Credit-default swaps referenced to British Airways tightened 15 basis points last week to 225 basis points after the airline announced better than expected results. BA spreads were trading at 270bps at the start of the month. The airline reported a 26% jump in profits and net income increased to GBP123 million (USD228 million).
Mark Bayley, v.p. in credit research at JPMorgan in London, said BA's decision to carry on reducing debt even when it reaches its GBP3 billion target was welcomed by the bond market. The airline has GBP3.3 billion of net debt, down from GBP3.8 billion in June. Bayley said most of the reduction comes form the sale of Qantas Airways for GBP430 million earlier this year.
In addition, British Airways' exposure to oil prices is relatively well hedged. Bayley said it has hedged 75% of its exposure until March at an average of USD32 a barrel, is 50% hedged from April to June at USD34 a barrel and then 45% hedged from July to December at USD35 a barrel. Brent crude oil for December was trading at USD44.30 a barrel on London's International Petroleum Exchange.
The airline also aims to cut costs further, shaving GBP300 million off its bottom line. It has already agreed much of the cost savings with the trade unions. One of its strategies is to cut call center staff and move ticket sales to the Web.
