Airline Qantas (ASX: QAN) will raise $1.9 billion in equity to accelerate recovery as it taxis onto its COVID-19 recovery plan.
Qantas' three-year recovery plan includes making 6,000 staff redundant, grounding 100 aircraft for at least a year, and immediately retiring Qantas' six remaining 747s.
Of the $1.9 billion, approximately $1.4 billion will come from a fully underwritten institutional placement and up to $500 million from a non-underwritten share purchase plan.
The issue price for new shares under the placement will be $3.65, representing a 12.9 per cent discount to the last traded price on 24 June.
Approximately 372.7 million new fully paid ordinary shares will be issued under the placement, representing a 25 per cent increase to total shares on issue.
Following the placement the company's available liquidity is expected to be $4.6 billion, including a $1 billion undrawn facility.
As at 31 May 2020 pro forma net debt is expected to be $4.7 billion with no major debt maturities until June 2021.
Most of the funds will be used for working capital requirements, but at the same time 6,000 roles will be made redundant.
Of the group's 29,000 people, around 8,000 are expected to have returned to work by the end of July this year.
The company anticipates this will increase to around 15,000 at the end of the calendar year and will reach 21,000 active employees by June 2022.
In the meantime, 15,000 staff will continue to be stood down, particularly those associated with Qantas' international operations.
"Adapting to this new reality means some very painful decisions," says Qantas CEO Alan Joyce (pictured).
"The job losses we're announcing today are confronting. So is the fact thousands more of our people on stand down will face a long interruption to their airline careers until this work returns."
But there is a positive sign of recovery on the horizon: Joyce says the airline expects to return to 40 per cent of Qantas' pre-crisis domestic flying during July.
"But we'll be living with COVID for some time and recent events show we can't take a low infection rate for granted," says Joyce.
"That means all airlines - including Qantas - must take action now. We have to position ourselves for seveal years where revenues will be much lower. And that means becoming a smaller airline in the short term."
$15 billion cost savings
Ultimately, the company expects costs to be reduced by $15 billion during the coming three-year period of expected lower activity, followed by $1 billion in ongoing cost savings per annum from FY23.
Joyce says the airline entered this crisis in a better position than most airlines with "some of the best prospects for recovery, especially in the domestic market, but it will take years before international flying returns to what it was."
"It's clear that international travel is likely to be stalled for a long time. IATA - the peak body for airlines - says it will take more than three years for global travel to return to 2019 levels.
"Despite the hard choices we're making today, we're fundamentally optimistic about the future. Almost two-thirds of our pre-crisis earnings came from the domestic market, which is likely to recover fastest particularly as the state borders prepare to open," says Joyce.
In comparison to its main Australian-based rival Virgin Australia (ASX: VAH) Qantas has fared well. The news of the $1.9 billion equity raising comes in conjunction with Virgin finalising the sale of the airline following its collapse into administration.
Bain Capital and Richard Branson-linked advisory firm Cyrus Capital Partners have been shortlisted to acquire the ailing VAH, with a final decision to be made on Tuesday 30 June.
Qantas has also been hit with an asset impairment charge of between $1.25 billion and $1.4 billion in FY20 as a result of its 12 Airbus A380 aircraft being grounded.
These Airbus assets will remain idle for the foreseeable future, representing a significant percentage of their remaining life.
As a result, the carrying value of the A380 fleet, spare engines and spare parts will be written down to their fair value, resulting in the impairment charge.
The airline has also provided a FY20 financial performance update today, during which the airline saw a significant reduction in the second half of the financial year.
After reporting a strong underlying profit before tax of $771 million in the first half, Qantas now expects to report a full year result between breakeven and a small underlying profit before tax as the financial year comes to a close.
The group's loyalty business will make the largest positive contribution to this result, with only a 5 per cent to 10 per cent reduction in earnings compared to FY19.
"The program continues to see strong levels of engagement, with a range of initiatives planned over the next six months to maintain and improve its value to members and partners," says Qantas.
Because of COVID-19 disruption Qantas deferred its interim dividend on 19 March.
The airline says the uncertainty has now "crystallised" into a significant detrimental impact on the company's earnings and cash position.
Accordingly the Qantas board has decided to revoke the interim dividend, avoiding the outflow of $201 million of cash.
Updated at 9:03am on 25 June 2020.
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