IAG4 Jun 2012 17:14
My first reaction, on reading yesterday that US Airways and the private equity group TPG were looking at making a joint bid for American Airlines, was why on earth would anyone want to do that? You would think US Airways would know better. Airlines have been among the worst investments over the long term. The graphs show our three quoted companies’ performance over the past five years, and it has not been pretty. And the position for the biggest, International Consolidated Airlines Group, for some reason known by the acronym IAG and the consequence of the 2010 merger of British Airways and Iberia, is actually worse than it looks. The shares are approaching the 125p at which BA was floated in 1987. Douglas McNeill, an analyst at Charles Stanley, says: “There is a great deal of consolidation going on, and that will improve basic returns for equity providers in future.” Investing in the Spanish economy in 2010 does not look the greatest of calls, but only 13% of IAG’s turnover last year came directly from Spain. IAG is also busy consolidating bmi, the budget airline bought from Lufthansa in April. This was a disaster for the German airline, pushing it into a small loss. Some analysts, including Mr McNeill who has a “buy” recommendation on the stock, believe the market is underestimating the gains that could flow if IAG gets right the restructuring of both Iberia, where it wants to focus more on regional flights through the Iberia Express low-cost venture launched in March, and bmi. Other factors worry the market. One is the future of the oneworld global alliance of airlines, to which BA and Iberia belong. The second is the future of the IAG shares owned by the stricken Spanish bank Bankia. This represents about 12% of the company and will have to be sold in due course. Until the company’s future direction is clearer, the shares are for avoiding. But gamblers might note that in the past, as IAG’s shares have approached that flotation price, they have tended to bounce, writes The Sunday Times´ Tempus column.
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