EasyJet gets new loans, to sell planes to ride out virus

Bloomberg

EasyJet Plc boosted its cash reserves to ride out the coronavirus pandemic, saying it now has sufficient resources to see it through the end of the year.
The shares rose after Britain’s biggest discount airline said it had borrowed 400 million pounds ($500 million) against its jet fleet, and may raise 550 million pounds more from selling planes to leasing firms. The steps, combined with ones already taken, should give EasyJet enough to stay liquid for more than nine months, EasyJet said on Thursday in a statement.
EasyJet’s latest moves to shore up cash come against the backdrop of an air-transport industry in free fall and a side-battle with founder and top shareholder Stelios Haji-Ioannou over how to handle the crisis. Pressured to cull jet orders, Chief Executive Officer Johan Lundgren has instead postponed deliveries, aiming to slow cash outlays while preserving the ability to expand once the crisis around the virus breaks.
“Clearly it’s not helpful,” Lundgren said on a conference call of the billionaire’s comments. “Myself and the team and the board, we are absolutely focussed on managing through these times. This is one of the worst crisis that aviation has ever seen.”
Haji-Ioannou is seeking to force the cancellation of an Airbus SE order for more than 100 jets worth 4.5 billion pounds to prevent EasyJet from running out of cash. The intervention has been a distraction, Lundgren said, adding that the deal shouldn’t be a concern because of built-in flexibility that gives room for maneuver in delivery schedules.
Shares of the Luton, England-based carrier rose as much as 13%. They were trading 2.4% higher at 617.80 pence as of 10:25 am in London. The stock has still fallen 57% since the start of the year.
The added steps should take EasyJet’s notional cash balance to about 3.3 billion pounds, the company said.
EasyJet, which has grounded all of its fleet, is mapping out multiple scenarios once air travel comes back, depending on restrictions and demand.
Flying will begin with low occupancy levels, and a need to maintain social distancing might bring into question pricing and viability of services, Lundgren said.
“It’s one thing that you will see restrictions being relaxed, the other thing is to see where it will be relaxed, how will it work in detail,” Lundgren said. “I definitely do think there’s an underlying demand to start flying again.”
EasyJet’s plan to increase its cash holdings to about 3.3 billion pounds would give the company enough liquidity to cover its fixed costs through February 2021, according to our stress-scenario analysis. Raising cash against unencumbered aircraft may allow the airline to cover its costs for about two years.
Daniel Roeska, an analyst at Sanford C Bernstein, said in a note that EasyJet’s liquidity situation is looking better and that its focus should shift to making more progress on cost reduction.
The loans announced on Thursday mature in 2022, while EasyJet would lease back the aircraft sold to lessors. It’ll take delivery of six more planes from Airbus through September, selling off six other planes to keep the fleet count steady.
EasyJet earlier borrowed 1.1 billion pounds, including tapping a UK guarantee programme. The company is exploring state support from Switzerland as well.