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IAG and easyJet expect to ground "majority" of fleet due to coronavirus

The airlines said it was impossible to provide financial guidance but assured that they are slashing costs and have plenty of cash in the bank

BA planes

International Consolidated Airlines Group (LON:IAG), easyJet (LON:EZJ) and Ryanair Holdings plc (LON:RYA) are planning to ground nearly all of their aircraft due to the reduction in demand for air travel because of the coronavirus pandemic.

Several countries have banned incoming flights to various extents, with the US last week banning flights from continental Europe and over the weekend extended it to UK and Ireland.

With the duration and the impact of the coronavirus pandemic still unclear, both blue-chip companies, as well as mid-cap Eastern European-focused firm Wizz Air Holdings (LON:WIZZ), on Monday said it was impossible to provide financial guidance but all assured that they are slashing costs and have plenty of cash in the bank.

In a Covid-19 update, British Airways owner IAG said it has delayed the retirement of chief executive Willie Walsh as it plans for an expected 7.5% fall in the number of flights in the first three months of the year to accelerate to at least 75% reduction in April and May.

Walsh was due to step down in June, with Iberia CEO Luis Gallego taking over, but these plans have been delayed for “a few months”.

IAG said its actions to cut costs would include grounding surplus aircraft, reducing and deferring capital spending, cutting non-essential and non-cyber related IT spending, freezing recruitment and discretionary spending, implementing voluntary leave options, temporarily suspending employment contracts and reducing working hours.

IAG said it had cash and deposits of €7.4bn as at 12 March plus undrawn financing facilities of €1.9bn.

Taking "every action"

EasyJet also said it was cancelling significant numbers of flights due to substantially reduced levels of customer, which “could result in the grounding of the majority of the easyJet fleet”, and taking “every action” to remove costs and non-critical spending.

For now, the budget airlinre is grounding 100 of its 344 aircraft across Europe, with an unspecified number of its 15,000 staff to be asked to take pay cuts and unpaid leave.

“European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over,” Johan Lundgren, easyJet's CEO said in a COVID-19 update as well.

EasyJet said it has £1.6bn of cash, an undrawn US$500m credit facility and no debt re-financings due until 2022 and said it was “in ongoing discussions with liquidity providers”.

And in a statement noting that a national travel ban in Poland had forced it to suspend all Polish flights, Wizz Air revealed it had €1.3bn of free cash at the end of December.

Ryanair U-turn

Ryanair said it expected to ground the majority of its aircraft fleet “over the next 7 to 10 days”, with social distancing restrictions in other countries will make “flying to all intents and purposes, impractical, if not, impossible”.

The Irish carrier, where CEO Michael O'Leary recently slammed the “hysteria” and “irrational panic” around the outbreak and predicted it “will be reasonably short-lived”, now says it expects to cut flights in April and May by up to 80% “and a full grounding of the fleet cannot be ruled out”.

Buffered by cash and equivalents of more than €4bn on the balance sheet as at 12 March, Ryanair said it was also deferring all capex and share buybacks, freezing recruitment and discretionary spending, as well as making “significant reductions” to working hours, suspending some employment contracts temporarily and implementing some “voluntary leave options”.

Shares in IAG were down 23% to 269.2p by late morning on Monday, more than 50% lower over the past four weeks. Similarly, easyJet was down 19% on the morning to 615.4p, 59% lower over a month.

Wizz Air fell more than 50% in early trading but just after 9am was down 21% at 2,161p; Ryanair was down 18% to €8.66 for a 43% fall over the past four weeks.

William Ryder, an analyst at Hargreaves Lansdown, said the updates show the severity of the coronavirus threat to airlines.

“The key will now be balance sheet liquidity and the ability to flexibly control costs to preserve cash.”

He said cash costs such as fuel “should be capable of being reduced relatively easily” but staff costs are “harder to quickly reduce, and we must not lose sight of the human cost of widespread job losses”.

“Some government support may be hoped for, although nothing has been yet been announced,” Ryder said.

Ian Forrest at The Share Centre said he thought that, while investors clearly need to be cautious and aware of the risks if the disruption continues for more than a few months, “it must be also said that following the significant drop in the share prices there is a lot of bad news already priced in and it is unlikely that most of the restrictions will be in place for more than six months”.

    --Adds share prices--

Quick facts: International Consolidated Airlines Group

Price: 228.5 GBX

LSE:IAG
Market: LSE
Market Cap: £4.54 billion
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