By Geoffrey Smith
Investing.com -- Europe’s stock markets bounded higher on Tuesday on increasing confidence that the Covid-19 outbreak is peaking across the region.
Not even the high-profile case of U.K. Prime Minister Boris Johnson, who is in intensive care but not subject to artificial ventilation, could dampen spirits: the FTSE 100 joined in the rally with a 3.1% rise while the FTSE 250 rose 5.4%. The broader Stoxx 600 was up 2.4%.
The most dramatic gains were at a company where the boardroom drama has reached fever pitch in recent days. U.K. discount airline EasyJet stock rose over 30% after announcing a series of measures that appear to secure its near-term future, despite having grounded all its fleet due to public health measures and the collapse in regional travel demand. By 6:30 AM ET (1030 GMT), it was up 29.4%.
The airline said it had raised 600 million pounds in commercial paper – short-term debt securities - and fully drawn down its 500 million revolving credit facility, secured against its aircraft. A couple of weeks ago, the company had said they were worth over 4 billion pounds, so it would appear to have the potential to raise more money against them later, if needed.
In addition, it said it has reached agreement with its most expensive staff – its pilots – over furlough terms, having struck a similar agreement with cabin crew last week.
In all, EasyJet now says it has access to 2.3 billion in cash reserves, including a 600 million-pound loan from the government, guaranteed by the Bank of England.
“Our current priority is to safeguard short term liquidity, so we have borrowed…in order to increase our liquidity in the event of a prolonged grounding of the fleet,” said CEO Johan Lundgren.
More interesting, however, was what the company didn’t say. The company made no reference to another blistering criticism from its largest shareholder Stelios Haji-Ioannou on Monday, who said the airline would run out of cash regardless by August. The founder who still controls over 34% of EasyJet through a family investment vehicle, is desperate to cancel EasyJet’s order for another 100 Airbus planes which he says are “useless”, given that pre-crisis forecasts for market growth no longer hold.
The CEO and founder are a microcosm of the broader debate about what shape the European economy will be in when it emerges from the crisis: will there be a quick return to business as usual, helped by effective state safety nets, or will it become a debt-laden zombie, vulnerable to recurrent outbreaks of the virus that weigh for years on business and consumer confidence?
“I think that easyJet (LON:EZJ) at the end of national lockdowns will feel more like a start-up trying to find a few profitable routes for a few aircraft at a time,” Haji-Ioannou said on Monday. “How many Brits will want to fly to northern Italy or Spain on holiday this June? ...Not many, I think.”
The Guardian reported on Monday that management is indeed talking to Airbus about restructuring the contract, to reduce its overall size and stretch out the payment and delivery schedule. By taking the loans, management may have reduced its immediate bankruptcy risk, but it has also reduced its scope to plead poverty with its exclusive supplier.