EasyJet (EZJ Stock) share price collapses amid rights issue announcement

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The airline industry has been at the forefront of the impact of the pandemic for the past 18 months and, at the end of the first half of the year, reported a loss of £ 701million in May. In July, the company said the outlook for the third quarter should not be better, with the airline saying it only expected to fly around 15% of its capacity in 2019.

It turns out the company stole 17% of 2019 capacity in the third quarter, which puts three successive quarters of capacity below 20%, but that still equates to a loss of £ 318.3million.

It was even better than expected and was largely helped by cutting costs and cash consumption to £ 34million per week on average.

As for the fourth quarter, the airline was slightly more optimistic, saying it intended to increase capacity to 60% of 2019 levels, especially on the most popular routes.

At the time, easyJet also said it paid £ 122million in additional customer refunds during the quarter, as well as vouchers worth £ 230million.

In May, the airline said it had access to £ 2.9bn in cash, but today, a sign that management is keen to weather what could be a difficult winter season, easyJet announced that it was looking to raise an additional £ 1.2bn from a fully subscribed rights issue, sending shares back sharply lower and returning to their January lows.

Unsurprisingly, stocks did not react well to this sharply lower announcement as shareholders had to shell out more extra money.

In various attempts to consolidate finances over the past 18 months, the airline has already raised more than £ 5.5 billion since the start of the pandemic. It has also gone the route of selling and leasing 43 of its planes to raise additional funds, although it appears to have decided not to double down in that direction just yet. It still leaves 141 other aircraft in full ownership and unused, representing over 40% of its remaining fleet.

In a sideways surprise, the airline also said it had rejected an unsolicited preliminary takeover approach, from a source it declined to name, although there is unconfirmed reports that the suitor was Wizzair.

In an update of current trade, easyJet said it expects fourth-quarter capacity to rise to 57% of 2019 levels, which is slightly lower than the 60% it had hoped for in its update. of the third trimester. Looking at the first quarter, the company says it expects to fly up to 60% of its capacity in the first quarter of 2019.

This is probably a bit far from where the airline expected it to be at the start of this year, and that probably explains why easyJet has decided to raise additional funds now. The outlook for airlines remains difficult and a return to normal is unlikely until the second quarter of next year.

easyJet may not be the last airline to consider raising additional capital in the weeks and months to come, given the current environment.


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