(Bloomberg) --British Airways parent IAG SA regained its investment grade credit rating from Standard & Poor's, in a sign that efforts to rebuild the carrier's balance sheet are paying off.
The ratings company raised the airline's long-term rating to BBB- from BB+, according to a statement Wednesday, citing improved cash flow and robust passenger demand. IAG beat expectations with its second-quarter earnings at the end of July, and said it expected to reach 97% of pre-Covid capacity this year.
"IAG's higher-than-expected air passenger fares, underpinned by efficient cost management, translate into higher-than-forecast profit margins and earnings this year," S&P said.
The move gives IAG back its investment grade status for the first time since it was downgraded in May 2020 as the pandemic took hold. The airline has been working to pare back debt, and a surge in demand has returned it to profitability.
IAG reported an operating profit of €1.25 billion ($1.4 billion) in the three months to June 30 from €301 million a year earlier. The company has also been working down a long-term debt load that peaked at 7.21 billion euros in the first quarter of 2021, based on data compiled by Bloomberg. The figure stood at EU5.57 billion at the end of the second quarter.
The upgrade to its credit rating will allow IAG to raise future funds at lower cost, and provide a signal to the markets that its a safer investment. Many carriers saw their credit rating slashed during the pandemic but this year has seen travel demand decisively return, particularly on long-haul routes.
IAG is the first among the mainline European carriers to return to investment grade, with rival carrier Deutsche Lufthansa AG still rated speculative grade by S&P and Moody's, while Air France-KLM is not rated by either.
