IAG and easyJet ground more planes
Investors run for cover as government measures now potentially ground the majority of planes.
16th March 2020 10:11
by Keith Bowman from interactive investor
Investors run for cover as government measures now potentially ground the majority of planes.
As a result of government actions to tackle the coronavirus, British Airways owner International Consolidated Airlines Group (LSE:IAG) will now reduce flights or capacity by 75% for both April and May compared to 2019.
Low-cost operator easyJet (LSE:EZJ) also today announced additional significant flight cancellations across its European operations. The majority of its fleet could soon be grounded.
Both also plan to cut spending where possible and remove non-essential expenditure such as IT upgrades in order to aid day-to-day cashflow in a crisis which now completely overshadows both 9/11 and the SARs outbreak.
easyJet shares fell by nearly 15% in early UK trading. IAG shares were down by more than 20%.
Neither company felt able to offer any accurate profit guidance for the current 2020 financial year.
Both looked to reassure regarding their finances. IAG pointed to cash and cash equivalents of €7.35 billion and additional undrawn aircraft backed financing facilities of €1.9 billion, offering total liquidity of €9.3 billion (£8.5 billion).
easyJet highlighted a £1.6 billion cash balance, an undrawn $500 million revolving credit facility, unencumbered aircraft worth in excess of £4 billion and a large and valuable airport runway slot portfolio. It has no debt re-financings due until 2022.
easyJet's chief executive noted that “European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over."
Accompanying IAG management comments pointed to expected weak demand until well into the summer with flexibility to make further cuts if necessary.
Willie Walsh chief executive of IAG has placed his previously announced retirement on hold with planned management changes now delayed in order to provide near-term leadership stability.
On Friday, German rival Deutsche Lufthansa (XETRA:LHA) announced that was suspending its dividend payment as a measure to conserve cash.
Both IAG and easyJet shares have now more than halved in the year-to-date.
Broker Morgan Stanley noted that “airlines valuations look low, but they are not on trough multiples yet.” Calls for governments to support the airline industry have yet to be answered.
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