I must say this part of AJ's speech requires reading several times over to get the full picture, my emphasis added:
CONCLUSION
There is no doubt we’re in the middle of the toughest period the national carrier has ever faced.
But we entered this crisis in a strong position and have plenty of reasons to be confident, including:
- Our liquidity and significant base of unencumbered assets
- The progress on our transformation program; and
- Clear signs of very strong domestic travel demand.
Now first time through, sounds good. Second time through, hmmm something does not read right, third time through EUREKA!
For those of you lucky enough not to regularly read CEOs' AGM reports/speeches (congratulations!) normally the CEO finishes talking (positively) about the future a bit like before a Wallabies v All Blacks game.
So with this in mind, and having seen quite a crop of 'reports' from other AGMs post June 30th - AJ's is different. Why? Perhaps so he is legally covered from future legal action - who knows?
AJ does not mention the current position of Q (well at least current as of June 30th) nor despite mentioning that unexpected domestic border closures had cost about $100m in the Sept Qtr - he does not provide any expectation for the future position. Not that we are now in a strong position or will be in a strong position given current circumstances. The only vague reference he provides is 'we entered this crisis' but not the date at which he refers to - could be purely coincidental that this reads like it was written by legal not finance.
Coincidentally enough, neither does the Chairman. He frames his address;
Since March, we have raised over $2 billion in secured and unsecured debt.
&
In addition to debt, we secured $1.4 billion...
Note that $2.8bn of this $3.4bn was raised by June 26th.
Nowhere in any of these reports/speeches can I find any mention of the mythical(?) $40m/week operating cash burn rate that was supposed to be achieved by late June 2020 - why could that be? It is possible I've missed it - if so please correct me & if you can show me where to find it....
So much for the continuous disclosure requirements.
- Nothing about shareholders' funds being wiped out if not for the 26th June equity raising
- No update on what the operating cash burn rate actually was by late June (had the $40m/week that AJ had publicised been missed/achieved)
- No mention of whether the previously stated achievement of processing/paying out the 6,000 redundancies by Sept 30th had been achieved (which a number of AFFers have suggested that staff who were offered & accepted voluntary redundancy in July still have not been paid out as of mid-October or that around 2,500 have yet to see the offer yet - let alone have the opportunity to accept it).
In the CEO Mr Joyce's address to the virtual AGM, he also said that QF had identified '$15 billion on cost savings over the next three years, mostly through reduced flying activity'.
This is hardly much of a positive, because while QF doesn't make all its money from flying - the FF scheme is a big contributor normally - if the airline cannot fly to the extent it wants to (due to government restrictions, or lack of demand) then it faces huge costs in keeping idle aircraft in the fleet, to name one example.
AJ has now shot up to be ranked #1 in my list of spin merchants.
In a well
hidden located explanation in its Annual Report - Q states the cost savings predominantly are from reduced flying (substantially less than projected previously) not from efficiency gains. Resulting in billions in savings on fuel, airport charges, labour costs, etc etc. Recurring savings estimated to be up to $1bn per annum by 2024.
The numbers 'mentioned' do not really stack up to scrutiny. Getting rid of 6,000 staff (round #1, 2020) will produce ongoing annual savings but should get lumped into the 'reduced flying category' not ongoing cost savings due to efficiencies. Q's long term leases signed when it cashed out on the remaining months/years for its Sydney, Melbourne & Brisbane terminal leases will not have been set at a cheaper rate by the owners of the respective airports during the 2016-2019 timeframe they were reset (one per financial year) will they?
Consider this spin often used in the retail industry - "We're investing in competitive measures to drive sales". Sound good?
What this actually means = "We've cut our prices, slashing our margins to try and move stock." Does not sound so good. Trouble is too many analysts & fund managers take the statement at face value (investing = good).
So the $15bn savings, in other words, is fake news IMHO.
Curiously something that AJ neglected to mention (pg 103 Annual Report), details
Qantas Airways Limited total shareholders' equity as at 30/6/20 was $1,203m.
I could have sworn
Q raised $1.34 bn (after costs) on June 26th - would seem to imply that Q was gone otherwise, negative shareholders equity of approx $130m. Did not see this mentioned anywhere in the retail shareholders offer made in early July 2020 though. Also mentions (pg 102) '
Qantas Group with other shareholders of Jetstar Japan provided limited guarantees to support unsecured debt raising by Jetstar Japan". Together with co-guaranteeing 2 A320 aircraft financing lease obligations. Both not shown on the balance sheet it seems.
Fleet age increase will be offset by getting rid of aircraft (eg the last 747s and parking the 380s).
Wouldn't be surprised to see the 4 oldest 332s and some of the 737s retired before any checks.
Believe it or not - the A380s are in the youngest half of Q's fleet not the oldest. After taking out the B747-400s,
Q's average fleet age is over 14 years vs the A380s at 11.2 years. Q's A330s avg age = 14yrs.
For comparison:
- SIA's avg age is just under 6 years old, A380s 9 yrs.
- Emirates 7.5 yrs, A380s 6.5 yrs.
- BA 13 yrs, A380 7 yrs.
- Etihad 5 yrs, A380 6 yrs
- Qatar 7 yrs, A380 5 yrs
- Lufthansa 11 yrs, A380 9 yrs
- Thai 10 yrs, A380 8 yrs
Q has gone from one of the youngest fleets in the industry to one of the oldest. Compare it with VA at around 10 years average age (waiting on Bain fleet update on which leased B737s will be returned) - more expensive ongoing maintenance cost per aircraft for Q than VA - both in time taken & parts required.
With long term storage it is even more expensive for example, the A380s appear to have taken 12 people working 5 days to put them into long term storage in Arizona after they arrived. An industry MRO operator, when talking about the cost of resurrecting from 'short' long term storage, said the rule of thumb was 4 to 6 times as long required to retrieve as it took to put a plane into storage.
Q's fleet as of today consists of Q mainline (133), National Jet Systems (20), Express Freighter (7), Jetstar (69), QantasLink (91) planes.
They are interesting question. In 2019 BC (Before Covid), Qantas had been making noises about starting the exercise of replacing some of its 737 fleet - with some of the fleet coming up to 20 years old.
Even then, some analysts were questioning just how it was going to be funded (the looming capital expenditure cliff). Now it's a who knows thing.
Maybe some won't be replaced for the time being, they'll just retire some of the older ones.
I suspect we'll see the average age of the Qantas fleet increase for the next few years. Fleet renewal may well be on hold for a few years.
Sounds like you, and many other AFFers, may enjoy looking through this site:
Qantas (IATA: QF / ICAO: QFA) is an airline based in Sydney, Australia founded in 1920 currently operating a fleet of 125 aircraft with an average age of 14.39 years
www.planespotters.net
Addicts keep it updated more frequently than many of the paid subscription services!
Q has 14 B737-800s between 18 to 19 years old as well as four B737-300Fs & one B737-400F - over 30 years old. Perhaps of more interest is all of these freighters appear to have been purchased when they were already over 25 years old! I wonder what value they're shown in Q's books?
QLink's fleet age (included in calculation for Q's total fleet age) for its 91 aircraft is 18 years. Network Aviation = 25 years.
The planespotters pages illustrate how Jetstar's profitability was possibly enhanced at QI's expense.
Have a look at what happened to JQ's A330-200s when they approached a costly service check - they got transferred to QI in the first instance with QI apparently not only paying for the service check (massive cost) but apparently for replacing the seating to convert them from JQ to Q layout. Some of the A330-200s came new from Airbus, others from Q. I wonder which part footed the cost of converting them from Q layout to JQ's layout?
Could that be a very effective way to make one part a good news story (new operation a raging success) and another part look bad... Now who was running JQ back then?
Is it similar to recording profits from fuel hedging as operating profits & fuel hedging losses as non-operating? Heads I win, tails you lose.
So many demands for cash & so few sources left.