Australia's leading airline Qantas (ASX: QAN) has extended flight cancellations and offered three more Boeing 787-9 aircraft as collateral to build up enough funding for 19 months of turbulence.
With dramatically reduced capacity and the costs of employee stand downs, the company expects to reach a net cash burn rate of $40 million per week by the end of next month.
But the company now has an extra $550 million in funding available, in addition to the $1.05 billion raised in March against seven of the same aircraft.
With short-term liquidity of $3.5 billion and $2.7 billion in unencumbered aircraft assets which could be used to raise more funds, the company claims it has enough liquidity to respond to a range of recovery scenarios, including one where the current trading conditions persist until at least December 2021.
Due to the situation with COVID-19, domestic and Trans-Tasman flight cancellations have been extended by a month to the end of June while international flight cancellations will be extended through to the end of July.
The difference between the two comes from expectations some domestic travel may start to return before the end of July, although Qantas admits initial demand levels are hard to predict.
Domestic passenger flights are currently running at five per cent of pre-crisis levels, and rates are one per cent of the normal for international flights. The reduction is not as pronounced in charters for the resources sector, which are at 75 per cent of pre-coronavirus levels.
Qantas Group CEO Alan Joyce says the airline's ability to withstand this crisis and its aftermath is only possible because it is tapping into a balance sheet that has taken years to build.
"Our cash balance shows that we're in a very strong position, which under the circumstances we absolutely have to be. We don't know how long domestic and international travel restrictions will last or what demand will look like as they're gradually lifted," he says.
"Australia has done an amazing job of flattening the curve and we're optimistic that domestic travel will start returning earlier than first thought, but we clearly won't be back to pre-coronavirus levels anytime soon.
"With the possible exception of New Zealand, international travel demand could take years to return to what it was."
As demand recovery is expected to be gradual and it is still unknown how long it will take to get back to normal, a review will be needed for Qantas' fleet, network and capital expenditure.
"But our commitment to serve communities across Australia will not change," he says.
"The Government's support of the aviation industry by underwriting some essential flying, and the support to the broader economy through JobKeeper, have been greatly appreciated. Public health initiatives like the COVIDSafe app are one of the ways we'll be able to start travelling sooner, so we strongly encourage all Australians to download it.
"The Qantas Group has literally thousands of suppliers and we've put the smaller ones at the front of the queue. We're grateful to many of our major suppliers, including almost all the capital city airports, who have given us a lot of flexibility."
Updated at 9:32am AEST on 5 May 2020.
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