The airline sector is one of the industries hit hardest by the COVID-19 pandemic, with virtual all foreign travel coming to a halt in March 2020 and some suggesting that passenger numbers won't recover to pre-pandemic numbers until 2024.
For treasury and finance professionals in the airline business, it has been a case of 'all hands to the pump' to ensure that their businesses can ride out this protracted challenge. One of the shining examples of great treasury management in the face of adversity has been Finnish flag carrier Finnair, where the treasury worked quickly to secure liquidity when the crisis first hit and then set about securing solvency through tactics such as an oversubscribed rights offering.
Yesterday, the company announced it was proceeding with its refinancing plan and had finalised a sale and leaseback arrangement for four of its Airbus A350 aircraft. In the arrangement, Finnair sold these aircraft and has leased them back for its own operation. While the arrangement will not have a significant impact on Finnair’s operating result for the third quarter of 2021, the immediate positive cash effect for the airline is in excess of US$400m. Finnair will use the cash to refinance existing debt and retire its undrawn revolving credit facility of €175m.
Speaking to CTMfile, Christine Rovelli, SVP Finance and Fleet Management at Finnair, who runs the organisation's treasury function, explained: "the COVID-19 pandemic period has thrown airline treasuries a number of challenges over the past 18 months. As we shift focus from immediate liquidity to creating more durable capital structures, transactions such as these allow us to reduce near-term maturities and focus on rebuilding the business. The continued availability of capital for the airline industry is a testament to investors’ long-term view on sector recovery."
Ready for takeoff
The four aircraft were originally delivered to Finnair between June 2017 and February 2019. The operating lease period is, on average, 12 years and the counterparties are GE Capital Aviation Services (GECAS) and Pacific Investment Management Company LLC (PIMCO) as the lessors; GECAS is the lease servicer.
Finnair has ordered a total of 19 new A350-900 XWB aircraft from Airbus, of which 16 have been delivered. The remaining three A350 aircraft are expected to be delivered in the second quarter of 2022, the fourth quarter of 2024 and the first quarter of 2025.
The fleet operated and/or owned by Finnair is shown at the company website and updated on a quarterly basis in the company’s financial reports.
"This is the biggest single aircraft financing transaction in the history of our company," commented Finnair’s CFO Mika Stirkkinen in a statement. "It is a significant part of our refinancing plan, which we have executed diligently during the pandemic, and it helps us to further improve our capital structure."
The sale and leaseback is the latest in a number of moves made by Finnair that demonstrate the confidence that investors have in the business. For example, back in May, Finnair issued a senior unsecured bond of €400m, the largest unrated euro issue from an airline since COVID-19 hit. The 4‑year bond matures on 19 May 2025, carries a fixed annual interest of 4.250 per cent and has an issue price of 99.716 per cent. The issuance, which had an exceptionally strong order book distributed across high-quality European investors, will enable Finnair to proactively refinance its due 2022 bond and secure liquidity. Danske Bank and Nordea Bank acted as coordinators and bookrunners for the issue of the bond and OP Corporate Bank and Skandinaviska Enskilda Banken (SEB) acted as bookrunners in relation to the issue of the bond.
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