Airlines take hit as IAG seeks to raise capital, KLM cuts jobs

Two of Europe’s biggest airlines ratcheted up their response to the coronavirus crisis, underscoring the depth of the downturn and the urgent race to keep ahead of the financial repercussions.

British Airways owner IAG SA set plans for a 2.75 billion-euro ($3.3 billion) rights offering, while rival Air France-KLM’s Dutch arm said it would lop off 15% of its workforce and will also resort to raising fresh equity. Both reported record quarterly losses on Friday, a measure of the strain on network carriers that have seen an unprecedented drop-off in traffic and still face months of pain.

“Anybody who believes this is a temporary crisis and thinks it can be resolved by temporary measures is misguided,” Willie Walsh, IAG’s outgoing chief executive officer, said on a conference call.

Shares of IAG traded 7.9% lower as of 11:43 a.m. in London, bringing the year-to-date loss to 73%. Air France-KLM was down 1.7% after announcing 5,000 job cuts, and has slumped 65% for the year.

Network carriers like Air France-KLM, created from two national airlines a decade and a half ago, and IAG, also the owner of Spain’s Vueling and Iberia as well Ireland’s Aer Lingus, face a challenging task.

The long-haul flights where they make their money are expected to be among the last to recover from the pandemic, while in short-haul, they’re competing against more-efficient discounters like Ryanair Holdings Plc and EasyJet Plc. Travel restrictions are adding to the difficulty, cutting off access to willing customers as the virus continues to rage.

“Our demand is not what we’re actually seeing in our bookings, because bookings are being suppressed by government restrictions,” Walsh said. He predicted travel won’t reach pre-virus levels until at least 2023, while Air France-KLM expects capacity won’t rebound until 2024.

To get through the crunch, IAG is counting on No. 1 investor Qatar Airways, which said it will back the rights issue. The Gulf airline, which holds a 25% stake, has subscribed for its entitlement, with the rest of the capital increase fully underwritten, IAG said Friday as it reported a second-quarter operating loss of 1.36 billion euros.

The rights plan will be put to shareholders on Sept. 8 and should be completed by the end of that month, it said.

The company also said it’s continuing discussions to revise purchase terms for the acquisition of Spanish long-haul leisure carrier Air Europa, which was announced last year.

Uncertain Outlook

Air France-KLM posted a quarterly loss of 2.61 billion euros and pushed back financial targets by a year. It also warned of “significantly negative” earnings before interest, taxes, depreciation and amortization in the second half.

While traffic for short and medium-haul trips has increased in June and July, the outlook for the traditionally quieter fall travel months remains uncertain as travelers weigh the risks against sanitary measures airlines have taken, Chief Financial Officer Frederic Gagey said on a call with reporters.

Forecasts are made more difficult because travelers are booking at the last minute, and increasingly online, he said, pointing to fundamental changes in how people buy airline tickets.

And the restrictions are hurting potentially vibrant pockets. Algerian families living in France want to go there to visit relatives “but we can’t satisfy demand because borders are closed,” Gagey said. “This is the new world.”

Dutch arm KLM’s job cuts add to the 7,500 that the French unit already said it would slash. The airline group said it may delay jet deliveries if it can’t get them financed and, like IAG, it signaled an equity raise is in the works, though it won’t be resolved until May.

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The group accepted 10.4 billion euros in aid from the French and Dutch governments in direct loans and guarantees that came with strings attached including revamping domestic routes and cutting emissions.

KLM head Pieter Elbers said the pandemic swept away a years-long effort to cut debt.

“Cry and start over, is how it feels,” he said on a call.