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The FTSE 100 has been regaining some of the ground today that it had lost last week after investors over-reacted to the U.S. Federal Reserve’s announcement that it would be taking no immediate actions to adjust interest rates. But the International Airlines Group (LSE:IAG) was not doing its part, as its share price declined 3.30 pence (1.25%) to 260.9 on the sale of 35.8 million shares at 256.00. IAG became the third biggest weight on the index today, based on volume, behind only Motive (LSE:MTV) and Lloyds (LSE:LLOY).
The market seemed to be responding negatively to the sale of its entire 12.1% stake in the airline by the troubled Spanish bank, Bankia (ESE:BKIA). Although the disposal of Bankia’s shares has not been unexpected, the timing came as somewhat of a surprise, happening much earlier that most had anticipated. The shares were sold at 256.00 pps, an 8.2 pence discount from yesterday’s closing price of 264.2.
Reuters predicted today that the sales might potentially open “a period of shareholder instability for the airline.” That is an interesting comment and worthy of note – one that should not be skipped over lightly. No one is predicting, as far as I can tell, that the airline itself might be facing a period of instability, but that it might find itself somewhat victimized by shareholders who are unduly nervous until, or even after, they become aware of whom the new institutional investors are.
IAG’s relationship with Bankia began in 2011 as part of the British Airways’ plan to merge with Iberian Airlines. More than likely, what has unnerved shareholders is that Bankia had been IAG’s largest shareholder, making the quick sale a tad bit unsettling. What we understand at this point, however, is that the there appears to have been a significant amount of pressure from both the Spanish government and the EC placed upon Bankia to dispose of it’s non-core assets, and to do it now. Any time something happens in the market that has a ring of desperation to it, there is likely to be some element of panic. Previously, the EC had given Bankia until 2016 to dispose of the airline stock.
On the other hand, IAG CEO Willie Walsh had already pointed out that “there was no longer (any) strategic value in having the bank as an investor.” Since Bankia is currently state-owned as a result of the government bailout, one could be fairly certain that no CEO would want to try to run an independent airline already operating under strict regulations, with a state government, in effect, as it’s largest shareholder. Mr. Walsh’s current objective in the Spanish operation is getting Iberia positioned to make a profit, something that Iberia has not been able to do for some time now. His plan calls for cutting several thousand jobs in Spain.
From Willie Walsh’s perspective, the sale of Bankia’s position has to be a good thing. I believe that once investors also recognize that, they will continue to be bullish on IAG, which has seen a 40% gain in its share price this year.
For more background on this story, click on the following links to access these previous ADVFN articles: “IAG Brings Iberian Airlines In For Repairs,” “IAG Posts €555 Million Profits as British Airways covers losses for Iberia” and “IAG Share Prices Up Despite Huge 1st Quarter Loss.”
