The economic downturn has hit demand for air travel
British Airways plans to raise more than £600m to help it weather the recession, the airline has said.
It will issue £350m in convertible bonds to existing shareholders and also release bank guarantees from its UK defined benefit pension schemes.
Observers say the carrier wants a safety net in case it faces industrial action from cabin crew over pay, as well as tough summer trading.
BA also predicted it had lost £100m in the three months to the end of June.
But it added that this was "slightly better than market expectations".
"Following discussions with institutional investors, we're taking action to improve our liquidity and strengthen our position within the industry," BA chief executive Willie Walsh said.
"This goes hand-in-hand with our cost reduction and efficiency initiatives, which are designed to create the right conditions for our sustainable, long term profitability."
BA said the new funding would increase liquidity at the airline from £1.25bn to about £2bn.
If shareholders back the fundraising plan, the airline would have to pay interest of 5.8% a year on the convertible bonds.
Shareholders would have the option to convert the bond into BA shares, once shares reached 189 pence - well above its current share price.
BA shares ended the day up 2.95%, or 3.9p, at 136p.
The bonds can be converted up until 2014.
Once converted, BA said the number of shares in the airline would increase between 15% and 20%.
Mr Walsh said the move "puts to bed the suggestions that British Airways is in any sort of risk in the short term".
"We are clearly in a very strong position, relative to most airlines," he added.
David Cumming, head of UK equities, at Standard Life Investments, one of BA's biggest investors, told the BBC that shareholders thought it was a positive move.
"It's been well-received by the markets so that draws a line under near-term funding concerns. Obviously longer-term you'd want to see premium traffic picking up," he said.
"British Airways is not a company that is about to go bust, or is any financial difficulties. This move helps their position," he added.
Taking back pension guarantees
In 2006, the airline provided bank guarantees for its pension fund. Fund trustees could access the guarantees only if the airline became insolvent.
The trustees have now agreed to make those guarantees, of up to £330m, available to BA, should the firm need it.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said BA's pension trustees were effectively deciding between "the lesser of two evils".
"Hopefully [agreeing to release the guarantees] will reduce the chances of the company going bust. That improves the possibility of it continuing to trade profitably and so putting money into the pension fund," he said.
"But it means sacrificing longer-term security because if the employer does go bust, they've lost their reserves."
He added: "As long as BA is in a position where, if not now then later, it can put money into the fund - then the pension scheme is not in panic mode."
BA has been struggling as demand for air travel has fallen during the global economic downturn, with particular decline in business class and first class travel.
In May, it reported a record annual loss of £401m.
The airline has been in negotiations for several weeks with unions over plans to cut costs and has asked thousands of employees to take pay cuts or work for nothing.
Earlier this week, BA pilots voted overwhelmingly to accept a 2.6% pay cut. Talks with unions representing cabin crew and ground staff are ongoing, but if no resolution is reached, the firm could face a summer of strikes by its 14,000 cabin crew.