Friday, September 17, 2021

EasyJet’s cash call leaves repair job to do

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EasyJet PLC update

All veteran travelers know to avoid the middle seat. And easyJet isn’t doing a good job of making it look comfortable.

Airlines that occupy space between aggressive low-cost carriers like Ryanair and legacy flag carriers launched a surprise last week. £ 1.2 billion rights issue..Cash calls have been overshadowed by the following news easyJet rejected takeover approach From a fierce competitor, Wizz Air.

However, as the rights issue progresses and stocks continue to fall, some questions remain. Mostly, what does easyJet do with all that money?

Financing was more than the market expected. Some analysts thought they could probably raise £ 500m to £ 600m to solidify their balance sheets after being hit by a pandemic. This was enough to protect the investment grade rating.

Place some kind of bufferIt’s probably wise, when the world is reopening, not a crisis. Net debt increased from £ 326m at the end of 2019 to over £ 2bn at the end of the most recent quarter. 70% of the entire fleet has fallen into a pandemic, either unimpaired or available for funding. That number dropped to 41 percent.

However, easyJet has made a much larger price increase due to 410p price issues. This is a 35.8% discount on the theoretical deprivation price. “We couldn’t convincingly clarify what the money was for,” according to Bernstein analysts. With liquidity of nearly £ 3 billion, there was consensus that easyJet had money on hand as the trip progressed. It is expected to operate at nearly 60% of 2019 capacity in the fourth quarter of this year.

One possibility is a longer and more painful recovery than rivals and markets. EasyJet claims that the rights issue has returned to its pre-pandemic state, has established a solid position in the unpredictable industry, and has worked well over the past year.

Constantly changing travel rules hinder air travel, exposing the UK market to more than its low-cost peers, whose winter blockades have not been ruled out. Another explanation is that it wants to advance orders for new aircraft, something it proposed was not currently planned. Other opportunities identified for supplementary income and slot purchases do not require large sums of money.

A few Industry supporters As an “intermediate” airline, easyJet I have a strategic problem..Former British Airways boss Alex Cruz Explained it As “the worst place now”.

Reducing the size of the fleet during a pandemic, partly Founder Shareholder Stelios Hajiio Anou“We are” less able to take advantage of opportunities “than the rapidly expanding carriers like Wiz and Ryanair,” said industry consultant John Strickland. On the other hand, we have to fight with state-backed legacy airlines. This can become an increasingly established and irrational competitor.

A more pressing issue is some shareholders who have long supported a hybrid model of building large positions at major congested airports such as Gatwick and using them to steal market share from high-cost flag carriers. Anxiety between.

In a wealthy business, “The most important job of an airline CEO is to allocate capital. [well]”Bernstein’s Alex Irving said. However, the scale of the salary increase has raised questions about how the board and CEO Johan Lundgren made the decision, especially given the interest from Wiz.

A shareholder told FT this week: “I am dissatisfied with the capital allocation framework that the company has determined that such a size and discount rights issue is optimal for shareholders.

EasyJet’s move should eliminate concerns about balance sheet holes, or the ability to actually compete perfectly in recovery. However, Stephen Hester, a former Royal Bank of Scotland boss who will take over as chairman in December, may still have a repair job in his hands.

helen.thomas@ft.com
@helentbiz

EasyJet’s cash call leaves repair job to do Source link EasyJet’s cash call leaves repair job to do

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