BA now Investment Grade again

[Re-Heat]

Yes, this might belong in Airports & Airlines, but this is crucial for BA - the cost of borrowing money to purchase more aircraft is now significantly lower than it has been for 4 years...watch this space for an impending order IMHO...


BA regains investment-grade status
By Joanna Chung in London

Published: June 20 2007 23:42 | Last updated: June 20 2007 23:42

British Airways was Wednesday propelled back into the investment-grade category for the first time in four years.

Standard & Poor’s upgraded BA’s long-term corporate credit rating one notch from BB+ to BBB-, the lowest investment-grade category. S&P also raised the long-term credit rating of BA’s senior unsecured debt two notches from BB- to BB+.


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Leigh Bailey, S&P credit analyst, said: “The upgrade reflects the positive implications for BA’s capital structure, future cash flows, and business operations of the proposed pension deficit solution and the debt reduction achieved in recent years”

BA was downgraded to sub-investment grade or “junk” status in July 2003 following the events of September 11 2001 and the war in Iraq.

During that period the company has reduced its net debt from £6.6bn to £990m and steadily increased its operating margin.

Keith Williams, British Airways’ chief financial officer, said on Wednesday: “We have worked hard over the last four years strengthening the foundations of our business. Regaining investment grade status will enable us to invest in our future growth with confidence.”

The markets reacted positively to the upgrade. Shares in BA rose 7¼p to 431¾p Wednesday. Meanwhile, the cost of protecting its debt against default fell sharply.

The five-year credit default swaps, a type of insurance against the non-payment of debt, fell by as much as 25 basis points to 55 basis points – the tightest level since October 2003, according to Marcus Schuler in credit marketing at Deutsche Bank – before closing at about 63 basis points.

”The market clearly takes the upgrade as positive news,” Mr Schuler said. However, he said the CDS levels were still 15-20 basis points higher than other European airlines.

Copyright The Financial Times Limited 2007

[HZ123]

If you were at LHR at this moment you would find this difficult to believe ?

[Albert Driver]

BA now Investment Grade again

Well it ain't for me!

:eek:

[DarkStar]

HZ123 hits the nail on the head. BA maybe a 'better' investment, but its operations are a total shambles. Look at the punctuality figures. They are pinning all their hopes on T5, yet the operation we not fit into T5 and they already know that. It'll be another patch up job and tough luck on the long suffering pax.

On arrival lfrom NCL last week there was no stand, then no T/round manager - dispatcher to you and me, then dollies on the apron, then the lights failed on the stand, then the jetty fails. 45 minutes to get pax off! Terrible service:ugh:

[B777Heavy]

I have a Business degree with emphasis on the stock markets...and normally airlines with their propelling cost and stiff competition.....arent very good investments.

If you look at the ticket prices in the haydays of transatlantic flights the fare was about 500-800USD. About 20years later ...the fare is still about the same...but their costs,salaries, fuel prices etc etc have all more than quadrupled.

[niknak]

This has got bugger all to do with the (admittedly appalling) service which BA provide today, but more about what the people in the City believe what Uncle Willy can deliver tomorrrow.

Undoubtedly BA have been through a sticky patch, but now Willy has imposed his asperations, most of the "old guard" have left the airline, those that remain are either the mostly long standing pilots, engineers, ground crew, cabin crew who couldn't afford to retire or leave just yet.

The remainder are pilots and engineers who are prepared to accept the new regime but know that working for BA is still better than working for the majority of European and American Airlines.

Cabin crew know when they join that they could do a lot better elsewhere, some supplement their income, some don't, it certainly wouldnt be my choice....

Ultimately, BA will once again become an enormous success or it faces the real threat of going under and this time there will be no last minute rescue deal from the taxpayer, fortunately the City thinks it will be the former.

[wiggy]

It's not that simple.

Most of us "old guard" ( probably anyone over 39 in the world of BA newspeak) hope BA have Customers left when T5 opens.

At the moment Willie has gambled on reducing manning levels before T5 opens and that, IMHO, is the reason for the current, alledged shambles at LHR.

Of course Willie will be gone before long, leaving us "old guard" to handle the consequences.

[HZ123]

As one of you stated all our hopes are pinned on T 5 , that is irrespective of a number of key systems already failing the test. I am even more alarmed at the prospect of First/Club 757s from the EU hubs and the vast costs that will be encountered if operated by existing BA CC and Flight. The 'Times' today implys that a 757 is about to be refurbished for this purpose.

The key period will be in the next 6 weeks when the public will see if BA can get into the summer rush without its usual failings, a number which have already taken place these last two weeks.

[andyfly]

First post from me so hello everyone, been an interested reader for a while.

Im actually a bond trader in the city so thought i would add my penny worth in case it was of any interest. BA's upgrade to what is termed as an investment grade rating will reduce their cost of financing on new bond issuance should they decide to issue. More importantly it will also considerably broaden the range of investors who would be able to buy their bonds. Ultimately although banks will arange BA's financing, bonds will be marketed to end investors (pension funds, insurance companies, investment funds etc) and more potential buyers, the more risk an investment bank will be willing to take in leading a new issue. Ultimately if the deal fails to sell then the bonds will stay on the bank's books, and hence also the risk.
This rating upgrade should enable BA to borrow for longer and cheaper, especially given their current debt levels are much lower than in the past. They will also potentially be able to raise cash in the dollar or euro bond markets for example, which are bigger markets than sterling.

The term credit default swap or CDS referred to in the original article is an over the counter agreement between two banks protecting the buyer from a credit default by the issuer (BA). This has become a huge market as its a very clean way of either protecting yourself from the risk of bond defaults. Its a bit like an insurance policy.

[Re-Heat]

For clarification - investment grade refers to the debt rating, not the equity shares. It denotes that they are unlikely to default on interest payments to bondholders, permitting greater debt levels in future.

[Albert Driver]

"....permitting greater debt levels in future."

:ugh:

[MarcJF]

Despite gaining the BBB- (which less face it is less than many small building societies) banks still remain nervous of the sector. Aviation as a whole is struggling to attract debt / equity finance, BA more so. Would you put your cash in?