British Airways Owner IAG Assessing Plane Orders on Slow Economy

  • Airline industry reevaluates fleets after world GDP ‘softened’
  • Company sees ‘plenty of options,’ including leasing, CEO says

(Bloomberg) -- International Consolidated Airlines Group SA rose 3.1 percent, the biggest move since July 27 compared with end-of-day price changes, and more than six times the country's benchmark index. The shares climbed to 418.60 pence from 406p. Trading volume was 2.6 times the 30-day average of 835,202 for this time of day. IAG's move compares with the 0.5 percent gain in the FTSE 100 Index and the 0.2 percent advance in the Stoxx Europe 600 Index. The stock is 21 percent below the Bloomberg consensus one-year target price. (Source: Bloomberg)

IAG SA, the owner of British Airways and Spanish carrier Iberia, is considering reining in fleet plans as worldwide economic growth slows and the company grapples with the effects of Britain’s referendum to exit the European Union.

“Without doubt all airlines, including airlines within IAG, are reassessing their requirements for new aircraft,” as the outlook for growth has “softened,” Chief Executive Officer Willie Walsh said Thursday in a Bloomberg Television interview in London. “I don’t think we’re going to see growth rates that were anticipated.”

VIDEO: IAG’s Walsh on Brexit Impact

Bloomberg

The comments reflect a tougher sales environment for planemakers. Airbus Group SE and Boeing Co. racked up their lowest tally of aircraft orders in six years at the aviation industry’s annual showcase this summer. While both Airbus and Boeing sit on huge order backlogs, that cushion could provide little protection if headwinds continue and airlines start to feel the pinch from lower fares.

IAG, which also owns Irish carrier Aer Lingus, ordered 20 single-aisle Airbus A320neo planes a year ago, and Walsh outlined plans earlier this year to buy used widebody Boeing 777s and lease Airbus’s double-decker A380s for British Airways. Following the U.K. vote in late June to quit the EU, Walsh said IAG will have to cut spending amid a plunge in the pound’s exchange rate and a slowdown in traffic growth as business customers scaled back travel in response to the referendum.

Corporate customers are still holding off on business trips as they analyze how the Brexit vote will affect Britain’s economy and currency, Walsh said Thursday. Another question carriers must consider with plane orders is the drop in the price of oil in recent years, and “whether it’s worth buying this new-technology aircraft to get the fuel-cost advantage,” he said.

As IAG studies potential orders, “we’d look at how we would finance those aircraft: whether we’d buy them or whether we’d lease them,” so there are “a lot of options for us,” the CEO said.

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