As the pandemic bit, British Airways looked to raise capital in any way possible.
The Chief Executive at the time, Alex Cruz, noted that he sold everything he could, leasing back
what he still needed and waving goodbye to many assets on a permanent basis. While it ensured
the airline’s survival in the short term, undoing these actions will be a long and difficult task.
Going into the pandemic, there was a stark difference between the financial situations of
the ultra-low-cost carriers and the full-service, legacy airlines. The ULCC strategy of holding on
to cash for a rainy day saw most of these airlines entering the crisis with impressively strong
cash reserves. Legacy airlines, such as British Airways, were in a far more vulnerable position,
with higher overheads and smaller bank balances. Speaking at CAPA Live in Mid July, former Alex
Cruz reflected on what had to be done during the pandemic to ensure the survival of the airline.
“What happened, particularly to the traditional carriers, is that they sold. In my case,
I sold everything I could sell that I was not going to use. Buildings, art, everything that I
could. And again, I sold a few things and leased them back, including buildings and aircraft.”
With this mindset, British Airways held flash sales over the course of 2020.
In June, it was revealed that the airline would be selling off its collection of artwork from
head offices and lounges. The airline’s collection was auctioned off by Sotheby’s in July last year.
Later in 2020, the airline sold a range of cabin equipment formerly used on its Boeing 747s. And
at the start of 2021, a pair of limited edition signed suitcases were sold for almost £9,000.
With aircraft, May 2020 saw the airline mortgaging a total of 48 aircraft, raising a
total of £750 million in the process. The airline currently has 68 of its 295 aircraft leased in,
many of which will have acqiored this status from being owned over the course of 2020.
Cruz spoke on this, saying: “I did quite a few sale and lease backs.
It was what we had to do. We did not sell and lease back the whole fleet, or certainly before
I left that didn’t happen. We still wanted to keep a few aircraft in our own books. It is one
way to raise money, there’s absolutely no doubt. And it was a no brainer to immediately take a look
at the collection of assets and which ones would make sense to monetize most in the short of term.”
While the former BA CEO appreciates the value that selling and leasing back assets had during
the crisis, he notes that there is an eventual end of the road for this type of activity...
“I cannot neglect the value that doing those operations provided
in raising cash to be able to make it through last year and
earlier this year. But of course you run out of those assets eventually.”
He further explained that, for airlines like BA that originally had a balance between leased
and owned aircraft, they would likely eventually want to return that balance to their operations.
However, it might not be so easy to do so. “It’s very difficult to undo this when you
sign up new contracts that are five, six, seven, eight, nine, 10 years long...There
will be a desire to go back to the previous mixes, whichever those were for the different airlines.”
British Airways is not the only airline that has undertaken numerous sale and leaseback
transactions as a means of capital raising during the pandemic. It’s a trend that has
highlighted the importance of lessors within the industry, but one which has also left
many carriers with far fewer owned assets. What do you think of Alex Cruz’s actions
throughout 2020 to keep his airline afloat? Let us know your thoughts by leaving a comment.