them. And who pays for these slots in the end? Customers (although we could argue about price takers/setters at this point). I don’t see how customers could win from this, unless you are banning BA/IAG from bidding of course.
      - Lady London says:
        
        28 May28 May 23:12
        
        you are correct @ChrisBCN the point is to ensure a level of competition and so of course BA to be banned from bidding for these slots.
        
        A mechanism to award the slots not just on bid value, or a limited.number of slots to be allocated on ‘green’ grounds or whatever else is in fashion, or perhaps to someone like Virgin that does not own any assets and arranges most of the time not to pay any corporation tax to the UK, who however are nice people and provide some form of competition to BA, might also be considered.
      - ChrisBCN says:
        
        29 May29 May 09:19
        
        👍
Drake says:

28 May28 May 18:52

The message I receive from the comments is that the airlines will do anything to retain/ increase the share price. Staff are just another pawn to sacrifice in such events. To justify even today’s share price a lot more creative cost cutting thinking is no doubt taking place behind closed doors. How will they deal with a major customer drop until next summer at least and retain an artificial share price until a customer return. Will be interesting to watch this one for a junior starting in management.
AndyGWP says:

28 May28 May 19:27

OT – but how come there’s no chat thread today? 🤔 trial over?
- Andrew says:
  
  28 May28 May 19:36
  
  It was there earlier, it seems to have been pulled.
  - Rob says:
    
    28 May28 May 22:14
    
    Got deleted by accident, sorry. Back now!
    - Alex M says:
      
      29 May29 May 07:07
      
      Why not blame IT contractor, like any other reputable company?!
      - Lady London says:
        
        30 May30 May 22:35
        
        They used that excuse up already… at least twice.