easyJet (EZJ Stock) share price nosedives on right issue announcement

The airline sector has been at the forefront of the pandemics impact over the last 18 months, and at the end of H1 reported a loss of £701m in May. In July the company said the outlook for Q3 wasn’t expected to look much better with the airline saying it only expected to fly around 15% of its 2019 capacity.

As it turns out the company flew 17% of 2019 capacity in Q3, which makes three successive quarters of capacity below 20%, however that still equated to a loss of £318.3m.

This was still better than expected and was largely helped by reducing costs and cash burn to £34m per week on average.

As regards Q4 the airline was slightly more upbeat, saying that they intended to increase capacity to 60% of 2019 levels, especially on the more popular routes.

At the time, easyJet also said it had paid a further £122m of customer refunds during the quarter, along with vouchers to the value of £230m.

In May the airline said it had access to £2.9bn of liquidity, however today in a sign that management want to be able to ride out what could be a difficult winter season easyJet have announced that they are looking to raise another £1.2bn from a fully underwritten rights issue, sending the shares sharply down and back to its January lows.

Unsurprisingly the shares haven’t reacted well to this announcement falling sharply as shareholders face having to fork out more extra cash.

In various attempts to shore up its finances over the last 18 months the airline has already raised over £5.5bn already since the start of the pandemic. It has also gone down the route of selling and leasing back 43 of its aircraft to raise extra cash, though it appears to have decided not to double down in this direction for the time being. It does still leave another 141 fully owned and unencumbered aircraft, which represents over 40% of its remaining fleet.

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

In an update to current trading easyJet said it expects Q4 capacity to increase to 57% of 2019 levels, which is slightly below the 60% it had hoped for in its Q3 update. Looking into Q1 the company says it expects to fly up to 60% of Q1 2019 capacity.

This is probably some way from where the airline expected it would be at the beginning of this year, and probably helps explain why easyJet has decided to raise extra cash now. The outlook for airlines continues to be challenging with any sort of back to normal unlikely to come much before Q2 next year.

easyJet may not be the last airline to look at raising extra capital in the weeks and months ahead, given the current environment.