Buried at the bottom of easyJet’s announcement this morning that intends to buy US$6.5bn worth of new Airbus planes was some seeming reassurance for shareholders over how it will pay for it.
“The aircraft associated with the Proposed Purchase will be financed over a number of years through a combination of easyJet's internal resources, cash flow, sale and leaseback transactions and debt.
“While the board will regularly review optimal sources of financing, there is currently no expectation that shareholders will be asked to fund any aspect of the proposed purchase.”
Clear enough, it would seem, but shareholders are unlikely to relax just yet.
Only nine months ago, they were asked for £1.2bn to keep the airline flying due to the ravages of the pandemic.
A key plank of management’s pitch then was that the money would help the airline take full advantage when the industry recovers and enable it to emerge as a ‘structural winner’.
Today, easyJet said the new orders will enable it to replace older aircraft with more efficient planes, saving up to 25% of fuel cost while the price it is paying is substantially below the 2018 quote.
Even so, the shares dropped 5% today as investors baulked at what is a bold commitment when conditions are far from ideal.
Only yesterday, the airline said it was scrapping thousands of flights this summer due to staff shortages, with customers already stranded abroad by recent cancellations.
Fuel prices, meanwhile, have rocketed and consumers are having to think hard about where to spend as incomes get squeezed.
That will put an additional strain on its finances. Peel Hunt yesterday increased its forecast for easyJet’s debt this year to £714mln and for the year to September 2024 to £1.1bn, while cutting its price target to 550p.
And those who can remember the start of the pandemic will recall that it was the deal with Airbus that sparked a huge row with founder and still sizeable shareholder Stelios Haji-Ioannou, who had bitterly opposed the investment.
Haji-Ioannou's main complaint was that easyJet was putting its own future at stake by not renegotiating the terms at the very least.
In December 2020, part of the deal was waived due to Covid 19 disruption, but today’s announcement suggests this was just a postponement.
Russ Mould, an investment director at AJ Bell, said easyJet is planning for the long term.
“A chaotic time at UK airports may have prompted EasyJet to make plans to cancel more flights throughout the summer, yet that hasn’t dampened its appetite to be a much bigger player longer term,” said Mould.
“These planes will replace older aircraft and will be more fuel-efficient, which is important as airlines are under increasing pressure to further cut costs.”
“They will also enable more bums on seats. There is strategic logic to the deal, but easyJet must first obtain approval from shareholders who might be feeling angry at how its share price performance has been weak this year.”
Shares in easyJet are down 27% so far this year, changing hands today at 423p.
Stelios is one of those shareholders and though he diluted his stake by not taking up September’s rights issue, whether he will be able to resist reigniting the row after this latest move remains to be seen.