EasyJet PLC (LON:EZJ) said its current cash burn is around £120-160mln per month while its fleet is grounded due to the coronavirus pandemic, but it has secured new loan funding as it still has to fork out for several Airbus jets later in the year.
Two new term loans totalling roughly £400mln were announced by the budget airline in a trading statement on Thursday.
UPDATE: EasyJet founder Stelios calls for removal of CEO and chairman of “aircraft parking lot”
Added to the £600mln loan from the government and other borrowings, the FTSE 100 group has now secured close to £2bn in extra cash since the outbreak started hitting the airline industry, taking its notional cash balance to £3.3bn.
A potential sale-and-leaseback deal with an aircraft leasing company is anticipated to generate proceeds in the range of £400-550mln.
Based on its current cash burn levels, management have run various stress-test scenarios and calculated that a nine-month grounding of its aircraft the company would see a cash burn of around £3bn of cash, a six-month grounding would use around £2.2bn and three months would consume £1.2bn.
Chief executive Johan Lundgren said “easyJet is well positioned to endure a prolonged grounding”.
Airbus deal
Deferring the delivery of 24 Airbus aeroplanes over the next three years, alongside the postponement and cancellation of some other projects, has cut capital expenditure by £1bn over the three-year period, easyJet said.
With 10 deliveries deferred for 2020, there still are six planes still to be delivered later in the year, none in 2021, between eight and 13 in 2022 and between seven and 29 in 2023.The airline said it has “no ability to terminate the contract by reason of force majeure” and argued that if it were to terminate the contract it would have to pay compensation for previous discounts and lose access to support and guarantees for its existing fleet.
This was in response to a warning from founder Stelios Haji-Ioannou that its Airbus aeroplane deal is the “main risk to survival of the company” and must be put to a shareholder vote.
Having fully grounded its fleet on 30 March, easyJet said it expects to deliver a first-half underlying loss before tax of £185-205mln, down from £275mln a year ago.
Revenue was up 1.6% to £2.4bn, with seat capacity down 7.6% to 42.7mln.
Bookings for winter 2020/21 are “well ahead of the equivalent point last year”, and this includes customers who are rebooking coronavirus-disrupted flights for later dates, with half of disrupted passengers choosing to take the option of a voucher or rebook alternative flights.
But when commercial flights resume after the lockdowns end, the International Air Transport Association (Iata) said on Thursday that all airlines were likely to be forced to leave the middle seat vacant to maintain social distancing, effectively slashing the number of available seats in single-aisle jets from 180 to 120.
Market reaction
Shares in easyJet spiked higher in early trading but by mid-morning were up 2% to 619p, around 57% lower since the start of the year.
William Ryder, analyst at Hargreaves Lansdown, said details about the expected cash costs for the coming months were the final piece of the puzzle that investors needed to assess the company's true position and were “reasonably reassuring”.
“While it’s possible that the fleet, or a large part of it, is grounded for longer than [nine months], the group has some breathing space and investors can make a better informed decision about its prospects.
He added that the cash outflow includes some unavoidable capital spending, but the operating cash burn of £30-40mln each week “is almost certainly a vast underestimate of the true accounting loss” and “badly damage the balance sheet going forward”.
“However, if the fleet can get back into the air this year the group looks like it will probably survive, and investors will welcome at least that degree of certainty.”
Richard Hunter, head of markets at Interactive Investor, said the trading update to the end of March shows how the airline was “cruising” before the virus turned the world upside down, with increases in capacity, passenger numbers and the load factor, the newly launched Berlin hub and holidays arm showing early signs of promise, and the demise of Thomas Cook providing more opportunities.
“With some costs unavoidable and revenues plunging to negligible levels, this crisis will prove to be an existential threat to some. As such, the most the airlines can manage at the current time is to display the measures they have taken, often at speed, to minimise cash burn.”
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