Qantas dips into balance sheet

[Quickstatus]

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Appears that QF has enough liquidity to see it through Dec 2021.
And unencumbered assets of 2.7 billion that it could go to market to secure further debt fundings.

 

[Melburnian1]

This is an extract from an article on 'The Australian' site as at afternoon of 6 May 2020:

6 HOURS AGO | 11.57AMQantas cash burn needs to halve: Citi

Qantas weekly cash burn need to be halved by a further 50 per cent to reach its $40m goals, according to analysis from Citi.

The airline yesterday said it was targeting cash burn of $40m a week by the end of June as it navigates the coronavirus crisis, and said it had boosted liquidity with a loan of $550m against three of its Boeing 787-9s.

Citi’s Jakon Cakarnis says he calculates the group’s current burn rate at closer to $90m to $100m after a number of one-off items – with a reduction required of about 50pc.

 

[Quickstatus]

There was a one off cost when QF unwound it’s fuel hedging position

 

[Melburnian1]

There was a one off cost when QF unwound it’s fuel hedging position

$145m. *Its

 

[Quickstatus]

QF did mention in a footnote that the fuel hedging costs have been factored into its estimate of the weekly cash burn rate of $40 mil ( after June 2020)
Though on an annualised basis thats around $2 billion a year.
Their unencumbered assets of $2.7billion should see them though till next year as well. However thats basically trashed their balance sheet.

 

[Melburnian1]

QF did mention in a footnote that the fuel hedging costs have been factored into its estimate of the weekly cash burn rate of $40 mil ( after June 2020)
Though on an annualised basis thats around $2 billion a year.
Their unencumbered assets of $2.7billion should see them though till next year as well. However thats basically trashed their balance sheet.

Quickstatus, can you or someone else explain to me why QF has 'encumbered' most of its B789s with a secured debt load (i.e. the two new debt facilities of from memory a billion and then $550 million) when it has the liquid funds you refer to in a previous post available?

Is this so it doesn't run any risk of trading while insolvent, or partly that it believes interest rates and hence the cost of additional debt is very low at present so may as well arrange any such facilities now?

 

[Quickstatus]

The $2.7 billion in unencumbered assets are other aircraft that it currently owns. They have not securitised their entire 787 fleet

 

[moa999]

me why QF has 'encumbered' most of its B789s with a secured debt load (

More flexibility you can have during a crisis like this the better. And as you say debt is cheap.

 

[p--and--t]

A smart manager/investor, maximises his advantages and access to lines of credit when available and particularly if there are times of uncertainty approaching (counter-cyclical planning).

Even if QAN does not need any money now, get in early/now while the balance sheet looks good and you meet the lending criteria before more airlines go bankrupt and maybe planes become worth much less. The worst time to ask a bank for money is when you can't pay it back. They are only truly happy to lend you money if they think you don't need it.

Secure and maintain as many approved lines of credit as you can at the lowest rate you can find even if you never use them so that you can hold them in your hand of cards to play/pounce at the necessary time.

I punt the banks won't go back and revalue later and turn a blind eye because it will make their balance sheet look even worse in the maelstrom the economy may dip into over the next 24 months.

The airlines that run out of cash won't be around for very long. Maximising access to cash is one of the tools to ensure survival.

Edit: As I understand it (could be wrong) QAN weekly burn rate is higher at the moment because they allowed many staff to access their rec & long service leave in lieu of standing them down/sacking them.

 

[Melburnian1]

..Edit: As I understand it (could be wrong) QAN weekly burn rate is higher at the moment because they allowed many staff to access their rec & long service leave in lieu of standing them down/sacking them.

I've also noted this. It has been confirmed in one media article, with Qantas also allowing "some" staff (IIRC) to access up to four weeks' annual leave in advance, which of course helps individuals employees' immediate cashflow but comes at a cost (should they be retained as staff in the business) of having fewer leave credits in the future, and initially a 'negative leave balance.'

 

[BD1959]

They have not securitised their entire 787 fleet

"securtised" ... is this current finance-speak for "flogged off" .. ??

Regards,

BD

 

[Franky]

"securtised" ... is this current finance-speak for "flogged off" .. ??

Regards,

BD

Not current, been around for years, but in banking it means an asset of yours has been secured against a debt in case you do a runner...