Spain is very much at stake in making Iberia and Air Europa viable. Not only because there are important Spanish airlines in the future, with everything that implies in jobs, in the promotion of tourism or in mobility between countries, but by direct exposure through credits and participation in the IAG group, which has gone from fighting to avoid the impact of Brexit to weathering a pandemic that has left the planes on the ground.
The IAG group, made up of airlines such as British Airways, Iberia or Vueling, is in one of the sectors hardest hit by the coronavirus. As a result, its market value Accumulates a 75% drop from mid-February to 3.9 billion. The State, through the State Society of Industrial Participations (SEPI) has 2.52% of the shares, which have a current market value of 100 million. They are 285 million less than three months ago, but it is still a relevant direct exposure of the public sector.
IAG announced on November 4 an agreement with Globalia, a group of the Hidalgo family, so that IB OPCO Holding SL (Iberia) acquired Air Europa for € 1 billion. In the first-quarter results presentation, which reported losses of $ 1.86 billion, still-president Willie Walsh assured analysts that the figure could be revised downward.
Iberia’s life preserver and the role for Bankia and the ICO in full turmoil
At 3 in the morning this Friday, in a notary’s office in Madrid, Iberia got enough fuel in the form of 1,010 million euros
The latest movements of Iberia and Air Europa have been aimed at ensuring their liquidity. Iberia and Vueling closed a credit with the bank of 1,010 million, as this medium advanced, signed in the early hours of May 1 to 2. This week, Air Europa has made a loan of 140 million with the bank, according to knowledgeable sources. Globalia’s airline also gains liquidity while still idle.
The syndicated loan has been coordinated by Banco Santander, and they have also participated in it Bankia, CaixaBank, Banco Sabadell and Bankinter. BBVA is the only large bank that has not participated, as it does not have Air Europa among its clients, while Abanca and Novo Banco that were in the initial bank pool have fallen before the signing. The entities have tightened the ICO again. The public bank has put 35 million, which add to the 190 million with which it has participated in financing Iberia.
Pressure to ICO
The public entity that presides José Carlos García de Quevedo expands its direct exposure to Spanish airlines and sum already 225 million lent. In the case of Iberia, it is the largest loan in its history, surpassing the one granted to Abengoa years before, and of which everything has been lost. Signing the financing was easy. Luis Gallego, President of Iberia, had to request an SOS from the Government through the Minister José Luis Ábalos, who passed the witness to Vice President Nadia Calviño to ask the ICO to increase the credit by 40 million that were missing to ensure the necessary liquidity of Iberia.
On this occasion, the banks that have financed Air Europa have again squeezed the ICO to reach the 140 million that Globalia’s airline had requested, and have managed to start 35 million. A lower figure than in Iberia due to the different size of the companies, but higher in relative terms, since the public bank has reached 25% of the syndicated loan, advised by Uría.
The GC denounces Air Europa and Iberia for failing to comply with sanitary measures on flights
The sources reiterate to Efe that the complaints center on the fact that the operators have not adopted the appropriate sanitary measures in these cases, not on the occupation of the device
But the exposure of the ICO – of the State, after all – in the new bank debt of Iberia and Air Europa does not stop at these 225 million. The part granted by the banks is with the guarantees issued by the Government. The Executive announced 100,000 million, of which it has already approved 60,000 million for bank loans. Of this figure, 20,000 million are for large companies, with which public guarantees cover 70% of potential losses in new operations.
Iberia and Air Europa have taken a good bite out of the part available to larger companies. Since endorsements are not infinite, banks are reserving them for their clients. The risk committees decide on whether the operation is viable, and the ICO has to give the go-ahead, especially with high amounts such as these.
In the case of Iberia, Santander, BBVA, CaixaBank, Bankia, Abanca and Bankinter they put 810 million. While at Air Europa, Santander, CaixaBank, Bankia, Sabadell and Bankinter lend 105 million. The guarantee of 70% of these 925 million means that the State insures 648 million if these credits become losses.
The sum between the participation in IAG, the ICO credit and the guaranteed bank financing reaches 973 million, a figure that varies daily due to the volatility of the shares of the group that owns Iberia. But the exposure is even greater. Bankia has participated in the two emergency loans, and the main shareholder of the entity chaired by José Ignacio Goirigolzarri is the State through the Fund for Orderly Bank Restructuring (FROB) after injecting 22,424 million in 2012.
Bankia has put 110 million in both operations, according to market sources. AND the State has 61% of the bank, who plays 33 million on these loans – the unsupported part. Simply, by doing an approximation exercise on what is at stake in the public purse in Iberia and Air Europa, 61% of 33 million are 20 million, which would add to the aforementioned 973 million.
IAG warns of liquidity risk of UK plan to quarantine travelers
IAG plummets another 7% this Monday on the stock market, along with EasyJet (-7%), Ryanair (-2.7%), Air France (-2.7%), Lufthansa (-1.8%) and Wizz Air (quoted flat).
The exposure of the State to the two main Spanish airlines, whose merger was pending authorizations but is now in the air, is close to 1,000 million. Principally for emergency credits to overcome this crisis, about which there is still no certainty or concrete recovery plans, being conditioned to the evolution of the covid-19 and to the political pacts. But what is clear is that Iberia and Air Europa needed this liquidity and, with the punishment they have suffered on the stock market, they did not have easy access to the markets. AIG bonds, for example, fall 30% in this crisis.
In other countries there have been much more ambitious public interventions. Germany is finalizing the capital injection into Lufthansa, which could be 10,000 million in exchange for taking 25.1% of the shareholding. The main German airline, which has closed its low-cost subsidiary Germanwings due to a lack of visibility on when it will be possible to fly normally again, is also negotiating similar aid with Austria, Belgium and Switzerland for its subsidiaries in these countries. In Italy, the Government has approved the injection of 3,000 million in the nationalized airline Alitalia. For its part, the French State and several banks agreed with Air France on a loan of 7,000 million.
The entire sector is paralyzed, trying to ensure liquidity to be viable and launching SOS to the different institutions. On the other side of the Atlantic, the situation is not very different, to the point that the famous investor Warren Buffett, accustomed to having patience with companies in trouble, has detached himself from his positions in airlines. The coronavirus crisis not only prevents flying today, but casts doubt on future flight demand.
Central Europe shows the solution to Spain: ‘crown corridors’ to save tourism
The turísticos tourist corridors ’are presented as an urgent solution for the sector within the EU, and the east and the Balkans are already planning the first among countries little affected by the virus
Europe is taking time trials to try to save the summer, as tourism accounts for 10% of the European Union’s GDP. Brussels has published this week a guide to try to plan, in coordination with the states, the reopening of the borders and end quarantines like the one that still exists in Spain. The Spanish economy is one of the most dependent on the tourism, with 12% of GDP and 13% of employment last year, exercise in which 83.7 million foreign visitors arrived.
Not only is it unknown when it will fly again, but what the flights will be like. The ALA employers’ association is lobbying to prevent it from forcing itself to maintain the two-meter safety distance between passengers. “With a maximum occupancy of 66% it is impossible for an airline to be profitable”, warns Alberto Hernández, CEO of the airline Gowair, who asks, so that they can prepare for what the Government calls the ‘new normal’, “reactivation protocols that they be linked in an integral way to the tourism sector, and that the public powers get involved in advertising us as a destination, which other countries already do; a scheme of specific aid via liquidity, as they are already being deployed in Europe, and without discrimination between operators “and facilities such as exemption from the payment of airport taxes, especially when many companies necessarily have all or part of their fleet on land.”