2020 FY Results

[serfty]

It looks like Terry McCrann's CL membership is safe (even if there be a extremely slight doubt about their ongoing presence).

Terry McCrann: Alan Joyce worth every cent of his $25m pay packet

It's paywalled, but here are some snippets:

Qantas had two huge things going for it coming into the virus crisis and the near total grounding of the entire global airline business. They were its loyalty program and a CEO named Alan Joyce.
...
Both assets were on clear display in the Qantas numbers on Thursday, with the most graphically obvious the loyalty program. ...

How does that work? Well, the money kept flowing into Qantas’s coffers from all its loyalty partners on the points being built up by their customer spending. And there was zero offset as they couldn’t be cashed into bums on seats.

If there is one message, one message, that should have by now rung out loud and icily clear to everyone, it’s the value-adding proposition that Joyce has proved to be.

It’s not just the way Joyce had Qantas hit the ground running — right across the board, from planes to staffing, to partner contracts and on to its balance sheet, both debt (raising $1.75bn) and finally equity ($1.4bn) — to not just ride through the virus storm but position into the post-virus reality.

Whatever that reality proves to be and whenever it comes.

Quite simply, in August 2020 Qantas is almost certainly the most financially viable airline in the entire world — except only those backed by government blank cheques.

What Joyce and Qantas have done and done so pre-emptively this year was necessary and among the best-practice corporate responses to both the recession ordered globally by politicians and the specific pain imposed on them. ...

The really critical thing that Joyce did at Qantas was all the restructuring and re-positioning before the virus struck, running from 2015 into 2020. It — unintendedly — got it into exactly the best shape to respond with alacrity to the existential threat posed by the virus and the global recession.

 

[RAM]

It looks like Terry McCrann's CL membership is safe (even if there be a extremely slight doubt about their ongoing presence).

Terry McCrann: Alan Joyce worth every cent of his $25m pay packet

It's paywalled, but here are some snippets:

No truth to the rumour that TM has been made the 3rd P1 for life!

Hmmm, AJ acting pre-emptively? Is that like the JQ planes being moved off their books onto Q just before a major (costly in $$ & time out of service) maintenance check?

OR How JQ planes that used more fuel per passenger (fully booked flight calc) than the comparable Q plane (to Honolulu for example) leaving around the same time had lower fuel surcharges per passenger?

 

[TomJones]

Might be worth posting this article from The Age saying QF are looking at outsourcing their ground handling at 10 airports (all capital cities + Cairns, Alice Springs and Townsville) where it is currently done in-house. This represents 2,400 jobs in addition to the 6,000 redundancies already announced for a total of 8,400.

 

[Melburnian1]

More evidence QF's liquidity position isn't quite as good as it claims:

(from 'The Australian' online, Tuesday 1 September 2020 afternoon):

'Qantas has confirmed a 10-year, $500m unsecured bond issue to pay down debt, with a coupon significantly lower than previous issues.

Proceeds will be used to strengthen short-term liquidity, and then used to pay $400m in bonds due to expire in June 2021.

Qantas said the coupon for the new bond was oversubscribed at 5.25pc, “signficantly lower than the 7.5pc funding it replaces”.

“Qantas is one of few airlines with continued access to long term, unsecured bond markets,” the airline said in a statement.

“Access to this and other funding sources in recent months – including secured debt and equity markets – during the COVID crisis reflects the national carrier’s strong overall position, the importance of aviation to its home market of Australia and its clear recovery plan.”'

 

[Kiwi_Flyer]

More evidence QF's liquidity position isn't quite as good as it claims:

(from 'The Australian' online, Tuesday 1 September 2020 afternoon):

'Qantas has confirmed a 10-year, $500m unsecured bond issue to pay down debt, with a coupon significantly lower than previous issues.

Proceeds will be used to strengthen short-term liquidity, and then used to pay $400m in bonds due to expire in June 2021.

Qantas said the coupon for the new bond was oversubscribed at 5.25pc, “signficantly lower than the 7.5pc funding it replaces”.

“Qantas is one of few airlines with continued access to long term, unsecured bond markets,” the airline said in a statement.

“Access to this and other funding sources in recent months – including secured debt and equity markets – during the COVID crisis reflects the national carrier’s strong overall position, the importance of aviation to its home market of Australia and its clear recovery plan.”'

It is a net increase in debt of $100m (once existing debt is repaid using most of the proceeds), and reduces servicing costs. I don't see this as particularly significant.

 

[pippen_2k]

I would not mind a piece of that 5.25%

 

[RAM]

It is a net increase in debt of $100m (once existing debt is repaid using most of the proceeds), and reduces servicing costs. I don't see this as particularly significant.

The significant part is that the debt to be repaid is due in June 2021. No 'healthy' company raises debt at 5.25% 10 months in advance of a debt repayment. Q's statement indicates it will not be buying it back early.

If Q wants to buy back the June 2021 debt early it will have to pay very close to $107 per 100 face value to reflect the present value of the final coupon payment & the original $100 principal. Doing so will also generate a tax loss in the December half. There is no 'lower servicing cost' for the last 10 months - it actually increases.

Q keeps reporting it has a 1 billion undrawn line of credit with its banks - why not draw down on that instead? If 5.25% is a better rate than on the $1bn then that would be an even worse sign.

Q is paying fees every month for the right to have the undrawn bank line of credit - why not use it?

What Q neglected to mention what the cost of issuing this 5.25% bond is. Typically fees will be between .25 to 1% - likely at the higher end due to it being unsecured. Hope none of it went via the same company that was used with the VA unsecured bond last November.

There is no 'lower servicing cost'.

 

[RAM]

More negative press for Q on not processing refunds.

Still hard to understand why with 20,000 staff stood down they cannot process refunds as fast as overseas airlines have for Austalians, unless the cash shortage is near terminal.

Qantas passengers fuming after refunds delayed five months

Qantas passengers are growing increasingly frustrated as they wait more than five months for refunds on bookings worth thousands of dollars after travel plans were scuttled due to COVID-19.

www.news.com.au

After all Q cannot expect to hold out the refunds until 2021 can they? Q stalled with the ACCC until late June, perhaps to preserve what little cash they had. Then got reprimanded again by the ACCC for issuing an 'unclear' refund email.

Qantas savaged for virus refund policy

The consumer watchdog has savaged Qantas for not telling customers they were entitled to refunds on flights cancelled as a result of the coronavirus.

www.news.com.au

 

[RAM]

Q is becoming a serial offender in not complying.

Is this a sign of Q's desperation?

Possibly the last straw now gone for getting anything but an 'In administration' bailout from the Fed Govt that sees all shareholders lose 100% & unsecured creditors (especially those who just parted with $500m for 10 years) getting to claim tax losses.

Interesting data point (from Q's results). The Board only cancelled their overdue dividend payment just before 30 June 2020.



If the 13.5 cent dividend was paid then Q's net tangible assets (pre June 26 share issue) would have fallen to less than a weeks 'operating expenses' after receiving JobKeeper, at most a little over 3 cents per share if no value attributed to the 5.79 cents per share franking credit (17 cents - 13.5 cents).

Not paying the dividend saw Q left with around 5 weeks operating expenses worth of 'Net Tangible Assets' - AFTER raising the $1.4bn in new cash via their Institutional share issue on June 26th. That would only have taken them to August 5th or so.



Hard to reconcile these Q Annual Report figures (as at 30 June 2020) with AJ's claim of billions in security available for further borrowing? The Net tangible assets as at 30 June included the $1.360bn (gross) raised from the Insitutional issue on 26 June, after fees of $18m Q raised a net $1,342m.

Cash is classified as a tangible asset.

Net tangible assets per share of 17 cents is around $260m - I may be missing something here but $1,100m of the cash just poured in by the Institutional shareholders was required to OFFSET existing debt/liabilities.

The Statutory Loss of $1,964m equates to 129.6 cents per share loss, (see Q's report)

$1,964,000,000 / 129.6 = shares on issue used in calc = 1,515,432,000.

Cash raised of $1,342,000,000 / 1,515,432,000 shares = 88.6 cents per share.

Yet after getting in 88.6 cents per share in cash they only have 17 cents per share NTA remaining just 4 days later.

But AJ said the write down had no cash impact. Then what did?

Some creative accounting saw what I expected their 'underlying operating loss' of $400m+ become an $124m underlying operating profit. In the first half they booked the profits on fuel hedging as operating profits & in the second half they reclassified the $500m+ fuel hedging losses as non-operating expenses.

"Heads I win, tails you lose?"

Strange as for the first three months of 2020 Q used nearly 100% of projected fuel demand & for the last 3 months still used fuel - so over the entire half then at least 64% of the fuel hedges should have been booked as 'operating expenses'. Even that basis would have resulted in a $220m operating loss. As the hedges had been in place since early 2019 (Q 2018/19 Annual Report) - does this seem to be an example of extreme cherry picking?

I do not recall this seeing this 'creative' methodlology before.

Figures also seem to show Q dragging the chain since the ACCC order for full cash refunds to be offered to ALL customers who were denied them & forced to take travel credits - by at least $1.7bn. Seems to tie in with the continuing anecdotal evidence here on AFF about pre- & post June 30. Then there is today's article from Newscorp.

Qantas passengers fuming after refunds delayed five months

Qantas passengers are growing increasingly frustrated as they wait more than five months for refunds on bookings worth thousands of dollars after travel plans were scuttled due to COVID-19.

www.news.com.au

Perhaps this cash situation explains their recent $500 unsecured 10 year bond issue. Yet again, somewhat inconsistent with AJ's claims about billions in security available to secure future borrowing - if so, then why pay a higher interest rate for unsecured debt?

Does make me wonder what the difference is in AJ & the Board's mind between loan 'covenants' vs 'conditions'?

 

[RAM]

Well the next two weeks should provide a good idea on whether Bain lives up to my expectations.

On the competitor front - Q took delivery of its latest B787 a couple of days back (so about $150m of cash likely to have gone) very quietly. It flew from Everett to storage alongside some of Q's A380s & A330s in Victorville. Nice paint scheme, the 4th B787 with Aboriginal motif.

 

[Bagpuss]

Well the next two weeks should provide a good idea on whether Bain lives up to my expectations.

On the competitor front - Q took delivery of its latest B787 a couple of days back (so about $150m of cash likely to have gone) very quietly.

It's likely mortgaged now.

 

[HS-TQE]

QF encumbered their first 11 789s not long ago. have to agree that I wouldn't be surprised if the remaining 3 undeliveree 789s were also encumbered.

 

[RAM]

QF encumbered their first 11 789s not long ago. have to agree that I wouldn't be surprised if the remaining 3 undeliveree 789s were also encumbered.

Pretty much guaranteed to be given Q's lack of actual cash. I wonder how much lenders are willing to lend against (& what valuation used) a new B787 these days. I believe it was max 80% depending on the airframe pre-CV. Today I'd be surprised if it was much more than 50-55% - given the number of cancelled & deferred orders as well as bankruptcies on top.

Now what I thought was interesting in a subsubnote in the Q Annual Report, it mentioned that due to drop in coverage (value of loan > z% of security) that Q had to lodge additional cash security. However, many pages earlier in a prominent position Q expounded the virtues that none of its borrowings had 'covenants'. Normally I'd call a requirement to lodge cash collateral if the value of loan to security is below Z% = a covenant, but what would I know...

One thing for sure it would be a brave (idiot) financier to offer the same $$ per B787 as they did 5 months ago.

Remember if you were to deduct the deposits already paid to Airbus & Boeing - then Q's 'freely available' Net Tangible Assets as of 30 June 2020 would have > - $400m or so. Given how Q squeezed Boeing massively for compensation on the B787 earlier deliveries - I am not sure Boeing would be too sympathetic to Q currently given its own cashflow issues.

I wonder just how nervous the occupants of the C-suites at Q are feeling now that Bain is free & clear? If Bain wanted to 'put a shot across Q's bows' to let them know who they're dealing with - then we may well see some very cleverly crafted pieces put out by Bain over the next 4 to 5 weeks.

If it was me I would be extolling the virtues of VA MkII that highlight the extreme differences with one of their major competitors. Say:

"In these uncertain times, you can take comfort of the fact that Velocity Frequent Flyer points are 100% cash backed - Unique amongst airlines in Australia."

"VA is proud to offer the youngest fleet to carry Australians safely & reliably to their destinations in this troubled world we find ourselves in. With other Australian airlines operating fleets 50% or more older - VA prides itself on our customers not worrying whether their flight will be in service."

"Just like many of our wonderful customers, 2020 has been a tough year and we're over-joyed to be past the worst & launching our resurgence so we can help you in yours!"

Nothing like raising the questions...

 

[milehighclub]

On the competitor front - Q took delivery of its latest B787 a couple of days back (so about $150m of cash likely to have gone) very quietly. It flew from Everett to storage alongside some of Q's A380s & A330s in Victorville. Nice paint scheme, the 4th B787 with Aboriginal motif.

QF has not taken delivery of these aircraft. They were flown to Victorville under a Boeing registration (N1020K) for storage. When QF is ready to take delivery, the VH registrations will be applied (VH-ZN L/M/N) and then QF will be the owner but for now, they still belong to Boeing.