British Airways has not ruled out a major rights issue to help shore up its balance sheet but analysts see such a move as an absolute last resort and one that could destroy management credibility.

The carrier, which hosts worried shareholders at its annual general meeting (AGM) in London on Tuesday, declined to comment on a weekend news report that it has received a blessing from major investors for a 500-million-pound ($805 million) fund-raising in the event of a drawn out crisis.

Analysts polled by Reuters said the move was not impossible but added it would be a last throw of the dice for the troubled airline -- which posted record losses for the year to end-March and has seen crucial business passenger numbers plummet amid extremely tough trading conditions.

Although (a rights issue) cannot be dismissed, it will be avoided if at all possible ... It's a very expensive way to raise capital and you would only do it if you absolutely had to do it, said Nick Cunningham, an analyst at Evolution Securities.

He said the tone from management presentations had been that a rights issue was not on the agenda, and that a U-turn would therefore leave the airline with a credibility problem.

He also said there were many other ways of saving cash, such as cancelling plane deliveries from Boeing and Airbus.


British Airways' cash position at the end of March was 1.4 billion pounds ($2.25 billion), and it has said it has a target of 1 billion pounds in cash by the end of financial year in March 2010.

This month it said it would cut capital expenditure by 20 percent to stem cash-burn, and is locked in talks with cabin crew and other staff about job cuts and changes to working conditions.

Neil Glynn, an airlines analyst at Dublin stockbroker NCB, believes British Airways will eventually be forced into a rights issue -- but not before certain outstanding issues are resolved.

I think the board should seriously consider it (but) there are a plethora of issues out there at the moment, he said, highlighting the current review of BA's mammoth pension deficit and unresolved merger talks with Iberia.

The issues are interlinked. Iberia is a near 10 percent shareholder in BA and would have its stake diluted as a result of the rights issue, while the extent of the pension deficit -- expected to be around 3 billion pounds or double the value of BA when it is revealed in late summer -- has long been a sticking point in the talks.

Spanish newspaper El Economista said the two airlines were prepared to accept a 50-50 split in the combined company after nearly a year of negotiations, but sources close to the deal played down the report as inaccurate.

Jonathan Wober, an analyst at Societe Generale, was more circumspect about a rights issue -- basing his views on current share price and history.

The question (of a rights issue) is constantly being raised but I wouldn't expect it currently. The share price is very low and they didn't do one in the last recession when the balance sheet was in worse shape, he said.

BA shares were up 1.2 percent at 121.4 pence by 1118 GMT (7:18 a.m. EDT), valuing the business at around 1.4 billion pounds.

(Editing by Sitaraman Shankar)

(Additional Reporting by Sarah Morris and Clara Vilar)