EasyJet secures five-year state-backed $1.87bn loan facility
Budget airline easyJet has strengthened its balance sheet by signing a new five-year $1.87bn (£1.4bn) term loan facility to help it deal with the continuing impact of the coronavirus pandemic.
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The carrier on Monday said the loan was underwritten by a syndicate of banks and supported by a partial guarantee from the UK government’s Export Development Guarantee scheme. However, easyJet will not be able to pay dividends for the term of the loan under conditions it has agreed.
It will be secured on aircraft and will “significantly extend and improve easyJet's debt maturity profile” and strengthen its balance sheet by increasing the level of available liquidity.
Airlines have been bleeding cash during the crisis and had been looking for a path to recovery this year as vaccines are rolled out globally, but easyJet has been hit hard with the UK being placed under its third lockdown, meaning flight schedules are likely to remain thin until the early summer at best.
Arrivals to the UK will need to present evidence of a negative Covid-19 test taken within 72 hours before landing and will also need to self-isolate for 10 days, the government announced last week.
The bailout has been agreed just days after British Airways owner IAG struck a similar deal with banks, also part-guaranteed by the UK government.
EasyJet added that it would repay and cancel $900m of short-term debt during the first financial quarter to “free up a number of aircraft assets to further strengthen (its) balance sheet”.
“As previously indicated, easyJet will continue to review its liquidity position on a regular basis and will continue to assess further funding opportunities, should the need arise,” the company said.
Chief executive Johan Lundgren said the new facility “will significantly extend and improve easyJet's debt maturity profile and increase the level of liquidity available”. The airline has now secured more than £4.5bn in liquidity since the beginning of the pandemic.
“The Export Development Guarantee scheme for commercial loans is available to qualifying UK companies, does not carry preferential rates or require state aid approval, and contains some restrictive covenants including around dividend payments, however these are compatible with easyJet's existing dividend policy.”
The new lockdown measures and rising number of Covid-19 cases have also hit main rival Ryanair, which last week said it would now run 'few, if any' flights from the UK and may only carry 500,000 passengers in February and March – well below the 10m it would normally expect on a monthly basis.
AJ Bell investment director Russ Mould noted that Ryanair boss Michael O’Leary "has regularly railed against the state aid handed out to European airlines such as Lufthansa, which got €9bn from the German government and Air France, which received over €10bn from France and the Netherlands in the form of direct loans and guaranteed loans".
“Such assistance will make it harder for Ryanair to make the market share gains it wants to make at the expense of failing, or at least, flailing rivals, even if a number of European airlines have folded, including Monarch, Thomas Cook, Wow, Primera, Aigle Azur, Adria and FlyBe."
"Airline stocks are back up and flying after last year’s huge air-pocket but long-term issues such as customers’ desire to fly and the effect of state-aid, direct or tacit, have yet to be answered. Investors tend to fight shy of industries where government cash is involved, or available in size if required, as it can means money is allocated in ways that do not necessarily generate good returns on investment, as issues such as sovereignty or employment take precedence."