Qantas: shoring up its finances

Introduction

Qantas CEO has spent a bit of time recently slagging off the financial viability and management capabilities in the Virgin Australia Group, to the extent that Virgin CEO Paul Scarrah has complained to the Australian Competition and Consumer Commission (ACCC). According to the Guardian, the ACCC Chairman:

‘[Rod] Sims slapped down Qantas CEO Alan Joyce for making comments over the past week that airlines were in a battle of the “survival of the fittest” and said now was instead the time for cooperation between business rivals to make sure companies remain in place so that there can be an economic upswing when the pandemic ends.’

Ben Butler and Josh Taylor in The Guardian

Take that Alan Joyce!

Qantas financial viability

Today, Qantas announced that it has completed a round of debt funding, which will give it an additional $1.05 billion of liquidity while it suffers the devastating impact of the Coronavirus crisis on its business.

Qantas is using 11 of its wholly-owned Boeing 787-9s as security for this credit facility which will cost it 2.75% over 10 years. This will boost Qantas’s access to cash to $2.95 billion, plus another $1 billion currently undrawn.

Qantas balance sheet

The mathematics trained CEO Alan Joyce has improved the Qantas balance sheet substantially during his reign. That groundwork is particularly important in today’s circumstances when the airline has almost stopped flying completely, Its share price has tanked from a 52 week high of AU$7.46 to a low of AU$2.03. The share price as of 11:20 am today stood at AU$3.17

This funding increases the Group’s available cash balance to $2.95 billion with an additional $1 billion undrawn facility remaining available.

Qantas is sitting on another AU$3.5 billion of unmortgaged assets, which it could still borrow against. That along with the significant cost-saving measures it has made, like standing down 20,000 of its staff, should place it in a good position to weather the current COVID-19 storm.

“Everything we’re doing at the moment is focused on guaranteeing the long term future of the national carrier, including making sure our people have jobs to return to when we have work for them again.”

Alan Joyce, Qantas Group CEO

2PAXfly Takeout

Alan Joyce has placed Qantas in a very good financial position to survive this current crisis.

It’s interesting that Alan makes Qantas into the ‘National Carrier’, and appeals for government loan guarantees, or tax and fees delays and concessions, each time the airline is under financial threat. Qantas has exploited the costs of its restructuring in lowering its taxable income. It has used share buybacks (roughly a third of equity over the last 3.5 years) to increase its capital position, and boost its share price, and just when it started paying tax, it looks like the COVID-19 crisis, will put a stop to that.