Updating British Airways' aging fleet is a multi-billion euro "daunting task"

British Airways owner International Consolidated Airlines Group SA could spend 1.5 billion euros ($1.94 billion) a year through 2020 to trim the average age of its fleet to 8 years by 2016, from 11 now, according to HSBC analysts.

“Many investors expect IAG to seek a strategic investor or to undertake a rights issue to fund fleet renewal,” Andrew Lobbenberg and Joe Thomas said in a note. IAG’s fleet is slightly older than peers, and replacement of BA’s 52 Boeing Co. 747-400s, with an average age of 17 years, is a “daunting task,” they said.

Capital expenditure would peak at 1.7 billion euros in 2018, the analysts said. IAG, which also controls Spanish airline Iberia, would need an average 5.9 percent margin for earnings before interest and tax to support that level of spending and achieve a break-even cash flow, they said.

“Fleet replacement is not out of reach,” the analysts said. “We would regard IAG as one of the stronger operators, albeit in an industry that is overall very weak.”

Spending could be lower if the carrier chooses to retire aircraft later or buy used jets, such as 6- to 10-year-old Boeing 777-200s or Airbus SAS A330s, the analysts said. IAG could also trim spending by employing more operating leases, they said.

IAG had 78 planes scheduled for delivery as of June 30, including 24 Boeing 787s, according to the company’s website.

Editors: Robert Valpuesta, Chris Jasper. To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net. To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net.