BA, owned by International Airlines Group (>> International Consolidated Airlines Grp), said the bonds, or enhanced equipment trust certificates (EETCs), were backed by 14 Boeing (>> The Boeing Company) and Airbus (>> EADS) planes due for delivery over the next year.

EETCs are a common form of financing for North American airlines, with US Airways (>> US Airways Group Inc) raising hundreds of millions of dollars through them in recent years.

Enrique Dupuy, IAG's chief financial officer the issue marked a "strategic milestone" for the group, which has long been looking to diversify its souces of funding.

Last year's cancelled bond - backed by take-off and landing slots at London's Heathrow airport, routes between London City Airport and JFK in New York and two leased Airbus planes - was to have raised 250 million pounds ($385 million).

This year, however, IAG successfully raised 390 million euros ($510 million) through a convertible bond to help to fund the purchase of Spanish low-cost carrier Vueling (>> Vueling Airlines SA).

With many European banks pulling back from aviation finance, acquisitive airlines, such as BA, have been forced to be inventive. Putting planes, carriers' main long-term asset, into a special-purpose trust to protect investors in case of an airline default or insolvency makes EETCs more secure.

Earlier this year IAG ordered 18 Airbus A350 long-haul jets and firmed up orders for 18 of Boeing's 787 Dreamliners, on top of previous orders for 24 of the lightweight jets.

"BA is in the midst of its fleet renewal and while this bond issue will help finance that, what IAG really wants is to diversify its forms of financing," said BPI analyst Guilherme Macedo Sampaio. The EETC will cost BA some $45 million, he said.

BA said the EETC's class A bonds have an annual coupon, payable quarterly, of 4.625 percent, while the class B bonds have an annual coupon, payable quarterly, of 5.625 percent.

Shares in IAG, which have risen 38 percent this year, were up 1.6 percent at 260.15 pence by 0807 GMT, valuing the company at around 4.7 billion pounds.

(Editing by Louise Ireland)

By Rhys Jones