Qantas: Share purchase plan falls face first

Qantas had aimed to raise AU$500 million through a share purchase plan (SPP), but only 8,600 shareholders only pitched in AU$71.7 million. That means that only around 5% of current shareholders (173,343) decided to take up the offer that gave them shares at around a 2.5% discount (AU$3.18/share) on the current price of ~AU$3.40.

The uncertainty created by having most state borders closed which has dramatically reduced domestic flying affected the SPP according to a statement by Qantas.

Shareholders who participated in the SPP will get their share on 12 August

Recovery plan

Qantas saw this SPP as part of its recovery plan. In contrast to the relative failure of this SPP, the institutional placement – also part of the recovery plan was successfully subscribed in June at the target of AU$1.4 billion.

The plan includes the axing of 6,000 jobs with another 15,000 employees being stood down, out of a total workforce of about 30,000. Planes have also been retired earlier than expected (goodbye 747 – Jumbo Queen of the Skies), with others being mothballed (A380’s and 787’s) until international flying returns to some kind of mormalcy – exptected in 2023 or 2024 depending on who you listen to.

Also part of its recovery plan was the resumption of domestic flying fairly quickly. Well, with borders closed everywhere, and the current stage 4 ‘lockdown’ of Melbourne, that is still a ways off.

According to the AFR/Bloomberg estimates, Qantas is expecting to report an 80% fall in earnings and profits when it reports on 20 August.

Qantas doesn’t see the failure of the SPP as having a material effect on the recovery plan since they still have a bout AU1.75 billion of cash in their piggy bank (more formally known as a ‘balance sheet’).

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

Qantas may be minimising the impact of this failed SPP – but it does say something when your current investors don’t want to take up your shares at a discount, and in these times of zero interest rates, a 2.5% discount, you would have thought was attractive.

I am far from an investment expert, but I would think that the failure of the SPP is more to do with the additional unpredictability of the travel – and therefore airline market at the moment given the border closings, than it is to do with the ability of Qantas to survive.

The institutional fundraising occurred when things looked a little rosier for the recovery of the travel industry. What a difference a few weeks can make at the moment.