$1bn loan sends Qantas shares soaring

A $1.05bn loan secured by Qantas to help the airline see through the coronavirus crisis has sent its share price soaring.

A $1.05bn loan secured by Qantas to help the airline see through the coronavirus crisis has sent its share price soaring, closing up 26 per cent at $3.27.

Provided by 10 local and offshore lenders including Australia’s big four banks, the loan was made against seven near new Boeing 787-9 aircraft for which Qantas paid cash.

At a time when money could be hard to come by, Qantas chief executive Alan Joyce said there was no shortage of lenders willing to assist.

“It shows you how people view Qantas. Because of the tough decisions we’ve made over the last decade, people are seeing us as the top airline out there that they want to lend to,” Mr Joyce said.

“They see us an airline that’s in a great strategic position They see us as one of the survivors.”

To be paid back over 10 years at an interest rate of 2.75 per cent, the loan will lift the cash balance for the Qantas Group to $2.95bn, with an additional $1bn undrawn facility available.

In comparison, a $900m loan secured by Air New Zealand from the New Zealand government was to be paid back in 24 months at an interest rate of 8 per cent.

Mr Joyce said the cash would help secure the future of Qantas, which last week suspended international flights and stood down 20,000 staff.

“Everything we’re doing at the moment is focused on guaranteeing the long-term future of the ­national carrier, including making sure our people have jobs to return to, when we have work for them again,” Mr Joyce said.

A statement to the ASX said Qantas’s net debt position remained at the “low end of the target range at $5.1bn with no major debt maturities until June 2021”.

Credit ratings agency Moody’s viewed the loan as “credit positive”, while Citi analyst Jacob ­Cakarnis suggested that Qantas could withstand many months of no flying.

Mr Cakarnis’s report estimated Qantas’s monthly fixed costs totalled $465m, which was partially offset by $136m in revenue from Qantas Loyalty, leaving the airline with $330m to cover.

“Investors are rightfully questioning Qantas’s ability to withstand a protracted period of no flying,” Mr Cakarnis said.

“Based on our calculations and discussions with Qantas management, we anticipate that the company could service its fixed-cost obligations for around seven months with no revenue from flying operations.”

Moody’s Investors Service vice-president Ian Chitterer said the $1.05bn was “neutral from a net debt perspective”. He said: “We view the action as credit positive as Qantas has increased its liquidity now rather than assuming the risk related to future market conditions to raise secured funding.”

Qantas still has another three 787-9s on order from Boeing, with a delivery date of mid-year.

A Qantas spokesman was unable to say if those deliveries would go ahead, or if Qantas was seeking to postpone the orders.

Boeing has suspended its operation for two weeks due to the coronavirus crisis, meaning prod­uction of the aeroplanes could be delayed anyway.

Qantas has 11 787-9s in its fleet, all of which will be grounded from the end of the month along with 747-400s, A380s and most A330s.

Further cutbacks are expected to be announced this week, in response to border closures in five states, limiting airline activity to “essential travel” only.

With all international flights due to end on March 31, Qantas is continuing to talk to the federal government about the need to maintain any overseas links, such as to the UK and the US.

Air New Zealand updated its international services on Wednesday, committing to seven return services a week between Auckland and Sydney, Melbourne and Brisbane, and five return services between Auckland and Hong Kong and Los Angeles.

Flights to Shanghai would also resume on a limited frequency basis from May 2.

A statement said the flights would enable essential travel and keep airfreight moving through key cargo corridors.