Qantas Shares Rebound On Debt Deal As Virgin Grounds Tiger

In stark contrast to Cochlear’s fund raising, Qantas said on Wednesday that it had borrowed $1.05 billion in new debt to help see it through the coronavirus crisis.

The 10-year loan, at a 2.75% interest rate (home mortgage rates), was secured against a number of planes in its fleet for which the airline bought outright for cash in recent years.

The new debt increases Qantas’ available cash balance to $2.95 billion, and it has another $1 billion undrawn debt facility available if the current crisi continues for longer than thought.

Net debt rises to massive $5.1 billion but that’s at the low end of its target range.

Qantas has no major maturities until June 2021, but it does have around $8 billion in payables due over the next year, some of which won’t need to be made (fuel, landing, air navigation charges etc).

The news was grabbed by grateful investors (who have been spared the need to put their hands in their pocket for the time being).

The shares surged to a high of $3.40 and ended up 26% at $3.27.

“Over the past few years we’ve significantly strengthened our balance sheet and we’re now able to draw on that strength under what are exceptional circumstances,” Qantas CEO Alan Joyce explained in a statement.

“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”.

Qantas has a further $3.5 billion in unencumbered aircraft it can use as security for loans or sell and lease back to increase its cash balance further.

Qantas has already postponed the payment of its interim dividend worth $210 million from April to September and cancelled the $150 million buyback announced with the results in February.

Meanwhile Virgin Australia shares rose 14% to 7.1 cents yesterday after it revealed it was grounding its entire Tiger fleet and slashing its own domestic business by 90%.

That means the airline will temporarily stand down 8,000 workers or 80% of its work force.

Australia’s second largest airline had already cut domestic flying by 50%, but that had incouded Tiger. Now Tiger’s operations are suspended until further notice.

Virgin said on Wednesday it would try and redeploy workers and encourage them to use leave, but leave without pay would be inevitable for many.

Most domestic flights will be suspended from March 27 (Friday) until June 14, while its previously announced international ban will be in place from March 30 to June 14.

The remaining domestic flights will provide essential services, such as carrying critical freight.

“We are now facing what will be the biggest grounding of aircraft in this country’s history,” Virgin Australia chief executive Paul Scurrah said yesterday.

All up more than 125 planes in the Virgin fleet will be grounded from the end of this week. For Qantas, it will have grounded more than 150 planes.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

View more articles by Glenn Dyer →