The Easyjet share price has gained 2.2% today, adding to another 2.3% gain yesterday as the budget airline announced the postponement of the delivery of new passenger jets. Easyjet will also return dozens of aircraft it currently has on lease as it trims its fleet in an effort to steer itself through the aviation industry crisis brough on by this year’s Covid-19 pandemic.
Easyjet had been due to take delivery of a number of new aircraft that are part of a bulk order deal with Airbus. It has, however, reached a compromise with the European aviation company to postpone the delivery of jets that had been due in the new year.
It now won’t take delivery of any new aircraft in the financial year up until the end of September 2021. It will make the 2020/21 financial year the first in Easyjet’s history during which it has not taken receipt of any new aircraft.
55 A320 and A321 Airbus jets, of a total of 101 ordered, had been due for delivery by autumn 2024. 33 are still set to be delivered between 2022 and 2024 but 22 of the jets have now won’t be taken by Easyjet until 2027 at the earliest. Even with the new delayed schedule, the total order makes Easyjet Airbus’s single biggest customer.
Before the pandemic struck early this year, Easyjet’s fleet had grown to 342 jets as the company continued to expand. However, even if Covid-19 vaccination programs should mean life has returned to relative normality by summer, it is expected to take the short-haul airline sector to until at least 2023 before passenger numbers fully recover. As a result, Easyjet plans to pare back its fleet to 300 jets by next summer. That will be achieved through a combination of delaying buys and handing backed leased aircraft.
The airline is also leveraging the jets it owns to ease cash flow issues of the current crisis through sale and leaseback deals. £717 million has been raised from 32 aircraft in this way. That’s seen the overall percentage of the Easyjet fleet directly owned by the company drop to 55%.
The company has had to contend with losses of £1.3 billion booked over the financial year to the end of September, with £774 million burned through from April to June while most of the fleet was grounded. However, with access to another £3 billion of cash, despite net debt of £1 billion, the company should come out the other end of its industry’s crisis in a relatively strong position.
Current cost saving measures included 80% of the fleet being currently grounded and only flying consistently profitable routes. That reduced capacity status is expected to continue well into the new year.
Despite delaying delivery, Easyjet remains committed to its deal with Airbus and will eventually take all 101 jets. A significant discount to the official $110 million price tag per aircraft is believed to have been secured. However, the stance has caused friction with founder Sir Stelios Haji-Ioannou, who has criticised the company’s management for failing to cancel the order. Sir Stelios still owns 33% of the company.
Easyjet chief executive Johan Lundgren commented on the renegotiated Airbus deal:
“This amendment to our longstanding agreement with Airbus reflects Easyjet’s significant fleet flexibility, as well as the benefit of highly attractive aircraft pricing. In this period of uncertainty, this flexibility is even more valuable as it will enable us to quickly flex our fleet size in response to customer demand [and] to capture pent-up demand as customers return to the skies.”
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