Qantas adds A$550 million in debt funding

Australian flag carrier extends flight cancellations to end July but may restore ‘some’ services as restrictions lift.

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Qantas has grounded its A380s because of the collapse in international routes. (PHOTO: Shutterstock)

Australia’s flag carrier Qantas said Tuesday (5 May) that it added A$550 million (US$354 million) in debt funding to help it survive the COVID-19 pandemic that has shuttered international aviation and said it has extended flight cancellations from end-May through to the end of July, adding “some capacity can be added back in if domestic and Trans-Tasman restrictions ease in coming weeks”.

A screenshot of the virus tracking site from Johns Hopkins University taken on 5 May. To access the live site, click on the image. (PHOTO: Matt Driskill)

The new funding the airline group raised was secured by three of its wholly-owned Boeing 787-9 aircraft and comes after the group raised A$1.05 billion in March against seven 787-9s. The airline group said net debt is now within the middle of the target range, at A$5.8 billion and said there were no financial covenants on any existing or new debt facilities and no significant debt maturities until June 2021.

Qantas Group CEO Alan Joyce said: “Our cash balance shows that we’re in a very strong position, which under the circumstances we absolutely have to be. We don’t know how long domestic and international travel restrictions will last or what demand will look like as they’re gradually lifted. Our ability to withstand this crisis and its aftermath is only possible because we’re tapping into a balance sheet that has taken years to build. Australia has done an amazing job of flattening the curve and we’re optimistic that domestic travel will start returning earlier than first thought, but we clearly won’t be back to pre-coronavirus levels anytime soon. With the possible exception of New Zealand, international travel demand could take years to return to what it was.”

The airline group said in its statement that it has “sufficient liquidity to respond to a range of recovery scenarios, including one where the current trading conditions persist until at least December 2021. The group currently has A$2.7 billion in unencumbered aircraft assets and can raise funds against these if required.” Based on current conditions, the group expects to reach a net cash burn rate of A$40 million per week by the end of June 2020.

qantas-adds-a550-million-in-debt-funding

qantas-adds-a550-million-in-debt-fundingThe group said it has seen outflows including a A$250 million bond repayment, elevated levels of annual leave payments from standing down more than 25,000 employees. Those employees can expect to remain in their current “stand down” situation until the end of June.

Qantas said it is currently operating around 5 percent of its pre-crisis domestic passenger network and around 1 percent of its international network on an Available Seat Kilometre (ASK) basis. On a flying hours basis – which includes charters for the resources sector at 75 percent of pre-coronavirus levels and passenger aircraft flying as freighters – the group is operating 13 percent of its domestic network and 6 percent of international.

Under the circumstances, Qantas and Jetstar will now extend existing domestic and Trans-Tasman flight cancellations beyond end-May through to the end of June 2020. International flight cancellations will be extended through to end-July 2020.

The initial easing of government restrictions suggests some domestic travel may start to return before the end of July – though initial demand levels are hard to predict. The Group will continue to monitor the situation and can increase capacity with a minimum lead time of around one week.

“We’re expecting demand recovery to be gradual and it will be some time before total demand reaches pre-crisis levels. That means we need to think about what the Qantas Group should look like on the other side of this crisis in order to succeed. Fleet, network and capital expenditure will all have to be reviewed but our commitment to serve communities across Australia will not change,” CEO Joyce said.

Qantas said its fuel needs were 100 percent hedged for most of the 2020 fiscal year, “which  delivered significant benefits in the first half of the year but resulted in some hedging losses as fuel consumption dropped and oil prices fell as a result of the coronavirus crisis”. In early April, the group closed out its over-hedged position through to September 2020. This avoided the precipitous falls in oil prices that occurred in the second half of April, and significantly lowered the Group’s exposure to further hedging losses”, the company said. The group said its remaining Brent crude oil hedging to September 2020 is in outright options with no risk of further hedge losses.

Qantas Freight has seen high volumes and achieved strong revenue for March and April. Its 12 dedicated freighters are heavily utilised and the airline’s passenger A330 and B787 aircraft have also been used to move cargo on services to Shanghai, Hong Kong and Tokyo, facilitating export of Australian produce and import of medical supplies. The domestic freighter network has seen high volumes due to e-commerce, with demand in recent weeks above the peak levels normally associated with Christmas.

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Asian Aviation
Matthew Driskill is the Editor of Asian Aviation and is based in Cambodia. He has been an Asia-based journalist and content producer since 1990 for outlets including Reuters and the International Herald Tribune/New York Times and is a former president of the Foreign Correspondents Club of Hong Kong. He frequently appears on international broadcast outlets like CNN, Al Jazeera and the BBC and has taught journalism at Hong Kong University and the American University of Paris. Driskill has received awards from the Associated Press for Investigative Reporting and Business Writing and in 1989 was named the John J. McCloy Fellow by the Graduate School of Journalism at Columbia University in New York where he earned his Master's Degree.

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