Davy Stockbrokers has downgraded shares in Aer Lingus owner IAG to neutral pending a looming capital increase by the airline group.
IAG, which also owns British Airways and Iberia, said last month that it plans to raise up to €2.75bn in gross proceeds to strengthen its balance sheet in the face of the Covid pandemic.
The plan is fully supported by IAG's largest shareholder, Qatar Airways.
Davy Stockbrokers said that it's assuming the capital increase will be "at least" 50pc dilutive to existing shareholders.
"The base case plan is to be 24pc smaller in 2021, with IAG not expecting passenger demand to recover to 2019 levels until at least 2023," noted Davy analysts Stephen Furlong and Ross Harvey in a note.
"The rights issue assumes a downside case of a slower recovery versus the current capacity planning scenario," the stockbroker added.
IAG will secure approval for the capital increase at its annual general meeting next month.
"IAG believes the proposed capital increase, together with its quick response to the crisis, should enable the group to emerge from the current pandemic in a strong position, with more resilience, greater flexibility and the ability to make the right operational and strategic decisions for the long term benefit of all its stakeholders," the carrier group said last month.
Aer Lingus recorded a €98m operating loss in the three months to the end of June, when it operated at just 5pc of its capacity. It was the biggest ever quarterly loss at the carrier, which is headed by Sean Doyle.
The carrier has slashed wages for staff and hundreds of workers are facing layoffs.
Davy Stockbrokers also said yesterday in its note that the pace of recovery for airlines remains uncertain.
"The pertinent question for the network airlines, which transfer passengers through large hubs connecting long-haul destinations, is whether they can recover and, if so, how long will this take," its analysts said.
"Intercontinental and corporate travel look certain to recover later than continental/leisure travel," they added. The pandemic is likely to have a lasting effect on the corporate travel market, with firms growing more used to relying on video calls for engaging with staff and clients.