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Airlines took advantage of a wave of investor enthusiasm to raise more than $ 16 billion in bond markets in the first quarter, bolstering their finances as the travel disruption stretches into a second year.
The figures show how the world’s largest carriers were able to raise a wall of money to help them navigate a period of unprecedented turmoil, with a third of the world’s commercial aircraft fleet still in storage as passenger numbers collapses.
They also point out investor confidence in the long-term prospects of the strongest companies in the industry, as Covid-19 vaccines offer a way to reopen travel once movement restrictions are relaxed in major economies.
Airlines raised $ 16.6 billion in the first quarter of this year, according to data provider Dealogic, just short of the record of $ 17.5 billion set in the second quarter of 2020 as companies rushed for cash during the frantic early stages of the pandemic. Overall, airlines raised $ 42.6 billion in debt markets in 2020, the most on record.
The activity proved to be a boon for investment banks, which collected more than $ 200 million in commissions from airlines, a record in the first quarter, Dealogic said.
Investors have been willing to lend to strong airlines that are expected to emerge from the crisis relatively unscathed, but favorable market conditions have also helped carriers, said Josef Pospisil, head of utilities and transportation at Fitch Ratings.
“I’m not sure it would be exactly the same without the generalized stimulus,” he added.
In Europe, British Airways owner IAG and low-cost rival easyJet raised € 1.2 billion each in separate bond issues that were oversubscribed.
The money will help carriers strengthen their balance sheets at a time when it remains unclear whether mass travel will be possible this summer.
“The simple answer is that they are raising money because they need it,” said Alex Paterson, analyst at Peel Hunt.
Carriers have cut costs where they can over the past year, but still end up with significant personnel, rental and maintenance overheads, and the global industry is expected to spend up to $ 95 billion. dollars this year, according to the International Air Transport Association.
The short-term outlook for the industry look the brightest in the United States, where carriers have been bolstered by billions of taxpayer funds and a larger internal market than in Europe. The U.S. Transportation Security Administration reports that passenger numbers exceeded 1 million on most days in March – half of the roughly 2 million daily trips in 2019, but an improvement from January and February, not to mention the last year’s nadir less than 100,000.
American Airlines launched a record $ 10 billion debt deal in March, consisting of $ 6.5 billion in junk bonds and $ 3.5 billion in loans. Analysts calculate that the deal will give American, which estimates it will spend $ 30 million in cash per day in the first quarter, about a year and a half in cash.
Investors have also turned to airline stocks.
The MSCI index of global airlines has risen 44% since the vaccine breakthroughs in November, although it is still down by a quarter since late 2019.
In addition to hopes for the industry’s long-term recovery, companies have benefited from the ‘reopening of commerce’ as investors head to parts of the stock market that suffered during the immediate impact of the pandemic. .
Short-haul, low-cost flights are expected to drive the industry’s revival, and investors have invested money in carriers such as Ryanair and Southwest Airlines, both of which are nearing all-time highs.
Other players, such as IAG, Lufthansa and United Airlines, are expected to recover more slowly as they rely on business and long-haul travel.