BA rules out imminent rights issue

By John Bowker and Matt Scuffham

LONDON (Reuters) - British Airways (BAY.L) said on Tuesday it was considering launching a convertible bond, not a rights issue, to shore up a balance sheet ravaged by the global aviation sector downturn.

BA Chairman Martin Broughton told shareholders at the group's annual general meeting that the timing was not appropriate for a rights issue, but the airline was looking at other options to improve its balance sheet.

"We are in discussions with our institutional investors, exploring opportunities in the convertible market, which we believe is the best way of increasing our cash reserves," Broughton said.

British Airways also told shareholders it was determined to reach agreement with cabin crew and ground staff over new pay and working conditions, and said merger talks with Spain's Iberia (IBLA.MC) would continue with hopes of winning a more than 53 percent split of the combined carrier.

After the meeting, Chief Executive Willie Walsh told reporters the airline was still on track to hit a target of 1 billion pounds in cash by March 2010, down from nearly 1.4 billion in March this year, not including proceeds of a bond.

"Liquidity is an important issue in the current environment. We are focussed on cash," Walsh said.

A weekend news report had suggested BA had received support from some of its shareholders for a major rights issue, a move seen by analysts as an absolute last resort.

Airlines around the world have been suffering from what many consider the worst conditions ever due to falling passenger numbers in the face of global economic turmoil, and traditional carriers have faced intense competition from budget operators.

Budget airline Norwegian Air (NWC.OL) on Tuesday reported higher-than-expected second-quarter net profit.

OFFENSIVELY EXCESSIVE

British Airways is locked in talks with unions representing cabin crew and ground staff over changes to working conditions -- part of a cost cutting programme that is also intended to shed 3,700 jobs.

Early exchanges at a packed annual meeting near the Houses of Parliament in central London were dominated by the issue, as well as questions on director pay.

A handful of union protesters handed out pamphlets outside the meeting, and held up signs suggesting Walsh be ushered towards the 'departure gate'.

"Director costs are offensively excessive as you try to cut employee costs - many (workers) are on average earnings," one private shareholder said, to applause from the audience.

In response, Broughton said boardroom pay was lower than at other companies, while CEO Willie Walsh said talks with unions had made progress.