Qantas Airways has raised A$1.05bn ($633m) to bolster its balance sheet, one of the first successful private debt raisings by an airline since countries around the globe began shutting their borders against coronavirus, forcing the industry to ground thousands of aircraft.
The 10-year loan advanced by a consortium of domestic and international banks is secured against part of the Australian carrier’s fleet at an interest rate of 2.75 per cent. It comes amid warnings by the global airline industry that up to half the world’s carriers are at risk of bankruptcy due to the coronavirus crisis.
“Investors are making the call that Qantas has enough liquidity to get through the crisis,” said Blake Henricks, portfolio manager at Firetrail Investments, which owns shares in Qantas. “They got an interest rate lower than your typical home loan at a time when much of the airline industry is uninvestable. This reflects Qantas’s strong position in the domestic market.”
Shares in Qantas closed up 20 per cent on Wednesday on the ASX, which gained 5.5 per cent.
As global airlines scramble to slash costs and governments prepare rescue packages, industry trade body Iata warned on Tuesday that the coronavirus pandemic would slash airline revenues by $250bn this year.
Credit markets have tightened and rating agencies have begun downgrading airlines. S&P cut Delta Airlines debt to junk on Tuesday, while last week Moody’s placed Qantas’s Baa2 credit rating under review for possible downgrade.
Qantas has maintained that it has sufficient cash to ride out the crisis and will not need a government bailout.
“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,” said Alan Joyce, Qantas chief executive.
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The airline has net debt of A$5.1bn, and no major debt maturities until June 2021. The extra A$1.05bn in funding, which contains no financial covenants, increases Qantas’s cash balance to A$2.95bn, with an additional A$1bn undrawn facility remaining available.
Unlike many global airlines, Qantas has bought at least half its planes outright, which means it has a further A$3.5bn in unencumbered assets.
Analysts said the low interest rate on the A$1.05bn debt raised was a vote of confidence in the airline’s ability to survive. In contrast, the New Zealand government advanced a NZ$900m standby loan facility to Air New Zealand last week at interest rates of between 7 and 9 per cent.
“We expect Qantas would have weathered the storm regardless, but it certainly provides additional headroom,” said Angus Hewitt, an analyst at Morningstar. “We do not expect the firm will be forced to raise equity.”
Chris Wyke, joint chief executive of Moelis Australia, described the debt raising by Qantas as positive, adding: “It’s good to see confidence in quality companies emerging the other side of the pandemic”.
Additional reporting by Peggy Hollinger