Qantas Secures $1 Billion Loan to Ride Out Pandemic Crisis

March 25, 2020 Updated: April 2, 2020

Qantas has secured over AU$1 billion in debt funding to help tide it over during the CCP virus crisis, following a series of significant capacity and cost-cutting actions since February.

The news announced on March 25 received a positive reaction from investors, with its stock price closing nearly 10 percent higher than the opening, at $3.27 per share.

The loan valued at $1.05 billion was secured against its seven wholly-owned Boeing aircraft, with a tenure of up to 10 years at an interest rate of 2.75 percent.

The newly-injected capital will boost its available cash balance to $2.95 billion while retaining its total debt level at the low end of the target range at $5.1 billion.

The move is part of Qantas’s strategy to manage through the CCP (Chinese Communist Party) virus (commonly known as novel coronavirus) pandemic amid significantly reduced demand and revenue as a result of government-imposed travel bans.

The airline group announced on March 17 that it would cut total international capacity by about 90 percent, and domestic capacity by around 60 percent, which was to be phased in starting at the end of March.

The capacity cutting action, which represents the grounding of almost 150 aircraft, comes with significant cost reduction measures. These include the use of paid and unpaid leave for its 30,000 staff, three months of no-pay for the CEO and company chairman, pay cuts for executive management and board members, bonus cancellations, and the revoking of an off-market share buyback plan.

Qantas CEO Alan Joyce is confident, though, that the company is in a solid position to get through the difficult time, emphasizing that all the measures are focused on guaranteeing the long term future of the company and its employees.

“Over the past few years we’ve significantly strengthened our balance sheet and we’re now able to draw on that strength under what are exceptional circumstances,”  he said in a statement released on March 25.

Qantas reported $1.3 billion profit before tax during the 2019 financial year. Backed by unencumbered assets valued at $3.5 billion, it has the flexibility to boost its cash balance in the future when necessary.