Spain backs €1bn of loans to IAG's Iberia and Vueling

International Airlines Group said its Iberia and Vueling airlines had agreed to borrow just over €1bn (£880m) from banks with backing from the Spanish government to support them during the Covid-19 crisis.

Iberia will borrow €750m under the syndicated financing agreements and budget carrier Vueling will borrow €260m, IAG said. The loans will be backed by Spain's state-owned bank, the Instituto de Crédito Oficial to support the airlines during the coronavirus crisis.

"The banks involved in the syndicated agreement will ask the (ICO) to grant guarantees for these loans and the financing is conditional on those guarantees being made available," IAG said. "The arrangement is within the legal framework set up by the Spanish government to mitigate the economic impact of Covid-19.

Airlines have asked governments for financial support to help them survive the Covid-19 crisis, which has grounded fleets and cast doubt about the future of flying.

Ryanair listed Iberia and Vueling's loan guarantee from Spain as an example of state aid under the guise of Covid-19 support which it claimed was illegal under EU rules. Ryanair said it would contest such support in the EU courts.

IAG has said its future is on the line with planes sitting unused during Covid-19 lockdowns. It has announced 12,000 job cuts at BA.

The Spanish loans have a five-year term but are repayable at any time. IAG said they had non-financial covenants to protect the banks, including restrictions on cash being used for other IAG companies, which include British Airways.