The Qantas Airways Limited (ASX: QAN) share price will be in the spotlight this morning for more than one reason.
The flying kangaroo went into a trading halt as it tapped investors on the shoulder for an extra $1.9 billion in capital.
The resurgence of COVID-19 cases in the US that will pressure travel-related stocks and the S&P/ASX 200 Index (Index:^AXJO) may have influenced its decision to raise capital now and go into a trading halt.
Flying through the second COVID-19 wave
It won’t be a pretty day for ASX shares, particularly those exposed to international travel like Flight Centre Travel Group Ltd (ASX: FLT), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Webjet Limited (ASX: WEB).
At least Qantas will be spared the carnage. It’s undertaking a $1.4 billion fully underwritten placement to institutional investors and is looking for up to $500 million more through a share purchase plan (SPP).
The new shares will be sold at $3.65 a pop, or a 12.9% discount to yesterday’s close of $4.19.
Coronavirus flight plan
The extra cash will be used to fund its post-coronavirus recovery plan and provide itself with an extra cash buffer to weather the unpredictable crisis.
The airline outlined plans to shave $15 billion in costs over the next three years and to achieve $1 billion a year in extra savings from FY23 onwards.
It’s also prepared to ground around 100 aircraft for 12 months or longer and flagged job losses and extended stand downs, particularly in its international division.
Not letting a pandemic go to waste
While there’s no denying that the global pandemic is pushing the sector into a corner, I can’t help but feel Qantas is acting opportunistically.
I am not suggesting that the extra cash won’t help, but make no mistake, its chief executive Alan Joyce is making the most of the crisis to get ahead.
Firstly, Qantas is capitalising on the near doubling in its share price from the bear market low in March to sell scrip.
Our largest carrier wants the extra capital flexibility to ensure it grows even bigger as we emerge from the other side of the COVID-19 crisis with archrival Virgin Australia Holdings Limited (ASX: VAH) on its knees.
It’s also using COVID-19 as a cover to undertake a big industrial relations shake-up that’s sure to anger trade unions. Qantas could never get away with such a move if not for the crisis.
Qantas is the real winner
The discount is also looking pretty skinny when compared to what was on offer in the sector at the height of the crisis. Qantas turned to the debt market to shore up its balance sheet while the likes of Webjet did a desperate cap raise.
But those who participated in desperate cap raises in the past few months have been well rewarded as their shares have surged well ahead of the offer price. This isn’t only confined to the travel sector. The National Australia Bank Ltd. (ASX: NAB) share price is only but one example.
That will likely mean Qantas’ new share sale is likely to be met with fervour in this climate. This is despite the airline selling new shares near its pandemic trading highs when others did the opposite.
Love of loath Qantas, this is a well-played move in my view
The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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