International Consolidated Airlines Group (LSE:IAG), had a tough time during the pandemic. Yet I think there are reasons for me to consider investing in the airline conglomerate when looking at the IAG share price.
I remember Warren Buffett saying during the pandemic: “The airline business will never be the same.”
This is partly due to the significant debt many of these companies had to take on to survive.
But the good news is that recently, revenue has started growing again for plenty of them after coming to a standstill for some time.
A brief overview of IAG
The company holds many different airline brands under its wings, including Aer Lingus, Vueling and British Airways.
Interestingly, each of these businesses under the conglomerate has its own operating model.
The organisation has a truly global reach, offering services for passengers and cargo.
A closer look at debt
To me, the company’s debt is the biggest concern with an investment right now.
This is the part of financial analysis concerned with the balance sheet.
And when looking at this, I can see that its liabilities have risen from 76% of total assets in 2018 to 95% today.
What does this mean? If we imagine the company was sold in full, only 5% of the total assets would be returned to shareholders.
Some good news
Here’s what Chief Financial Officer Nicholas Cadbury had to say in the 2022 annual report and accounts:
Notably, in 2022, the company “turned profitable… from the second quarter”. It reported a profit of €1.2m versus a loss of €3m in 2021.
This means there’s light at the end of the tunnel for the business, but I think it may be some way off.
Is this a giant clearance sale?
The shares are currently down around 60% since December 2019, which is exactly when the Covid-19 pandemic started.
For the shares to be genuinely ‘on sale’ to me, I’d need to be able to work out whether they will perform well in the future.
Ok, I don’t have a crystal ball. But what’s great is that the pandemic has largely settled, and governments around the world have lifted most travel restrictions.
This could mean that International Consolidated Airlines Group has a significant opportunity to re-strengthen itself without being throttled by zero or minimal air transport.
Let’s look at the figures. The company had 118m passengers in 2019, 31m in 2020, 39m in 2021, and 95m in 2022. So, things are getting back to normal.
Considering this, I think this really could be a stock selling at 60% off. I just need to remember it’s on sale for a reason right now, and it could be some time before people are willing to pay more for it.
It’s on my watchlist
While I’m not buying the shares now, I think it could be quite a big opportunity. I’m just concerned with how much growth the company will be able to maintain.
I think that given a few more years, we’ll have a clearer picture of how the company is recovering.
For now, I’ve just added the shares to my watchlist.
