Budget airline Easyjet has become the latest in a long line of London-listed companies to tap investors for a cash boost to help bolster its balance sheet over the coronavirus pandemic. Alongside the surprise publishing of half-year results yesterday afternoon, which revealed a predictable widening of the usual loss over the quieter half of the year for airlines, the board announced its intention to raise £450 million through the issue of new shares.
Half year figures were not scheduled to be published yesterday and their afternoon announcement caught markets off guard. Easyjet typically records a loss over the six months to the end of March financial year with the other half of the year, April-September, making up for the quieter winter months.
Despite the fact that the real impact of the Covid-19 pandemic didn’t hit until March, losses over the six-month period widened to £353 million compared to £272 million a year earlier. However, the deterioration in the six-month loss can be put down to a £160 million hit resulting from a bet on hedged fuel prices that didn’t come off.
Easyjet signed futures contracts to buy fuel at a fixed price. But falling oil prices over the period meant they were locked in to higher fuel costs than the spot market would have offered. The nature of such hedges is that sometimes they work in the buyer’s favour and other times they don’t but even out costs over the longer term.
Revenues actually increased by 1.6% to £2.4 billion over the period, despite a 7.4% drop in passenger numbers. Net debt doubled to £467 million but the company has £2.4 billion cash on-hand thanks to a combination of government-backed loans and credit facilities. That’s before the additional £450 million to be raised through the new share placement.
The Easyjet share price fell by 6% yesterday after the announcement on the new share issue was made.
Easyjet’s 344 aircraft were grounded towards the end of March and services are expected to operate at just 30% of a full schedule of flights between July and September. 4500 of the 15,000 staff the company employs globally are to lose their jobs over coming months as overheads are cut to reflect a new reality for the airline industry over coming months and perhaps far longer.
It remains to be seen whether the company’s founder and largest individual shareholder, Sir Stelio Haji-Ioannou, will take up his right to subscribe for new shares. He has been involved in a bitter dispute with the company’s board over a large order for new aircraft from Airbus. He has previously stated he will not give the company any money unless the order is cancelled. For now, the contract remains in place but the delivery of 24 new jets delayed until at least 2025. The total order worth £4.5 billion to Airbus for the purchase of 100 jets.
Easyjet chief executive John Lundgren commented:
“We have been decisive in meeting the challenges of the pandemic by cutting costs, vastly reducing our capex while retaining our industry-leading fleet flexibility.”
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.